Bookkeeping is a crucial part of business operations. It involves tasks like financial transaction recording and payroll processing.
Construction companies often take on a range of projects at once, meaning their operational expenses, profit, and taxes are calculated on a project-by-project basis. This makes construction accounting more challenging than other types of businesses.
Document everything
In construction, hanging on to receipts and invoices is especially important. Documenting everything in your bookkeeping process can help you if there are discrepancies or errors in your records, and it will also save you time when tax season rolls around.
Additionally, it’s essential to use calendars for both invoicing and billing so that everything is remembered. This can be done automatically with most accounting software suites, but even a simple calendar can keep both up to date.
Most other industries are product-based, but construction is typically project-based, with long-term contracts lasting years. This means that construction companies need to carefully track costs in each project and ensure they are within budget. It can be easier for a company to do this with accurate information, especially when bidding on projects. This can mean losing out on bids. They need the necessary information or win a bid because their price is too high.
Keep track of your cash flow.
Accurately managing financial records is crucial for construction business success and informed decision-making.
In addition to maintaining a chart of accounts, which is a comprehensive list of categories that track all the financial transactions for your company, you should also separate personal and business expenses. This will help you avoid confusion when preparing financial statements and filing taxes. You should also use a separate business bank account and credit card to prevent commingling of funds.
A cash flow report demonstrates your construction company’s ability to generate revenue while covering expenses like utilities, equipment, and payroll. To improve your cash flow, you should speed up your revenue collection by making it easier for customers to pay, offering payment incentives, and restructuring terms with non-paying clients. You should also set aside a dedicated fund to cover unanticipated costs.
Pay estimated taxes throughout the year.
Contracting businesses are unique, and their bookkeeping practices are often more complex than those of other industries. This is because contracts tend to be longer than most other types of businesses. This makes it difficult for cash to come in consistently, which can cause problems when estimating upfront payments and paying expenses.
The most crucial tip for contractors is to separate personal and business expenses as much as possible. This will help prevent confusion when preparing financial statements and filing taxes. Keeping track of your company’s cash flow ensures adequate expense coverage.
Another critical aspect of bookkeeping for construction companies is class coding. This process is the basis for reports crucial to a construction business’s success, such as progress invoicing and job costing. The coding system enables you to identify the specific costs of each project and allows for accurate reporting of revenue, profit, and taxes on a project-by-project basis.
Use a system that works for you.
Regardless of how complex or straightforward your bookkeeping needs are, it would help if you prioritized this critical business function. Having accurate financial records will save time in the long run and reduce human error and oversight.
Bookkeeping is essential for construction businesses, which often require specialized accounts to track various variables. This includes having a chart of accounts that contains a comprehensive list of categories to categorize expenses and revenue and utilizing job-cost accounting. Additionally, it’s essential to use separate bank accounts and credit cards to keep personal and business expenses in check.
Also, it’s essential to have a system in place for tracking expenses and recording invoices. For example, consider implementing a software program like QuickBooks or FreshBooks to streamline the process. In addition, it’s a good idea to register contract retainage on invoices to account for future costs that have yet to be included in the original estimate.
