Construction Accounting 101: A Basic Guide for Contractors

This allows you to always be aware of how much cash you have on hand and stops you from messing everything up. Retainage is the portion of the agreed-on project price that is withheld until the job is completed, or for a specified period. The goal of construction bookkeeping this long-standing practice is to create a financial incentive for contractors to complete the project satisfactorily and to protect owners if problems appear. Retainage amounts are often substantial, amounting to 5% to 10% of the contract value.

• Customers can expect to pay $85 or $200 per month, depending on their needs.
• It’s best to keep financial records timely, neat and accurate, because with so many things going on at once, it can be easy to get behind on required payments.
• It helps you understand your cash flow during a specific period of time as well.
• If you operate across state lines, you may also need to account for additional tax payments.
• Contractors need precise tracking and reporting, as well as collection and cash-flow strategies.
• Therefore, there are no accounts payable (A/P) or accounts receivable (A/R).

You’ll receive regular reports and on-demand financial data that identify profitability on a per-project basis. Lescault and Walderman provides bookkeeping, controller and CFO services that deliver timely and accurate invoicing and project accounting to improve cash flow and increase profitability. We help setup Quickbooks for contractors, and then we perform the bookkeeping every month so they have perfect financials. We’ll help keep track of profitability for every project, and we’ll ensure that you’re monthly financial statements are always ready for lenders, auditors or other oversight. Regulations may be also an impact on project finalization, which is another challenge for construction.

Keep Daily Records

Job costing is a powerful bookkeeping tool for construction companies, who often do project or contract based work. Simply put, job costing is a method of calculating the true cost of a construction project by breaking it down into small, specific tasks. Job costing can help your construction company track progress, stay on budget, and be more efficient in your work.

Depending on your experience or desire to learn, it might make more financial and business sense to hire a professional accountant or bookkeeper to look after the intricacies of your records for you. A certified accountant can also help you structure your accounts in the most efficient ways to save money and avoid paying taxes. Switching to some of the best construction accounting software allows users to customize workflows. Users can program the software to automatically send invoices and documents. Furthermore, construction accounting software removes most of the risk of human error. Automated data entry and mathematics ensures that all values, names, account numbers, and other data are accurate, saving time in entry and fixing mistakes.

Step #4 Reconcile Bank & Supplier Statements

Hiring an accountant to take care of your bookkeeping can save you a significant amount of time, as well as eliminate bookkeeping and accounting errors. The main reason for this is that bookkeeping isn’t a standardized service. Businesses have different bookkeeping needs which vary based on industry, company size, federal and state regulations, as well as a number of other factors. Some of it is likely reserved for things like payroll, covering expenses, and paying taxes. You should also add your income and expenses from each project into a general ledger to get an accurate overview of your gross and net income.

• Since every job is complicated, it can be hard to come up with bids that are both profitable and competitive.
• Under a unit-price contract, the contractor bills a customer at a fixed price-per-unit rate.
• Workers and equipment move from site to site, so firms must be able to account for the costs of travel and moving and installing equipment.
• That means construction companies need to take this into account when determining upfront payments or paying expenses.

Lucy remembered how nice it was to have plenty of time to shop online, surf the web, text her friends and train her boss like an organ grinder trains a monkey. Lucy wanted to talk endlessly about how stupid and ignorant her previous boss was and how he did not know anything about running a construction company. And if he would have listened to Lucy he never would have gone bankrupt.

Bookkeeping Tips For Construction Companies

Perhaps you need to re-evaluate your production rates when estimating projects. Having to make your way through piles of documents to differentiate between your personal and business expenses can take days. But, if you have separate business and personal accounts, filing taxes becomes that much easier. Construction companies can also outsource their bookkeeping needs to a firm like Rooks Bookkeeping.