What is the difference between construction bookkeeping and traditional bookkeeping?
Unlike traditional bookkeeping, construction bookkeeping involves tracking project-specific costs, handling complex billing processes, and navigating unique payroll considerations. It focuses on allocating expenses, which requires tracking materials, labor, and overhead costs separately for each project.
To accurately record and track projects, your bookkeeper should understand concepts like job costing and cash management in addition to standard bookkeeping practices.
Can any standard accounting firm provide construction bookkeeping services?
Because traditional accounting differs from construction accounting, not every accounting firm is equipped to provide construction-specific bookkeeping services.
The same goes for independent bookkeepers who cannot provide the team approach and high-level oversight necessary to manage the complexities of your books.
With construction’s unique financial requirements like complex project accounting, cash flow and revenue recognition, job costing, and more, it’s important to choose a firm with industry-specific expertise.
Partnering with a construction-specific firm will ensure your books are accurate, compliant, and aligned with industry best practices. Plus, you’ll ultimately save time and resources when you don’t have to train internal staff on construction’s unique bookkeeping requirements.
Why do clean books matter?
Maintaining clean books is crucial to your construction firm’s financial success. Here are a few reasons why:
Accurate Project Costing
From labor to materials to subcontracts, construction projects typically involve multiple expenses. Not to mention, those expenses must be recorded across multiple projects happening simultaneously. Having clean books ensures you’re tracking all costs accurately so you can better understand the profitability of each project.
Cash Flow Management
Due to the nature of contracts and payment schedules, cash flow for your construction firm can be irregular. With accurate bookkeeping, you can monitor cash that’s flowing in (and out) and ensure you have the funds to maintain your projects.
Compliance and Tax Reporting
With the construction industry’s heavy regulations, unique tax laws, and reporting requirements, clean books ensure you stay compliant, take advantage of tax credits and deductions, and avoid penalties.
Informed Decision-Making
Clean books are your foundation for making informed bidding, investing, and hiring decisions. Plus, providing clear financial data to clients and suppliers can aid in negotiations.
Securing Bonding and Financing
Third parties like surety, lenders, and investors require clear financial records (in a timely manner) to assess the risks of lending to or investing in your organization. Clean books improve your chances of securing loans and increasing your bonding capacity.
Client Trust
Clients expect your organization to be reliable and professional. With accurate books, you can provide transparent billing and cost breakdowns, fostering more trust with your clients.
How do I know if my books need help?
Here are three red flags that may signal your books need help:
Your bottom line sees big swings month to month.
One month, you’re profitable and making tons of money. One month, you’re losing money. Another, you’re just breaking even.
If you’re seeing swings like this in your construction business, your accountant or internal team is likely keeping your books on a cash basis instead of accrual.
On a cash basis, you’re basing your revenue on the cash you’ve received that month, but that doesn’t necessarily reflect the revenue you’ve earned.
Entering transactions when cash is coming in and out will not provide a true financial picture. Instead, match revenue to expenses when they are earned and accrued.
For example, instead of recording your $100,000 annual insurance policy as a singular expense, break it up over 12 months.
You’re not entering transactions timely.
Maybe you’re duplicating your payables, or you’re paying vendors twice.
Maybe you’re not seeing payments coming in because billings aren’t entered on time.
Maybe you’re not able to run dependable financial reports (like your balance sheet, income statement, or job reports) because transactions aren’t entered timely.
Failing to enter transactions in a timely manner can have a snowball effect on your books.
You don’t know where your cash is.
If making strategic purchase decisions like buying a new truck, a new piece of equipment, or hiring a new employee feels like a shot in the dark, your books need help.
Accurate bookkeeping means transactions are entered timely, which allows you to reconcile and ultimately know where your cash is.
Without timely, consistent, and accurate books, you won’t have the insights necessary to know if you can comfortably handle expenses for your business.
How can I improve (or simplify) my bookkeeping process?
For detailed steps to improve your bookkeeping process, read 6 Bookkeeping Tips for Construction Companies.
In short, here are some things to keep in mind:
- Enter transitions in real-time.
- Use job costing to manage projects.
- Understand contract retainage and milestone payments.
- Understand which revenue recognition method to use.
- Leverage automation solutions and construction accounting software.
- Outsource your accounting and bookkeeping functions to a construction-specific firm.
What bookkeeping software solutions are suitable for construction companies?
Specialized accounting software is available to help you manage your bookkeeping and company-wide finances. Bookkeeping solutions can range from simple software that manages just your day-to-day accounting functions, to an all-in-one software that supports every step of a project (from bid to completion).
Here are some of the programs our current clients are using:
Quickbooks Enterprise for Contractors
This version of Quickbooks Desktop offers features like job costing, contract management, invoicing, and integrations with other construction management solutions. However, because Quickbooks is not an all-in-one solution, it’s most suitable for smaller contractors.
FOUNDATION
FOUNDATION has base modules for job costing, AP, AR, payroll, subcontractor management, and more. It’s scalable for firms of any size and also offers Payroll4Construction (which you can purchase individually).
Sage Products
Sage offers feature-rich, trusted products with tiers for software for different construction bookkeeping needs:
- Sage 100 has limited report capabilities but may be suitable for smaller contractors.
- Sage 300 is a general ERP great for mid-sized to large companies that deal in sophisticated projects. Though it has cloud capabilities, Sage 300 is considered a desktop, on-premise platform.
- Sage Intacct, is 100% cloud-based, customizable, and complete with a third-party marketplace. It is a “feature-specific, best-in-class financial management solution.”
Spectrum
Spectrum is a cloud-based construction ERP ideal for small to mid-sized general contractors and specialty contractors. It can be used for a variety of reasons, including project management, accounting, data collection, contractor management, incident reporting, and more.
Acumatica
Acumatica Construction Edition is a comprehensive, cloud-based system with a range of connected modules like construction management, financial management, payroll management, and project accounting. Acumatica is ideal for organizations ready to scale.
I think my books need help…where should I start?
If you are…
- Staying up late to work on the books yourself because you don’t have anyone else to do it.
- Going into the office outside of normal hours and missing time with family to get it all done.
- Frustrated because you’re constantly finding (and fixing) errors in your books.
- Failing to get it all done and falling behind.
…then it may be time to outsource your construction bookkeeping.
We offer a free strategy session to help you identify your organization’s accounting needs, pinpoint your financial goals, and strategize which NLA service is right for you.
From there, we’ll guide you through a complimentary Diagnostic that includes a high-level review of your actual financials. With an overview of your numbers, we’ll be able to assess your current situation, identify areas for improvement, offer custom recommendations, and provide a more accurate quote for our proposed services.
Whether you’re looking to test the waters with outsourced construction bookkeeping or are ready to commit to a partnership, start here (for free).
We’re New Lyfe Accounting
NLA is a specialty firm helping small to mid-sized construction organizations navigate the industry’s unique financial landscape. From customized bookkeeping services to holistic CFO partnerships, we’re more than just an accountant. NLA operates as an extension of your team, strengthening your organization with financial services suited to your operational needs AND your goals for growth.
