How to Do Accounting for Your Construction Business 8 Steps

Discover how our tailored bookkeeping services can support your business growth and simplify your financial management. At Stratlign, we proudly serve businesses in construction and the trades as financial management partner. As you grow, we’ll provide the accounting and bookkeeping services that you need to manage your revenue and expenses while remaining compliant with all local, state and federal regulations. It’s especially useful for small construction companies that deal with longer-term contracts and transactions. The cash method of accounting for contractors is a system that records all cash transactions when they occur. This method is often used in construction accounting because it allows contractors to construction bookkeeping accurately track their cash flow and the progress of their projects.

How does accounting software improve productivity?

Most users report having an easy time navigating and using the Foundation software for their usual needs. Some people need help learning to use its more advanced features, though Foundation offers a highly-rated customer service line for assistance. To record a construction cost, debit the construction in the process column and credit the cash column. Companies that had client tracking, software integrations and mobile apps performed better than those that didn’t. This is why it has flexible billion options, such as American Institute of Architects, time and materials and freeform billing.

Understand Contract Retainage and Milestone Payments

Accounting software makes it easier to keep your records accurate, neat, and tidy. With accounting software, you simply enter the data and the software puts it where it needs to go. Construction has a unique type of payment structure that includes retainage, Retainage is the amount of money that clients withhold until they are satisfied with a project. When you have multiple projects going on, you need reliable and strong retainage management to ensure you have capital in case the client withholds the money.

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The term “balance sheet” originates from its purpose of balancing the contractor’s books, assessing both project and overall financial health. This report provides a clear overview of what the company owns, plans to pay out, and expects to earn, achieved by adding and subtracting numbers derived from liabilities and assets. With the balance sheet, businesses gain valuable insights into their financial position, enabling informed decision-making and strategic planning. For construction companies, adherence to industry regulations and taxes is vital to sidestep penalties and uphold a favorable reputation.

Why Is Construction Bookkeeping So Complicated?

Construction accounting also includes the management of accounts receivable and accounts payable, cash flow, and the reporting of financial information. This article will introduce construction accounting, including the key principles and techniques for managing your construction business. Most businesses simply record the cost of the products sold, but construction companies are quite different. Each job incurs direct and indirect costs that may fall into a wide range of categories. It’s essential that contractors have an effective method for keeping track of income and expenses, and for reconciling every transaction. Consider the cost of insurance, travel, workers’ compensation, materials, subcontractors, equipment, and more.

• Finally, you want to find a solution that you can customize if you have special reporting or processing needs.
• There may be an upfront deposit required, the project could be paid in full, or take months before getting full payment.
• Tools like FreshBooks allow you to customize and upgrade your plan as needed to ensure you’re always ready to take on more work.
• It’s also crucial to have clear payment terms with clients and ensure timely billing to maintain positive cash flow.
• If you’re considering purchasing new equipment or taking out a line of credit, for example, your accountant can help you determine the financial ramifications your decision can have.
• Classify your employees by compensation structure and track their hours diligently.

• Since construction accounting is project-centric, you’ll need a way to track, categorize, and report transactions for each job.
• Additionally, you should regularly back up your data to prevent any loss of information due to technical issues or cyber-attacks.
• Choosing the right accounting method for your construction company depends on your business needs and goals.
• You can go to a bank or credit union to set up a company checking account that suits the needs of your firm.
• Regarding accounting, Safe 300 breaks tasks down into assignments and work orders.
• Reconciling bank statements is an important task ensuring your records match your business account’s actual transactions.

With the right process, you can save time on your invoicing, accounting, bookkeeping, and tax preparation, even without previous construction accounting experience. Many construction companies use a “completion percentage” approach, meaning they calculate estimated taxes based on quarterly income and expense reports. https://blackstarnews.com/detailed-guide-for-the-importance-of-construction-bookkeeping-for-streamlining-business-operations/ You can use that bank statement to reconcile your transactions to make sure they match up with your own accounting system, invoices, payments, etc. FreshBooks contractor accounting software programs strike the ideal balance between ease of use and functionality.

Payroll Management

• Set the parameters and qualifications based on insurance requirements, location and experience.
• Proper construction bookkeeping lets you better understand and control your financial position and cash flow.
• When it comes to financials, the software offers bid management, change orders and purchase orders (POs).
• BooksTime provides professional services to companies that need to analyze potential returns for specific projects using accurate data and plan their expenses.
• Given the irregular cash flow patterns in construction, detailed cash flow forecasts are extremely beneficial for planning.
• Job costing is a method for allocating expenses and revenue to each specific job.

These strategies ensure that financial activities support property management objectives. Ensure you’re consistent, entering transactions promptly so you have as much real-time data as possible. To simplify this process, many construction companies use payroll software that can automatically calculate wages and taxes. These programs can also help with other aspects of payroll management, such as generating pay stubs and handling direct deposits. Finally, due to the complexity of construction projects, unforeseen issues often arise, leading to additional costs or time on the project.

While managing all the moving parts of your construction business might seem daunting, there are a few easy steps you can take to make your bookkeeping a bit less complicated. Here are some things to look for when choosing the right bookkeeping software for your construction business. The construction industry is highly susceptible to political and economic fluctuations that disrupt the supply chain. Things can happen beyond your control to destabilize your cash flow, such as bad weather conditions or a piece of equipment breaking down. If you don’t have a highly accurate and efficient construction bookkeeping system, the rest of your business will suffer. Remember, accurate financial data is your blueprint for success in the competitive construction world.