Bookkeeping for Construction Companies: An Essential Guide

Projects like government-funded projects require you to pay a prevailing wage, a minimum hourly rate that’s typically higher and determined by each state’s Department of Labor. Paying any lower than what’s legally mandated can result in https://www.inkl.com/news/the-significance-of-construction-bookkeeping-for-streamlining-projects penalties—and even jail time. While bookkeeping in the construction industry can be challenging due to its many considerations, it’s an essential part of successfully running a construction firm. Materials include all the resources required to complete the project, such as raw materials, tools, and supplies. Labor costs include the wages or salaries of the workers who will be involved in the project, as well as any benefits or incentives. Equipment costs include renting or purchasing machinery, vehicles, or other specialized tools needed during the project.

DIY Construction Bookkeeping vs. Professional Services

In the first case, a contractor must factor in rental equipment costs and the invoicing due dates to obtain the equipment rental. Finally, you can use the information you get from a job profitability report to calculate key performance indicators (KPIs). Instead of waiting until the end of a project to discover if overruns or delays will happen, the contractor can use the earned value report to see this information at the beginning of a project.

Integration with Construction Management Software

Specialized accounting software is available to help construction contractors manage their business finances and the various projects that they may be involved in. Most of these solutions include accounting features to support your business from the bidding process to invoicing. Forbes Advisor researched the best construction accounting software on the market to help you find the right solution for your business. The earned value report is a powerful financial tool that efficiently tracks construction task progress, identifying delays and budget overruns early in a project.

Small Business

• Job costing tools, allowing you to allocate costs to specific project tasks and track spending accurately.
• We record every project detail, from project codes to cost categories to job details of the specific task.
• As your construction business grows, your bookkeeping needs may become more complex.
• Many construction companies use a “completion percentage” approach, meaning they calculate estimated taxes based on quarterly income and expense reports.
• The high price and length of construction projects make payment scheduling and collection unique.
• His work has been featured in outlets such as Keypoint Intelligence, FitSmallBusiness and PCMag.

It compares planned value, earned value, and actual cost to provide valuable insights from the project’s outset. By gathering performance information, assessing schedule and cost statuses, and using forecasting, contractors gain a comprehensive view of cost estimates and schedules. This enables swift responses to project issues, ensuring better project management and cost control throughout the construction process. A balance sheet report is a comprehensive document detailing a company’s liabilities and assets. Liabilities are categorized as equities or debts, while assets encompass everything the company owns, including intellectual property, equipment, and cash. The term “balance sheet” originates from its purpose of balancing the contractor’s books, assessing both project and overall financial health.

Outsourcing or employing professional Construction Bookkeeping enables firms to focus on delivering high-quality projects while ensuring financial stability and compliance. This approach not only streamlines operations but also drives profitability and long-term growth. Income recognition is an important part of the construction project cycle and a feature of accrual accounting. Also referred to as “revenue recognition”, it represents the point at which a construction project becomes profitable. So they need to be able to track accurate costs, bid on jobs, manage prevailing wage requirements, and handle a slew of other accounting responsibilities. Bridgit Bench is the #1 workforce planning software built for the construction industry.

These services focus on managing budgets, tracking expenses, processing payroll, and ensuring accurate job costing for projects of all sizes. Specialized bookkeeping helps contractors, builders, and construction firms maintain compliance with tax regulations, monitor cash flow, and make informed financial How to leverage construction bookkeeping to streamline financial control decisions. With unique challenges like fluctuating material costs and labor management, construction bookkeeping ensures every financial detail is recorded correctly.

It ensures that the contractor meets all requirements and that the customer is satisfied with the performance before delivering the full payment. Generally, contract retainage is specified in the contract and is a percentage, typically five to 10 percent, of the total contract amount. This method is beneficial for ongoing projects that require tracking individual stages of work. It’s helpful when you need to keep an accurate record of your progress and give stakeholders an idea of what to expect in the future. The percentage of completion method (PCM) is a method of accounting that records revenue when it has been earned but not yet received.