Construction Bookkeeping: Essential Tools & Tips

Losing your bookkeeping records due to a natural disaster, a computer virus, or hardware failure can be devastating. Additionally, while a non-certified accountant could handle some of your bookkeeping needs, you should focus on certified and licensed accountants to stay on the safe side. Lastly, as Hubstaff records workers’ arrival and departure times, there is no need for them to note down this information manually. This reduces the likelihood of any disagreements with customers over the exact time workers started or ended their shifts.

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• Overhead costs, which are essential for operation but not tied to a specific project, are listed on a separate area of the income sheet.
• Many construction companies suggest a close review of an AIA billing contract to ensure that all parties involved are receiving equal advantages.
• Your change order system should track a potential change from the moment the issue is identified to the end (whether a change order was actually issued for the work or not).
• Using Hubstaff’s time tracking app for construction businesses, you can automatically generate time cards for your workers.
• If one chooses to keep hard copies of these, a safe and organized place to put them would be in a filing cabinet.
• The Davis-Bacon Act (DBA) is a United States law that requires employers to pay prevailing wages—the regional minimum pay requirement—on public works projects for laborers and mechanics.

Although cash accounting is flexible and accessible, you How to Use Construction Bookkeeping Practices to Achieve Business Growth must fit certain criteria set out by the IRS in order to use this method. To be eligible for the cash method the IRS states that your construction company must have less than $25 million in gross receipts (over a three-year period). Nearly half of all small businesses, however, do not currently employ an accountant or bookkeeper. A refined understanding of WIP, job costing, IRS requirements, and more is required. Overhead costs, which are essential for operation but not tied to a specific project, are listed on a separate area of the income sheet.

Construction Accounting Software

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. With a mastery of construction accounting, he connects contractors to their numbers and guides them to the results they want—and the ones they didn’t know they needed. By keeping your personal and business expenses separated into different accounts, you’re protected from “piercing the corporate veil” if your company is sued.

• Keeping all your company’s money in a single bank account makes it harder to understand how you’re doing financially because all the money in the bank account might not necessarily be yours.
• They might also work to develop budgets, provide cost analysis for current and future projects, and create and manage accounts payable and receivable.
• On the other hand, sole proprietorships and partnerships simply list the capital belonging to the owner — or to multiple owners.
• To properly record and track retainage, you’ll need to include an account for retainage receivables on your company’s Chart of Accounts.

User account menu

Additionally, compliance with labor laws and union agreements adds another layer of https://www.merchantcircle.com/blogs/raheemhanan-deltona-fl/2024/12/How-Construction-Bookkeeping-Services-Can-Streamline-Your-Projects/2874359 difficulty. Construction bookkeeping presents unique challenges that can complicate financial management. Understanding these hurdles and how to address them can significantly improve accuracy and efficiency.

• Examples of liabilities include accounts payable (AP), capital lease payable, accrued payables, and notes payable.
• Even though it follows the same principles of general accounting, it has multiple distinctions that are crucial to run a successful construction company.
• It might look like you’ve had an incredibly profitable month because you’ve invoiced your client to get a project started, but that’s not the full picture.
• This is where job costing comes in, allowing you to make sure each new construction job you take on is hitting all the marks.
• You can use this method of revenue recognition even if you’ve received payments during the contract period.
• The first set should cover information on the progress milestone met and reflect the total amount authorized for the services.

Now you’re stuck in a position where you have to hire and manage someone to handle your bookkeeping needs. Worst-case scenario, you find someone who can work their way around QuickBooks but doesn’t actually know the nuances of construction bookkeeping (and you don’t know the difference). A lot of construction resources out there only focus on the accounting side of things, which makes it tougher for contractors to learn the bookkeeping basics they need to support their growth. To help close the gap, I’m sharing the biggest pitfalls I see contractors run into when it comes to bookkeeping, and how to move past them. Outsourcing your bookkeeping gives you the gift of time—a priceless resource for any business owner.

Understanding Retainage

Using milestone payments also makes it easier to identify payment problems, which, in turn, enables you to stop working until you receive payment for a milestone. Once you complete the project, you can then issue a final invoice for the entire value of the retainage. 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.

• Most importantly, this method enables financial managers to get a clear view of the current financial status of each project as well as the financial horizon as each project progresses.
• They expect a timely paycheck at the end of the pay period, preferably via the payment method of least resistance.
• Job costing tracks expenses on a per-project basis, offering a granular view of where costs are incurred.
• Accurately tracking costs, revenues, and other financial data creates a foundation for companies to grow and stay cash flow positive.
• Some of it is likely reserved for things like payroll, covering expenses, and paying taxes.
• Although cash accounting is flexible and accessible, you must fit certain criteria set out by the IRS in order to use this method.