Construction Bookkeeping: Essential Tools & Tips

This may include service work, design services, consulting, engineering, sourcing materials, and more. Beyond the numbers, we become a reliable partner, offering peace of mind and allowing contractors to focus on what they do best—building and creating. It’s more than just numbers on a spreadsheet; it’s about empowering contractors to thrive in their craft while someone else (us!) takes care of the financial puzzle. I like to recommend QuickBooks Online for contractors because of its user-friendly interface, cloud-based accessibility, and comprehensive features tailored for project-based businesses. It offers scalability for growing businesses and integrates well with other business tools.

Income Tax & Accounting Services

• You can use construction invoice templates to bill your clients and keep a paper record of all construction projects and revenue generated.
• At any rate, all this information proves that construction contracts have long production cycles that often last for longer than a year.
• On the construction side of things, the individuals doing this type of work include construction bookkeepers or construction accountants — or, more generally, bookkeeping professionals.
• To account for these expenditures, contractors typically reference them as pre-contract costs to prepare a job site before the contract implementation starts.
• So, a single employee might have multiple prevailing wage rates and fringe requirements on a single job, depending on what they’re doing each hour.
• Still, smaller construction companies can record their transactions in spreadsheets or another simple format.

Contract retainage is a sum of money, usually 5-10% of the value of a contract, that consumers can withhold from you until they are satisfied with your work on a project. Having robust retainage management becomes vital when managing multiple initiatives at one time. It will help you have enough capital, for instance, if one of your customers does not pay. If you need help getting started or have outgrown handling your construction company’s books on your own, schedule a call with Slate. We can help you take the right approach to managing your successful construction business and ensure you’re generating enough revenue to cover all costs while still turning a profit.

• What’s more, accounting for construction company finances has some unique challenges compared to other types of businesses.
• Your bookkeeper can help you stay compliant by organizing payroll, maintaining clear records, and ensuring timely filing of forms like 1099-NEC for subcontractors.
• Reporting requirements for a particular union may exist on a national or a local level.
• Revenue recognition also helps determine when a contractor should officially record an expense.
• In simple terms, this report categorizes the services or goods delivered but unpaid (by customers) since an invoice was sent to the customer at a single point in time.
• For example, a construction company may need to move equipment and labor every few days or weeks from site to site.
• Because the pay application process is complicated, many contractors avoid doing it more often than monthly.

Handling Complex Payroll

Similarly, the US Census Bureau data reveals that nonresidential construction projects valued at over $10,000,000 take around 28 months to complete. For practical purposes, these 2 projects are individual endeavors, and accountants track their progress separately. This leads to unique challenges, such as different client requirements and the ebbs and flows in expenditure. Your bookkeeper can help you stay compliant by organizing payroll, maintaining clear records, and ensuring timely filing of forms like 1099-NEC for subcontractors. These are the professionals that take care of bookkeeping and accounting functions for businesses, which gives such organizations time to concentrate on their core activities.

Income recognition

In the end, the goal is to help contractors identify their true costs and profitability, which is otherwise very difficult to do in an industry with so many variables from contract-to-contract. Similarly, in contrast to retail and manufacturing, production primarily happens across different jobsites rather than fixed locations like plants. Both equipment and labor then frequently move from site to site, leading to mobilization costs.

Many contractors try to be superheroes, juggling every aspect of their business. Outsourcing your bookkeeping gives you the gift of time—a priceless resource for any business owner. Let’s explore the essentials of independent contractor bookkeeping and how outsourcing can be the right decision for your business. In just 30 minutes, we’ll assess your current bookkeeping practices and provide tailored recommendations to streamline your financial management.

• That leaves contractors and construction accountants with a choice of revenue recognition method.
• Similarly, the US Census Bureau data reveals that nonresidential construction projects valued at over $10,000,000 take around 28 months to complete.
• During an ongoing project, the amount subcontractors demand can change, resulting in changes to actual costs.
• Construction payroll and invoicing help ensure accurate, timely payments to construction workers and subcontractors.
• With unit-price billing the contractor doesn’t charge the customer for the total amount at once.
• Accrual basis accounting is a method contractors use to record financial transactions that involve revenue or expenses in the period they are incurred rather than when they are paid or received.

However, missing deductions—or worse, claiming ineligible ones—can lead to costly mistakes. The wage rate for a worker in a state or locality is not the same but rather the US Department of Labor and regulatory agencies in each state. The compensation that an employee is supposed to be paid can also be affected by union rates, travel pay, and taxes.

Payroll

Effective invoicing and payment management are critical for maintaining healthy cash flow. This level of detail allows you to identify which types of projects are most profitable, helps in more accurate future estimates, and can highlight areas where costs might be reduced. In How Construction Bookkeeping Services Can Streamline Your Projects this article, I’m going to share the six steps you need to set up a bookkeeping system for your contractor business.

• One positive aspect of the cash method is that it provides an accurate representation of cash flow.
• In other words, contractors need to find ways to reduce mounting costs when changing job sites.
• A construction bookkeeper plays a vital role in managing financial data for construction projects.
• In other words, imagine that a homebuilding or facility construction project is underway.

What Is Revenue Recognition?

Under cash accounting, if money hasn’t changed hands yet, there are no financial transactions to account for. That leaves contractors and construction accountants with a choice of revenue recognition method. It’s especially useful for small construction companies that deal with longer-term contracts and transactions.