Having this kind of system for every construction contract you take on is essential. Once in place, it will not only help you ensure your original estimate was correct but confirm you’ve accurately captured the scope of the project based on what you’ve bid. Maintaining a healthy business also means learning how to correctly recognize and report your revenue. There are four revenue recognition methods, but for the sake of this guide, we’re going to focus on the percentage of completion method (POC), which is what most contractors end up using. From this reason, a company can tailor its chart of accounts to suit its specific purposes and add accounts as needed. Smaller companies construction bookkeeping may have a single-page chart of accounts, while larger construction companies may have a ten or 20-page chart of accounts.

Software and Tools for Efficiency

• Alternatively, you can take advantage of a dedicated bookkeeping software solution to manage your bookkeeping more easily.
• It involves tracking hours worked, calculating wages, managing benefits, and ensuring proper tax withholding and reporting.
• These software options can help construction companies manage their finances, track job costs, and create invoices.
• You can sync it with your bank account to import expenses automatically or simply take a photo of a receipt to import it into your account.
• Because of this, they can make intelligent choices based on data that is updated in real-time.

Using an expense tracker and saving your receipts can help you keep track of all of your expenses and project profits on each job. Dave Nevogt is an American entrepreneur and the co-founder of Hubstaff, a workforce management software company. He has earned a finance undergraduate degree, the Indianapolis Business Journal’s Forty Under 40 award, and Arizona’s 35 under 35 award. Although it’s sometimes challenging, you can significantly simplify bookkeeping by hiring a bookkeeper or accountant to handle it for you.

Just upload your starting project budget, and follow the financial progress in real-time

• However, with the right knowledge, systems, and tools, it’s manageable for businesses of all sizes.
• Any bookkeeping solution you choose should have these core features at a minimum.
• This will help you avoid penalties and maintain good standing with tax authorities.
• As regulations evolve, it’s important to update your financial records accordingly, reflecting any changes that might impact your business.
• Alternatively, you can talk with other business owners and ask if they can recommend a certified accountant.
• An external firm typically conducts the audit, but the findings are for internal use only.
• Implement a system for tracking inventory levels and reordering supplies as needed.

Audits are an inevitable part of business, especially as your subcontractor company grows. Instead of worrying about them, we encourage you to embrace them, prepare for them, and learn from them. And check out tools like Siteline that centralize all your billing data and give you quick, organized access to your A/R. For those working to create healthier financial outlooks, it’s beneficial to conduct internal audits more proactively.

• Construction accounting can be a complex and challenging task for independent contractors and construction businesses of all sizes.
• To ensure you aren’t surprised by a customer withholding part of the fee you’re owed, make sure you account for contract retainage properly when budgeting for a project and invoicing clients.
• Holding back retainage is standard on most construction jobs, especially long-term contracts.
• Audits are an inevitable part of business, especially as your subcontractor company grows.
• Using software and tools can help construction companies streamline their bookkeeping process and improve efficiency.
• Embracing the idea of outsourcing bookkeeping services can prove to be an efficient choice for construction companies aiming to optimize their time and resources.
• Because of all the variables, records can be misplaced or not recorded in the books properly.

Implementing Robust Record-Keeping Practices

As we mentioned earlier, contract retainage can account for 5 to 10 percent of your contract value. This helps you get a better idea of how much money is coming in and going out of your business every month. It allows you to estimate labor, material, and overhead cost, as well as determine how much you should charge for the project. Apart from giving you insight into where your money is going, receipts also serve as proof of your business expenses in case you ever get audited. The second approach by contrast uses EPDs to offer accuracy, provided these themselves are calculated correctly.

Bookkeeping for Construction Companies: The Ultimate Guide

It will help you have enough capital, for instance, if one of your customers does not pay. Hinakshi, a Content Writer and Social Media Expert at Outbooks, brings her passion for writing to every project. Specializing in tax preparation, management accounts, cash flow, and VAT returns, she creates engaging, well-researched content that simplifies complex topics. Her work supports accountants in growing their practices and optimizing finances, making valuable information accessible to professionals and newcomers alike. Construction accounting software can automate expense tracking, invoice generation, and bank statement reconciliation. Because of this, contractors are free to concentrate on what they do best rather than spend time on administrative duties.

You can go to a bank or credit union to set up a company checking account that suits the needs of your firm. This can make it difficult to track expenses and effectively calculate the profit generated from each service category. Set limits, turn tracked time into automated timesheets, and send invoices with Hubstaff.

• A seamless partnership with your outsourced bookkeeping team relies on clear, open, and transparent communication.
• With accurate construction accounting, companies can better manage their liquidity and prepare for cash shortages.
• Develop training for all teams—not just finance and accounting—that could play a role in an audit.
• In the section below we detail out of AP Automation software solutions, including their pros, cons, integrations with construction accounting software, and pricing information.
• For those looking to streamline their operations further, explore our post on the best construction apps to enhance your efficiency.
• Unfortunately, it’s not as simple as agreeing on compensation with a worker and paying them the same rate per project.