The construction and trade industry is one of the most dynamic and competitive sectors in the Australian economy, contributing $141.3 billion to the economy in 2021-22 according to the Australian Bureau of Statistics (ABS). Being one of our favourite industries to work with over the last decade, we understand that achieving success in this area involves more than expertise, efficient project management and delivering quality work. It also requires consistent monitoring of the financial health of your business and reporting to the governing body, in Queensland this is the Queensland Building and Construction Commission or QBCC.
This article focuses specifically on the ratios and reporting requirements for the QBCC. In addition to this, to run a successful business in the construction industry, there are a number of other calculations that you as the business owner should be checking regularly. You can find a comprehensive list of these important calculations in our article about the Key Financial Ratios and KPIs for Construction and Trade Businesses. As well as a list of Accounting Terms and Definitions in another post.
Please also note that each state has a different Construction governing body and therefore have different reporting requirements. The information presented below is based on the QBCC requirements and is not applicable for licenses in other states.
Important Financial Information
QBCC licenses are classified into different categories based on the turnover each business requires as seen in the table below:
Category | Net Tangible Assets | Maximum Revenue | Requirements |
Self-Certifying Category 1 (SC1) | $12,000 | Up to $200,000 | SC1 Declaration |
Self-Certifying Category 2 (SC2) | $46,000 | Up to $800,000 | SC2 Declaration |
Category 1 | $46,001 - $156,000 | $800,001 - $3,000,000 | MFR Report and Signed Financial Statements |
Category 2 | $156,001 - $480,000 | $3,000,001 - $12,000,000 | MFR Report and Signed Financial Statements |
Category 3 | $480,001 - $1,200,000 | $12,000,001 - $30,000,000 | MFR Report and Signed Financial Statements |
Category 4 | $1,200,001 - $2,400,000 | $30,000,001 - $60,000,000 | MFR Report and Signed Financial Statements |
Category 5 | $2,400,001 - $4,800,000 | $60,000,001 - $120,000,000 | MFR Report and Signed Financial Statements |
Category 6 | $4,800,001 - 14,400,000 | $120,000,001 - $240,000,000 | MFR Report and Signed Financial Statements |
Category 7 | Over $14.4M | Over $240M | MFR Report and Signed Financial Statements |
Information in sourced from: QBCC Maximum Revenue and QBCC Financial Reporting Obligations
The first two categories in the table are Self-Certifying classes which means that you can apply for a license in these categories without submitting a Minimum Financial Requirements (MFR) report. The Annual Reporting for these licenses is also less comprehensive.
Once you move into Categories 1 through 7, you will need to submit an MFR report to get the license and the reporting requirements are much more comprehensive.
Maximum Revenue (MR)
The Maximum Revenue (MR) is the maximum amount that the business is allowed to turnover under their license.
In Self-certifying Category 1 (SC1) and Self-certifying Category (SC2) the maximum revenue is set at the amount showing in the table above, if you go over this amount at all, you need to apply for the next license class as soon as possible.
From Category 1 onwards you do not automatically get the maximum allowable revenue in that category. You must apply for an exact Maximum Revenue (MR) dollar figure. This figure will be defined by calculating your Net Tangible Assets (NTA). For example, you may have NTA of $192,000 which means you are allowed a MR of $4,000,000, therefore you receive a Category 2 license.
Once you have an exact Maximum Revenue dollar figure, you can’t exceed this turnover by more than 10% in a financial year. Should you exceed your MR dollar figure by more than 10% in a financial year, you will be required to increase your license.
Net Tangible Assets (NTA)
The maximum allowable turnover for each QBCC license issued is based on the Net Tangible Assets (NTA) of the business. This is basically the net amount of assets in the business at the time the MFR report is completed and specifically excludes directors' loans, intangible asset and crypto currency.
Once issued with a license, the licensee must ensure their NTA value stays above the level required for their license category at all times, otherwise a new MFR report must be completed, and the turnover level of the business dropped.
Current Ratio
It is a QBCC requirement that license holdings must maintain a Current Ratio of at least 1:1 at all times.
This means that the businesses current assets must always be higher than their current liabilities.
Reporting
The QBCC is quite strict on their reporting requirements and regularly update their rules. Always ensure you are viewing the most current information for the industry at any time. The main items they look for are profitability and liquidity of license holders which are used to ensure all trading businesses can afford to pay their bills when they come due. This is particularly important in the construction industry as both invoices and bills can potentially be tens to hundreds of thousands of dollars.
Annual Reporting (AR)
At the time of writing this article, current QBCC legislation requires all license holders to submit an annual report each year. This report is based on the end of financial year figures and is used as a check-in for the QBCC to ensure all business are complying with their ratios and financial requirements.
At ABA. Advice Beyond Accounting, we ensure that all our QBCC clients compliance work is completed before the due date of the QBCC annual report. This allows us to provide accurate figures and gives us time to check that our clients are meeting their ratios before we lodge the Annual Report. We are then able to discuss the outcome of the annual report and any potential MFR needed before we lodge the Annual Report.
Minimum Financial Requirements (MFR) Report
The MFR shows the QBCC that you have enough NTA to service your debts in relation to the MR for your license category.
For Self-certifying categories 1 and 2, an MFR report is not needed. The licensees or their accountant fill in a declaration form to move between these 2 categories. Once you reach Category 1 and above, an MFR must be completed by a qualified accountant based on verified special purpose financial statements for a specific period of time.
An MFR report must be prepared and lodged whenever a license holder in category 1 to 7 is changing their license category, whether to a lower or a higher category. In addition, an MFR report must be prepared and lodged when increasing or decreasing the businesses MR and NTA, even if this is within the same license category.
Deed of Covenant
When a business in category 1 and above does not have enough NTA to cover the license level required, they can rely on a deed of covenant to increase their assets. The deed of covenant needs to be witnessed by a solicitor and is a legally binding document that allows the QBCC to take possession of the covenantors assets in the case of the business folding.
Under the QBCC rules, trusts cannot hold a license, therefore the license must be held in the name of the trustee (whether a company or individual).
This also means that the assets of the trust cannot be used for NTA calculations, instead the business will need to rely on the assets of the trustee and/ or assets owned by an associate through a deed of covenant. In this case the covenantor will have to have sufficient NTA to service the debts for the license category.
How can ABA help you with QBCC financial reporting?
QBCC is a complex area with lots of legislation and reporting that must be adhered to. If not done correctly, the governing body has been known to audit, suspend or even in dire situations, cancel builders’ licenses so it is imperative that any documentation submitted is correct.
As part of the ABA Proactive Partner service package, we take care of the Annual Report and check current ratios, NTAs and MRs at each meeting we have. This gives our clients the peace of mind that they are adhering to all their licensing requirements, as well as giving them plenty of notice when an MFR report is needed. Our services packages include direct access to your client advisor and unlimited email advice.
Are you tired of juggling business matters, finances, and QBCC reporting requirements? How much would your business benefit if you had an experienced and forward-thinking team working alongside you to help you to achieve financial success and improve profitability? ABA. Advice Beyond Accounting offers you a Free Discovery Meeting so that you can decide if we’re the right fit for your business. Complete our contact form and we'll be in touch to organise a meeting.