Every business needs a strong bookkeeping system at its core to account for the everyday variables that make a business profitable—taxes and fees, payroll, expenses, etc. Bookkeeping is a highly specific task, and it’s understandable that not every business owner would know how to, or would even want to, take on the job themselves.
When it comes to construction companies, though, bookkeeping is even more important due to the highly variable nature of what makes individual jobs, and construction firms as a whole, profitable. That’s why a good bookkeeping service is indispensable for most construction company owners, whose skills are geared to building and organizing things on a large scale—and who may want to leave the numbers to bookkeeping for construction professionals.
Let’s take a look at some of the major differences between regular bookkeeping vs construction bookkeeping.
How Is Construction Bookkeeping Different Than Regular Bookkeeping?
Construction bookkeeping differences from that of other companies are mainly due to the complexity and number of variables involved in calculating a construction company’s profitability. Construction firms need to contend with per-project pricing, fluctuating operating costs, and other unpredictable price points to track and report expenses, bid on projects, manage payroll, and manage other important accounting responsibilities.
Some of the biggest differences between regular bookkeeping vs construction bookkeeping include:
Goods Versus Services
Many businesses might offer several different types of easily identifiable products to generate profit while a construction firm has to manage the valuation of both hard and soft skills and services like service work, design services, consulting, engineering, sourcing materials, and more.
This means tracking expenses and effectively calculating profit generated from each service category requires strict oversight.
Project-Based Compared to Product-Based
The time and expense of each project can differ greatly, with potential dry spells in between large projects, or various small jobs in quick succession. This is different from, say, a factory that must meet a stable quota each month or year. This means that payment schedules can vary too, with the need for upfront deposits or long wait times to settle final invoices.
Construction companies may need to generate separate profit and loss (P&L) statements for each project, taking all of this information into account.
Because of the varying length of contracts in most jobs, a construction company might not get paid at the same time every month. For a firm to keep its books organized and understand its cash flow for profitability and tax reasons, a flexible yet organized accounting system is a must-have.
Construction companies must contend with a highly variable marketplace that must be carefully analyzed before accepting a new project. Cost of insurance, workers’ compensation, materials, subcontractors, and equipment can all affect the bottom line of an individual job and the entire company.
Why Does a Construction Company Need an Experienced Bookkeeping Service?
While other businesses may have mostly stable monthly expenses, a construction company works from project to project and may have different materials costs, payroll considerations, taxes, fees, or payment schedules every single time. It can be a big task to manage the intricacies of a construction company while also attempting to keep track of the financial records and tax burdens of the firm at the same time.
Without a good bookkeeping service, construction companies may find themselves choosing unprofitable jobs, losing revenue, and exposing themselves to tax liability. A professional bookkeeping company can help with certain financial concepts and practices like:
Separating Business and Personal Costs
By creating a separate bank account solely for their business, construction company owners can better separate their business and personal expenditures for tax and record-keeping reasons. A good bookkeeping firm can help you find a bank or credit union that best suits your individual needs.
Estimating Project Costs
It’s important to track, categorize, and report transactions for each job before your firm agrees to take on the work. Allocating expenses and revenue to each specific job will help you prepare to pay your taxes and provide accurate profitability projections by ensuring your service price covers all relevant materials and fees.
With a ledger or accounting software, you can record transactions like accounts payable, accounts receivable, labor costs, and material costs along with the appropriate dates, amounts, or other identifying information. This will better help you invoice your clients and keep accurate records of all project costs and revenues.
Recording Business Expenses
Specifically tracking your expenses can also help you better understand your per-job costs. Some of the most common construction expenditures include payroll, subcontractor fees, equipment, and material purchases. By saving your receipts and making notes of your expenses promptly, you’ll have a better understanding of which jobs are costing more than the revenue they supply.
Paying Estimated Taxes
Paying an estimated quarterly tax is a good practice for small businesses to avoid paying larger tax bills at the end of the financial year. A bookkeeping service can help calculate the amount owed and the best process to file by the appropriate dates.
However, you can also pay taxes on a “per-contract” basis. Doing this allows you to understand your profit margins on a more granular level by knowing the tax burden of each project. However, you may find that it is time-consuming and better suited to a bookkeeping company or professional accountant.
How Our Unique Approach to Construction Bookkeeping Benefits Your Business
Appletree Business Services has worked with small businesses around the country for almost 40 years. In that time, we’ve spent time and resources getting to know the intricacies of the construction field, and are well-versed in the unique obligations and strategies that make a construction company profitable.
Our small business accounting services are available for companies who are just starting in the construction field, those who need help expanding their profit margins, or those who want to better understand their job pricing, payroll, or tax burdens—but don’t have the time or resources or do it on their own. Leave it to the professional, award-winning accountants and CPAs at Appletree to recognize the difference between regular bookkeeping vs construction bookkeeping, and help you reach your financial goals.