Accounting and bookkeeping for construction companies are a bit different than those for other industries. Construction companies face a number of challenges due to a large, often transient workforce, hundreds of types of costs, and varied duration contractors.
An effective bookkeeping system for construction companies requires more accurate practices which can ultimately maximize profitability and cash flow. Here are 7 proper bookkeeping tips for contractors that can go a long way in setting your business up for success.
Record all details about payments and invoices
If you’re running your own business, it’s essential that you keep all detail about payments and invoices. Receipts, invoices, and other documents are essential to give you insight into where your money is going. It also serves as proof of your business expenses in case you ever get audited.
If you keep hand copies of these records, you’ll need to note down and organize them so that it’s easier to look for. Additionally, you should maintain a digital record of these files to ensure your data can be backed up in case your documents are lost or damaged.
Cloud-based technology has made storing backups of your document simple and easy. It offers unlimited storage capabilities. You also make sure that your contracting business will have access to the information it needs to function no matter where you happen to be.
Use multiple bank accounts
To accurately keep track of expenses and profit to maintain separate checking accounts. You should have at least 3 different accounts - some of them likely reserved for things like payroll, covering expenses, and paying taxes.
This bookkeeping tip for contractors makes it easier to stay on top of how much money is coming and going out of your business monthly.
Keep an eye on employee hours
One of the most challenging aspects of bookkeeping for construction companies is the large workforce. Construction business owners pay an hourly wage for most of the people working at a construction site. The hourly salary combined with a large number of employees working in different fields makes it hard to keep track of everyone’s working hours.
Outsourcing a trustworthy bookkeeper team in charge of tracking the working hours of everyone on-site avoids any payroll errors and ensures that you’re not violating any relevant regulations.
Keep an accurate inventory of all materials
It’s common to make inaccurate assumptions about the amount of labor and material you’ll require to complete a project. You might realize that you need more labor and materials than organically anticipated.
If you continue taking materials out of your inventory, your company can quickly go over the estimated budget without realizing it. Therefore, it’s crucial to keep track of your material inventory to keep control of your resources and you can budget appropriately.
Use the percentage of completion method
There are different revenue recognition methods in the construction industry, including the completed contract method, installment method, and percentage of completion method.
The percentage of completion method allows you to recognize revenue as a percentage of the work your company completed during a period.
The main benefit of charging a client according to the percentage of projection completion is that you don’t need to wait until you fully finish the job to get paid.
Automate your bookkeeping
Apart from saving your time and money, using construction accounting software can reduce human error, and effectively manage all stages of projects.
Outsourcing construction bookkeeping services can help ease the burden of organizing your books.
We serve construction companies throughout California. Our outsourced bookkeeping and accounting services can save you valuable time and ensure your business is in a position for growth and financial success.
Let us handle the bookkeeping and accounting side of your business.