Construction Bookkeeping: Essential Tools & Tips

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• KPIs are essential metrics that help you measure the financial health and performance of your construction business.
• You probably already know that you should be keeping all your business receipts.
• For long-term projects, the percentage of completion method recognizes revenue and expenses based on milestones achieved rather than the project’s completion.
• Alternatively, you can take advantage of a dedicated bookkeeping software solution to manage your bookkeeping more easily.

Essential Bookkeeping Strategies for Contractors and Construction Companies

Things like suppliers, labor, and leased equipment are considered direct expenses. Repair to equipment, transportation, and other expenses are examples of indirect costs. Keep track of the hours your employees work with time-tracking tools and make sure their pay fits within your budget. This information is also used by your building accounting system to make sure that reports are correct.

Tip 1: Record all details about payments and invoices

It’s also important to look for areas where cost savings can be made, such as using more economical materials or reducing labor costs without compromising quality. 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. This is especially true with a company that uses mostly long-term contracts, which are generally more compatible with the percentage of completion method. Learn more about the differences between cash and accrual methods of construction accounting.

Best Practices for Tracking COGS in Construction

• Unfortunately, it is not as simple as merely establishing a compensation agreement with the worker.
• This accounting method is particularly useful for large construction businesses and companies with long-term contracts.
• Here are six aspects of the industry that make effective construction bookkeeping vital.
• This can help you to stay competitive in the market, meet the growing demands of clients, and achieve your business goals more effectively.
• Construction management software is essential for managing complex construction projects.
• There are dozens of accounting ratios that look into various aspects of a company’s finances.

This type of accounting software stores data on remote servers (“the cloud”), which can be accessed from anywhere with an internet connection. The best way to stay organized is tracking your day-to-day transactions, reconcile your accounts on a regular basis, and use construction accounting software. However, you can take a “completed contract” approach as well, which involves calculating taxes owed on each contract. A benefit of this approach is that you can track income, operating expenses, profit, and taxes on the micro-level so you gain a better understanding of where you stand on each construction project. The following steps can help you get your construction accounting started on the right foot and help you stay on top of your bookkeeping and financial management. Despite these differences, construction accounting still adheres to general accounting principles and requires accurate record-keeping, financial statements, and tax compliance.

Overlaps in labor, equipment, and material usage further complicate bookkeeping. 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. Auditors often review day-to-day financial documents like payroll reports, job costing schedules, etc. The more methodical your record-keeping processes, the less likely auditors are to uncover errors in your records. Financial audits, different from construction project audits, are detailed reviews of a subcontractor’s financial records to ensure they accurately represent the company’s financial standing.

This method is particularly useful for long-term construction projects spanning multiple accounting periods, as it construction bookkeeping provides a more accurate representation of the project’s financial performance over time. Job costing is a special feature of construction bookkeeping that some find useful. It need not be explained that the costs of each job containing the cost of materials, labor cost, equipment cost, and cost of non-ownership subcontractors are specific. For construction projects to stay profitable and have good financial management, it’s important to keep track of the cost of goods sold (COGS).

• Our specialized services include detailed job costing, cash flow management, and expense tracking so you can feel confident in your financial foundation.
• You should also ensure it’s compatible with the size and type of company you have.
• Hinakshi, a Content Writer and Social Media Expert at Outbooks, brings her passion for writing to every project.
• According to the Construction Financial Management Association, pre-tax net profits for contractors and subcontractors are typically between 1.4% and 3.5%.
• One of the most significant challenges in construction is dealing with fluctuating material and labor costs.
• Even with this advantage, the cash method is typically only viable for very small construction businesses.
• Keep in mind that certain methods are unavailable to large companies with high annual revenues.