The Guide to Bookkeeping for Construction Companies

Moreover, storing your documents electronically can help you maintain a paperless environment, thus contributing to preserving natural resources. To ensure your electronic documents are safe, you may consider using a reliable cloud-based storage platform that provides encryption and access control features. Additionally, you should regularly back up your data to prevent any loss of information due to technical issues or cyber-attacks.

Managing Inventory and Equipment Costs

In the highly competitive world of the construction industry, maintaining a solid financial footing is crucial for your company’s success. As a construction business owner or manager, you understand that the industry’s unique characteristics require a specialized approach to bookkeeping. With multiple ongoing projects, fluctuating timelines, a diverse workforce, and countless subcontractors, construction bookkeeping can quickly become a daunting task. General contractors should not only focus on current projects but also plan for future growth. Setting financial goals and creating a budget that supports business expansion is key to long-term success.

Bookkeeping for Construction Companies: An Essential Guide

There are many different accounting principles unique to the construction industry. Here are some of the biggest concepts you’ll need to understand to get https://digitaledge.org/the-role-of-construction-bookkeeping-in-improving-business-efficiency/ your books in order. Learn how to use your construction software to properly measure revenue and stay ahead of the curve.

Keeping Track of Costs

• In general, a construction business with gross receipts (also known as Business Tax Receipts) over $10 million must use the percentage of completion revenue recognition method for tax purposes.
• You’re able to then compare vendors side-by-side to make the most educated decision.
• There are many Web-based tools and mobile apps available for construction companies of all sizes to automate the process and reduce human error and oversight.
• Inventory management is crucial for construction companies to prevent overstocking or running out of materials.
• Given the time of year, how many projects your company is running and what the supply pipeline looks like, these expenses can change quickly.

What’s more, accounting for construction company finances has some unique challenges compared to other types of businesses. Finally, you want to find a solution that you can customize if you have special reporting or processing needs. This may be relevant for larger companies that have multiple projects that they manage simultaneously and need to create comprehensive reports and cash flow data for stakeholders. When choosing a construction accounting software platform, there are three areas of consideration that you should consider.

• The Complete plan starts off at $799 for the first month, then goes up to $1,099 per month after that.
• Between estimates, bills and purchase orders, builders can look at the estimated costs of a job, the actual costs and the receivables to run a variety of financial reports.
• First, take into account their expertise and familiarity with the construction industry, as this can make a significant difference in the quality of service they provide.
• They’re only required to use the percentage of completion method for construction contracts that extend over two years.
• Although there are some tax benefits to this approach, contractors must be able to cash flow projects, as revenue can’t be recognized as taxable income until the project is finished.

Select Revenue Recognition Methods

Implement a system for The Importance of Construction Bookkeeping For Streamlining Business Operations tracking inventory levels and reordering supplies as needed. Also account for equipment depreciation and maintenance costs to ensure accurate financial reporting. One key difference is the need for detailed job costing, as construction projects often involve multiple contracts, subcontractors, and materials. Additionally, the financial reports that construction companies rely on to measure their performance differ slightly. Effective construction bookkeeping is not just a compliance necessity; it’s a strategic asset that drives profitability, fuels growth, and empowers informed decision-making. Reconciling bank statements is an important task ensuring your records match your business account’s actual transactions.

Doing so allows you to easily retrieve any document whenever you need it, save time and effort searching through paper files, and ensure that all your records are up-to-date and accurate. By collaborating with them, you can free up your time and resources to focus on growing your business while they manage the financial aspects with precision and accuracy. Additionally, they can provide valuable insights into your business’s financial health and performance, helping you make informed decisions to optimize your operations and maximize your profits. One of the main advantages of using cloud-based solutions is that they provide real-time project tracking, allowing you to monitor your projects’ progress at every stage. This helps you identify potential issues or delays early on and adjust your plans accordingly before they become bigger problems that could impact the project’s outcome. This guide delves into the intricacies of bookkeeping for construction companies, offering practical tips and best practices to build a solid financial foundation for your business.

• This will make it easy for you to send invoices online, track expenses, monitor payment status, generate financial reports, and more.
• However, managing your business finances correctly doesn’t always come naturally—especially if you’re not much of a numbers person.
• This is best for any contractor looking for a comprehensive, ready-to-use solution for accounting and project management.
• Even without an onsite consultant, gone are the days when construction contractors had to do everything all by themselves (or in a spreadsheet).
• When you’re in the process of selecting a bookkeeping service provider, it’s crucial to evaluate a few key factors.
• Plus, we have our own team of highly specialized consultants who are able to meet you in your office to ensure your accounting processes are supported.
• Track labor budgets and identify exceptions like overtime before they occur to help keep your accounting ledger in the black.

Construction companies should use a percentage-of-completion method that recognizes both revenue and expenses as they are accumulated over time. It aligns with the project completion ratio and most lenders or guarantors require this. Sage 300 is as comprehensive as it gets with prebuild reports; there are more than 1,400 to choose from.