In construction, financials can get tricky fast. You’re juggling payments to subcontractors, invoices to clients, material costs, and payroll. Sometimes all at once. Without an organized system, it’s easy to lose track, leading to missed payments, cash flow problems, or even penalties for non-compliance.
A solid bookkeeping system is a gift that keeps on giving, especially for construction companies. But here’s the kicker: bookkeeping for construction companies is slightly different from other business types. In this blog, we’ll dive into what makes construction bookkeeping unique, why it matters, and practical tips to make it easier for you.
What is construction bookkeeping?
Bookkeeping for construction companies is a different branch of accounting. Construction bookkeeping is all about recording, organizing, and managing the financial transactions specific to construction work. Unlike general bookkeeping, it considers the industry's nuances like fluctuating costs, long project timelines, and payroll complexities.
Why is bookkeeping for construction companies important?
Are you a construction contractor wondering why bookkeeping might be important to your field? Here are three important reasons why bookkeeping for construction companies is a need, not a want:
1. Provides a clear picture of your cash flow
Construction businesses often face delayed payments, retainage, and fluctuating expenses. Bookkeeping ensures you have an accurate view of your cash flow, allowing you to track incoming and outgoing payments effectively. This clarity helps you avoid cash shortages, pay your subcontractors on time, and allocate funds where needed most.
2. Helps you measure project profitability
With multiple ongoing projects, tracking costs and revenue for each job site is crucial. Bookkeeping provides detailed insights into labor, material, and overhead expenses, helping you determine whether a project is profitable or needs adjustments to stay on budget.
3. Prepares you for tax season
Construction companies deal with complex tax requirements, including sales tax on materials and payroll taxes. Accurate bookkeeping organizes your financial records, ensuring compliance and helping you maximize deductions while avoiding penalties.
What makes bookkeeping for construction companies different?
Bookkeeping for construction companies is different from other companies. Wondering how so? Here are some ways that set bookkeeping for construction companies apart:
1. Construction billing is different
Billing in construction isn’t always straightforward. Many projects use progress billing or percentage-of-completion accounting, where invoices are sent based on how much work has been completed. This makes accurate record-keeping a must to ensure that clients are billed correctly and disputes are avoided.
On top of that, there’s often retainage involved. Retainage is a percentage of payment held back by the client until the project is finished. Planning your cash flow around delayed payments like this is crucial to keeping your business running smoothly.
2. Construction contracts are longer
Construction projects often last months or even years, unlike many industries where transactions are short-term. You’ll need to keep detailed records over long periods to track costs, revenue, and changes to contracts. Don’t forget to account for change orders because these can dramatically shift your budget and timeline.
3. Payroll is complex
Managing payroll in construction isn’t a simple task. With varying pay rates based on roles, union agreements, and prevailing wage laws, you’ll need a system that tracks it all accurately. Prevailing wage laws are regulations that ensure workers on public projects receive a minimum hourly rate based on local standards.
These rates vary by trade, region, and project type, adding another layer of complexity to payroll. Imagine trying to figure out different pay rates for carpenters, electricians, and plumbers all on the same job site—it’s a lot to handle! Staying on top of this ensures your team gets paid fairly and on time.
4. Costs are fluctuating
Construction costs can change in an instant. Production costs also vary significantly from one project to another. The decentralized nature of the construction industry means that every job site operates like its own business, with unique costs for materials, labor, and logistics.
Accurate bookkeeping helps track these differences to ensure every project remains profitable, and no expenses are overlooked. Whether it’s a sudden increase in lumber prices or an unexpected equipment repair, you need to adjust your budgets quickly. Good bookkeeping helps you stay flexible and prepared for these shifts without compromising your bottom line.
Tips to keep in mind
If you want to simplify bookkeeping for construction companies, a few smart practices can make all the difference. Here are some tried-and-true tips to keep your finances in order:
1. Track invoices
Clear records make it easier to handle disputes if they arise. Make sure every invoice (incoming and outgoing) is properly recorded. Create a system for following up on payments and reconciling them with your records. Late payments can throw a wrench in your cash flow, so staying on top of this is key. Using software to automate invoice tracking can also save you time and reduce errors.
2. Record your daily transactions
Construction expenses pile up fast, from fuel and materials to equipment rentals. Recording these transactions daily helps you keep accurate records and avoid surprises later on.
Daily tracking also gives you real-time insights into how your projects are performing financially. You can spot issues early, like overspending on materials or labor, and take corrective action.
3. Pay and receive your payments by milestones
Payment via milestones is two birds with one stone. It gives your clients confidence that they’re only paying for completed work, which builds trust and strengthens your working relationships.
So, instead of waiting until a project is completely finished to get paid, structure your contracts around milestones. For example, you could receive payments after completing site preparation, framing, or electrical work. This ensures a steady income and reduces financial stress.
Final Thoughts
Bookkeeping might not be the most exciting part of running a construction business, but it’s one of the most important. And if you’re finding it hard to do bookkeeping for construction companies, we’ve got you.
Receiptor AI can make your life a whole lot easier. Our platform helps you simplify bookkeeping, track invoices, and stay organized, so you can focus on what you do best: building amazing projects. Sign up today for a free trial and take the hassle out of your bookkeeping!
