It’s hard to protect your margins on the job without being able to see how it’s performing in real-time. WIP reports make it easier to get an overview of each project’s budget, percent complete, actual costs to date, and more, so you can see if it’s overbilled or underbilled. 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. You’ll also use the contract’s total cost and scope of work to develop the project’s schedule of values, which breaks down individual billable tasks and their value.

Implement Job Costing

• While in the preconstruction phase of a project, you can perform prequalification of clients, do bid management and create comprehensive estimating.
• Change orders often arise during construction, requiring real-time adjustments to project budgets.
• According to the Construction Financial Management Association, pre-tax net profits average between just 1.4% and 3.5% for contractors and subcontractors.
• Tools like Planyard simplify the process by automating routine tasks, providing real-time financial visibility, and integrating with existing accounting software.
• Construction companies can use historical data to estimate their costs and create a budget for each project.

Develop a clear system for categorizing expenses and train your team to use it consistently. Regularly review WIP reports to track How Construction Bookkeeping Services Can Streamline Your Projects project progress, identify potential issues, and make informed decisions. These reports are crucial for managing project profitability and overall business performance. To actually be effective, your cost coding system needs to be used consistently by everyone in your company. This ensures accurate and consistent data entry that will ultimately help you bid better on future projects.

Accounting Basics for Contractors and Construction Businesses

Automated systems streamline invoice collection, approval workflows, and expense tracking, allowing bookkeepers to process financial data more efficiently. Using software and tools can help construction companies streamline their bookkeeping process and improve efficiency. There are many software options available that are specifically designed for construction companies, such as QuickBooks for Contractors, Foundation Software, and Sage 100 Contractor. An accountant will help you make sense of the numbers, manage your books, generate reports, estimate your quarterly tax payments, maintain a healthy cash flow, and protect narrow profit margins. While it’s possible to manage your construction accounting on your own, owning a construction company comes with many complexities that may lead to you making costly accounting errors.

Record Day-to-Day Financial Transactions

This helps ensure that nothing slips through the cracks in the construction process. CoConstruct is your partner in managing unlimited construction projects with its four-part software platform. The platform starts with preconstruction details that include a cost catalog, lead management and a section for proposals and contracts. When you’re done with the preconstruction phase, you move into project management, operations and financials segments of the software that work concurrently. Premier is the most comprehensive construction accounting software on our list, earning the best overall.

Choose the Right Revenue Recognition Method

It is a cloud-based solution that can help you scale your business by having the right data at your fingertips. Its feature-rich platform starts by allowing you to manage multiple companies where you differentiate projects. The whole system has bank integration so that you don’t have to waste time with time-consuming reconciliations. Specialized accounting software is available to help construction contractors manage their business finances and the various projects that they may be involved in. Most of these solutions include accounting features to support your business from the bidding process to invoicing.

Compliance with Tax and Legal Requirements

You need to have accurate bookkeeping not just for the sake of taxes and potential audits, but to monitor your cash flow and ensure you’re being compliant and profitable. With the installment method, you only record revenue once you’ve received payment from the client. This means that you recognize income in the accounting period when it’s collected, and not at the time of sale. Keeping track of payroll is another element where construction bookkeeping is essential. Unfortunately, it’s not as simple as agreeing on compensation with a worker and paying them the same rate per project. The more projects your construction company manages and the more workers you contract, the more important it is to have your accounts in order.

Tips for Handling Your Construction Accounting Processes

When embarking on a project, it’s important to break down the costs into manageable categories to ensure the budget is well-managed. The project costs can be divided into several categories, such as materials, labor, equipment, and permits. Additionally, cloud-based solutions offer automated workflows that simplify many repetitive tasks involved in construction management, such as scheduling, budgeting, and documentation. By automating these processes, you can reduce the risk of errors and minimize duplication of effort, saving you time and money in the long run.

Construction businesses record their revenues based on the accounting method that they use. For example, a company using the accrual method will note revenues based on billed payments even if they have not actually received payment. The income statement (or profit and loss statement) provides a breakdown of the revenues, costs, and profit during a specific period of time — often monthly, quarterly, https://www.merchantcircle.com/blogs/raheemhanan-deltona-fl/2024/12/How-Construction-Bookkeeping-Services-Can-Streamline-Your-Projects/2874359 and annually. When choosing a construction accounting software platform, there are three areas of consideration that you should consider. You want a platform that fits your overall budget and provides as much value without needing to upgrade with other subscriptions or customized solutions.

Accounts Payable

Even better is to back up your records onto a cloud service, so they’re accessible from anywhere. For those who love hard work, spending time outside, and being your own boss, starting a landscaping business may be a great fit. Set limits, turn tracked time into automated timesheets, and send invoices with Hubstaff. This will ensure that you don’t end up with corrupted backups that you can’t use to recover your data.