If you’re running a construction company, you already know it’s unlike a business in any other industry. From the day-to-day operations to project management, you’ve got a lot to keep track of. One essential aspect that often gets overlooked, however, is bookkeeping. Though bookkeeping might seem like a straightforward task, it’s essential to understand that bookkeeping for construction companies is unique.
Construction companies have vastly different accounting requirements that set them apart from other businesses. This blog post will explore some of the reasons why construction bookkeeping is different and why “getting it right” is crucial for your company’s success.
#1 Complex Job Costing
Construction projects typically involve numerous subcontractors, suppliers, and laborers, each with varying costs and timelines. Accurately tracking these expenses is crucial for effective financial management. In construction bookkeeping, job costing is a way to assign costs to specific projects or phases of a project. This process allows you to assess the profitability of each job and make informed decisions about resource allocation and pricing.
#2 Fluctuating Overhead Costs
In the construction industry, overhead costs can vary significantly depending on the size and complexity of a project. These expenses can include everything from equipment rental and insurance to office expenses and management salaries. Proper bookkeeping involves allocating overhead costs to individual projects to better understand their true profitability. Doing so also enables you to create more accurate bids for future projects.
#3 Retention and Progress Billing
Progress billing and retention are two unique aspects of construction bookkeeping that you won’t find in other industries. Progress billing allows you to invoice clients based on the percentage of work completed, ensuring a steady cash flow throughout the project. Retention, on the other hand, is a percentage of the total project cost withheld by the client until the project is completed satisfactorily. Both practices require specialized bookkeeping expertise to track and manage effectively.
#4 Managing Change Orders
Change orders are a common occurrence in the construction industry, as projects often evolve and expand throughout their duration. Properly accounting for change orders is essential for maintaining accurate financial records and ensuring that your company is fairly compensated for any additional work. Construction bookkeeping must be flexible and adaptable to account for these changes as they arise.
#5 Compliance with Industry Regulations
Construction companies are subject to numerous regulations, including tax laws, labor laws, and safety requirements. Proper bookkeeping is essential for staying compliant with these regulations and avoiding fines, penalties, or legal trouble. Construction bookkeepers must be knowledgeable about industry-specific laws and best practices to ensure that your company’s financial records are accurate and compliant.
#6 Seasonal Cash Flow Fluctuations
Many construction companies experience seasonal fluctuations in their cash flow. Weather and economic conditions can cause projects to be delayed or postponed, resulting in irregular income patterns. Effective construction bookkeeping must account for these fluctuations and help you manage cash flow during both busy and slow periods.
Conclusion
Effective bookkeeping is essential for the success of any construction business. By understanding and addressing the unique aspects of construction bookkeeping, you can better manage your company’s finances, make informed decisions, and position your business for long-term success.
If you’re struggling with construction bookkeeping, consider seeking the help of a professional bookkeeper with experience in the industry. Their expertise can save you time, minimize errors, and help you make the most of your financial resources. Remember, a solid foundation in bookkeeping will pave the way for a successful and profitable construction company.
GET THE PROFESSIONAL BOOKKEEPING HELP YOU NEED
Apparatus Contractor Services, LLC provides affordable bookkeeping, payroll, and CFO services exclusively to construction-industry businesses. Let us give you the precision bookkeeping foundation you need to grow a remarkably profitable construction business. LEARN MORE
