How to Do Accounting for Your Construction Business 8 Steps

These common financial mistakes can be a construction company’s worst nightmare. They can add up fast, leading to long-term financial struggles and business viability. Using the correct billing method for your construction company can make your journey to profitability that much easier. Understanding the different billing methods keeps you aware of new regulations or changes to existing industry standards that may impact your bottom line or your customer’s invoice.

• This guide to construction accounting offers insights to make bookkeeping an asset rather than a headache.
• Remember, accurate financial data is your blueprint for success in the competitive construction world.
• Working with one great company at a time, CLB gives builders the tools, training, and support to achieve success in Quality, Profit, and Pipeline freeing leadership to work on—not in—their business.
• It involves tracking hours worked, calculating wages, managing benefits, and ensuring proper tax withholding and reporting.
• This can include keeping receipts and invoices, as well as maintaining detailed records of all transactions.

Construction Software Recommendations by Revenue

However, bookkeeping for construction companies can be complex and challenging. It requires an understanding of unique accounting principles and regulations specific to the industry. Construction accounting software helps companies manage budgets and cash flow to help support a financially healthy business. It can easily create and send invoices to customers based on invoicing processes and billing methods you’ve established.

Compliance and Best Practices

Buildertrend’s financial tools offer intuitive solutions and integrations – like our QuickBooks integration – to help you work simpler, especially when working with complex accounting rules. These should be “buckets” or “groups” of the different types of costs on any given job. If you see you’re overspending within any one of these general areas, it will be easy enough to drill down to the specific material, subcontractor or labor cost that’s putting you over budget. Job costing sounds complex, but there are accounting software tools to make it more manageable.

How to Bookkeep for a Construction Company

You can avoid a fair bit of cash flow problems by negotiating more favorable retainage rates/terms with project owners. For example, instead of a fixed 10% holdback on each progress billing, you might negotiate terms that reduce that rate to 5% once the job reaches the halfway point. Keeping enough cash on hand is a serious challenge in our industry, especially on longer jobs. To maintain a positive financial position, you’ll want to use progressive billings (aka progress billings). Instead of a lump sum at the end, progress payments are made in regular installments (usually monthly) as a project progresses. This is where job costing comes in, allowing you to make sure each new construction job you take on is hitting all the marks.

Giving you the power to predict the financial future and growth of your business. Contract prices and project durations are two distinctive features of the construction sector. To remain on schedule and budget, precise bookkeeping for construction companies is essential. By leveraging digital invoice capture and automated approval workflows, you can streamline your invoice processing and payment cycles while eliminating the need for manual data entry. Digitizing your invoice management system allows you to capture invoices electronically, automatically extract data from them, and route them for approval without human intervention. With an automated approval workflow, you can accelerate the payment process and ensure that invoices are approved and paid on time.

• By automating these processes, you can reduce the risk of errors and minimize duplication of effort, saving you time and money in the long run.
• She’s passionate about helping people make sense of complicated tax and accounting topics.
• It’s hard to protect your margins on the job without being able to see how it’s performing in real-time.
• Choosing between the percentage of completion and completed contract methods significantly affects a construction company’s financial reporting and cash flow management.
• Labor costs are less predictable, mostly due to unexpected events or interruptions (weather, illness, etc.) that can have a crew falling behind.

The FASB put it in place to ensure companies provide more transparency into how they recognize their revenues. Income recognition is an important part of the construction project cycle and a feature of accrual accounting. Also referred to as construction bookkeeping “revenue recognition”, it represents the point at which a construction project becomes profitable. Under the cash method, you will record expenses as you pay them out, and income gets accounted for when payments are received.