How to Do Bookkeeping for Construction Companies

Especially when dealing with contractors, accurate payroll management is crucial for compliance and cost control. It involves tracking hours worked, calculating wages, managing benefits, and ensuring proper tax withholding and reporting. Generate regular financial reports, including profit and loss statements, balance sheets, and cash flow statements, to get a clear picture of your company’s financial health. Begin by organizing your finances with a chart of accounts tailored to the construction industry.

Importance of Compliance in Construction Accounting

“INT”indicates a direct integration, “CSV” denotes data transfer via CSV import/export, and a blank space means no integration is available. Bill.com is widely used for automating AP tasks, offering ease of use and integration capabilities that are helpful for construction companies managing project-based expenses. Assets include all cash, accounts receivable, equipment, and materials purchased or leased for a project. On a high level, an asset is any resource with economic value owned or controlled by you. Subcontractors across all trades use Siteline to consolidate billing operations, automate compliance, and deliver back-office efficiency.

How Do You Handle Accounting Challenges in Construction?

It allows construction company owners and managers to have real-time access to crucial financial data, such as income, expenses, assets, liabilities, and equity. This transparency is vital for making informed decisions, tracking financial progress, and identifying areas that require improvement. Construction billing is a critical aspect of construction accounting, directly influencing cash flow, project profitability, and the overall financial health of a construction company.

Best Practices in Developing a Chart of Accounts for a Construction Company

AvidXchange provides comprehensive payment services tailored for companies needing high transaction volumes, which is often the case in construction AP. This formula will reveal your “book value” or the value returned to all shareholders How Construction Bookkeeping Services Can Streamline Your Projects after paying debts and liquidating assets. In other words, it’s a measure of ownership in a company or asset after considering all outstanding debts. However, equity isn’t a surefire way to determine your specific value or ownership in a company.

Reconcile accounts regularly:

Revenue recognition is a critical aspect for construction contractors to manage their financial means effectively. These projects can range from building residential properties to large-scale infrastructure developments. If you need help getting started or have outgrown handling your construction company’s books on your own, schedule a call with Slate.

• Track income and expenses by individual projects to ensure you know where every dollar is going.
• Here is a matrix outlining the integration capabilities of each AP software with popular construction accounting and ERP systems.
• These include materials, the physical things the construction business will need to purchase to complete the job.
• Indirect costs, also known as overhead costs, are expenses that are shared across multiple jobs and cannot be directly linked to a specific project.
• Under regular business accounting circumstances, revenue recognition is simple because they sell a product or service and collect a fixed price right away.
• Implement systems to ensure invoices are sent promptly and accurately reflect the work completed.

Tip 6: Choose the right revenue recognition method

Overbilling and underbilling can significantly affect job costing in a construction business. This core performance indicator helps track the progress of each job in relation to billing. This accounting method is great for small construction businesses that don’t have a high volume of sales or complex transactions. Indirect costs, also known as overhead costs, are expenses that are shared across multiple jobs and cannot be directly linked to a specific project.

• It provides detailed insights into all project-related costs, aiding in accurate cost estimation, budgeting, and profitability analysis.
• Below we’ll take a look at what to keep in mind for both when structuring your chart of accounts.
• The contractor and client agree on a price per unit, and billing is based on the number of units completed.
• This method allows contractors to accurately bill their clients for the work they have completed rather than charging them a lump sum fee.
• Using milestone payments also makes it easier to identify payment problems, which, in turn, enables you to stop working until you receive payment for a milestone.

For contractors managing several projects simultaneously, tracking costs and ensuring profitability for each one can be overwhelming. Change orders often arise during construction, requiring real-time adjustments to project budgets. Accurate change order tracking ensures financial records reflect the project’s current scope. This knowledge is invaluable to management, investors, and stakeholders interested in your business. However, you shouldn’t think of financial statements–or construction accounting–as a retrospective practice. As much as they can tell you where you’ve been, they can tell you where you’re going and what to do next.

• Given the irregular cash flow patterns in construction, detailed cash flow forecasts are extremely beneficial for planning.
• One of the most important aspects of bookkeeping for construction companies is handling payroll.
• These methods track revenue and expenses over time and assign costs to specific projects, ensuring accurate financial management and project profitability.
• If you need help getting started or have outgrown handling your construction company’s books on your own, schedule a call with Slate.
• This information is then used (with the help of a chart of accounts) to create financial statements.
• It mainly works by separating and organizing income from expenses; putting all financial information into distinct categories (i.e. accounts).

Their responsibilities differ significantly from standard bookkeeping, as they need to account for project-specific variables like labor, materials, and job costing. The construction industry is subject to specific tax regulations and reporting requirements. Accurate bookkeeping ensures compliance with these regulations, including recording and reporting income, expenses, and other financial transactions in accordance with tax laws. By staying compliant, construction companies can avoid penalties and legal issues, safeguarding their reputation and financial standing.