In conversation with Jayden Coulston, Senior Manager // BDO
In this interview, we speak to Jayden Coulston, a Chartered Accountant at BDO Australia specialising in the areas of debt advisory and business restructuring with over 10 years of experience. We chat about the common pitfalls developers can avoid by engaging with an accountant early on in a project. We cover what to avoid when handling the finances around a development project, how developers can gain a competitive advantage and the impact of innovative tech solutions on BDO.
“In the accountant world, I believe that we can have just as much of an influence as a project manager on the profitability of a project."
– Jayden Coulston // BDO
How can accountants make as much of an impact as project managers?
"The job of a project manager is extremely important in ensuring things runs smoothly, on budget and efficiently. Generally in my experience, a project manager is engaged once a project is already on foot, so you've already done your feasibility and you engage that project manager to work through to execution.
"Now in the accountant world, I believe we can have just as much influence as a project manager on the profitability of a project if we are engaged early on in the process. The value is in the feasibility - where we assist as a second set of eyes, to work out whether the project is viable. We can determine if you may have missed anything or whether you can afford the project manager that you're proposing. We can assist you with preparing the cash flows to work out your cash pinch points, timing and structuring.
"If you get your structure wrong from the get-go, it could be very costly for you to rectify. For example, if you buy something in your personal name but you're not happy with your risk profile, and you want to put it into a corporate or trust structure to complete your development, you'll end up paying double stamps.
"We can help you with finance suitable to your situation, so that may be typical construction, finance, drawdown facilities, debt versus equity analysis – the world’s your oyster. We also do the cleanup with accounts and taxation on the backend. So all of those areas, even individually, can make or break a project, in my view."
What, in your experience, are some of the common pitfalls you find when working with developer clients?
"One of the biggest ones we see is clients or developers mixing personal and business expenditure. I know that it can be blurred in some instances, but rule 101 is just to record a separate trade or a separate bank account, as it makes reconciliation splitting so much easier because it's done for you. You then just know to use a separate card in your wallet for anything on your development account, versus your groceries. And that'll save a lot of issues for compliance.
"We see a lot of times where developers can choose their GST reporting, whether it's monthly or quarterly. I'd always recommend you opt into monthly reporting because that's going to get your GST refunds quicker throughout your construction phase, and as no one wants to wait three months through construction for a GST refund.
"Moreover, what I've seen with some clients is just no contingency, they expect the project is going to run without any issues, which generally never happens. So a rule of thumb I like to play by is 10% uplift on the construction, holding and contracted costs – some of those overlap, but that gives you a bit of buffer on your project.
"A recent example of where a contingency would have been really handy is if you had purchased a property prior to or during the pandemic. You had done all your fees and expected building costs to be excellent.
"But due to the timber supply shortage during COVID, you've got no contingency and you're stuck with [a situation] where your costs have just blown out. In that situation, contingency would have soaked up a good chunk of that. Another aspect of that is the profit margin. Generally, that would be aiming for any profit.
"What I've seen with some clients is just no contingency, they expect a project is going to run without any issues, which generally never happens. So a rule of thumb I like to play by is a 10% uplift on the construction, holding and contracted costs."
– Jayden Coulston // BDO
"Now, this is essentially your risk margin as well. If your margin's too low, you should adjust your purchase price for the property that you're looking to acquire or find a new property. Also on top of that, as part of their metrics, banks will [also expect] a 15 to 20% profit margin to be there, so if it doesn't stack up for them, you're not going to get finance.
"That leads to development finance, which is another pitfall. What we see with some clients is they get the feasibility wrong. They often come to us after the fact, and it's a very quick way for a financier to lose confidence in your project. Banks are always going to discount your feasibility to a degree, but you don't want them to be picking up simple errors or see you getting your cash flow wrong.
"If you work out that your finances are not enough to get you through those pinch points, you also never want to go back asking for more money, because you may not receive it from the bank. So obviously, we [BDO] can help you in all those areas, so that you don't make those mistakes."
What effect, for better or worse, has innovation had on your operations?
"Professionally, cloud accounting has had the biggest impact on our industry. I truly believe that without cloud accounting, it's still very archaic. By just having that live access to the client’s financials, it means that we're able to provide timely and concise advice, in real-time.
"Another one is Google Sheets as it just allows multiple people to jump into spreadsheets. You can show them what you're working on live and work through it together. Rather than just presenting, both people can actually input data, which is great."
In this industry, why do you think innovation or the constant search for improvement is so essential for everyone?
"My view on innovation is a global view. The main goal is to improve efficiency, to gain that competitive advantage. Taking it back to development, efficiency is ‘more time, equals more profits, equals more projects’. I think generally developers can do more on the innovation front.
“With the Olympics announcement, there's definitely going to be a push in that [innovative] direction because it's going to be a hot market."
– Jayden Coulston // BDO
"I am hoping that the announcement of the Olympics is going to push us along a little bit because there will be a lot of competition for those infrastructure projects. People are obviously looking at doing the long play, the outside buy and hold. And developers are looking at the short play and whether that's going to be a better option.
"Although I don't know how it's all going to pan out, I think with the Olympics announcement there's definitely going to be a push in that [innovative] direction because it's going to be a hot market."
This abridged interview originally took place earlier this year as part of our Australian Webinar Series, Aprao Presents... Aussie Experts, which you can watch in full here.
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