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Accounting for Construction

Managing a construction project is an exercise in caution. Attention to detail saves lives and prevents serious errors that can cost thousands, if not millions of dollars. Accounting for construction requires just as much caution as on-site management. While it’s true that every type of business faces unique bookkeeping challenges, construction is an especially complicated example. Part of this complication is due to the nature of contract work, and part is due to the variety of costs a construction company has to consider. This makes finding the right methods and tools to track contracts and their associated costs very difficult.

Direct Costs

Direct costs represent the most straightforward aspect of construction accounting. These costs include building materials, labor, land, and subcontracting.Answers to these questions about such expenses come easily with both records and physical proof. A client can see the land being used to build a house, touch the bricks for the facade, and see workers in action. These costs also apply to a single contract. It is unethical to bill a client for materials used to fulfill another contract, after all. This makes direct costs relatively easy to handle compared to other kinds of costs. However, contractors still face double the bookkeeping, as they must work with both vendors and clients to fulfill their contracts. Simple is always a relative term in construction.

Indirect Costs

Indirect costs include things like tools, supervision, and insurance. These costs are often intangible apart from the paper trail they leave, which is why bookkeeping is essential to construction work. Since these costs to do not immediately appear to benefit the progress of a contract, it is even more important to monitor and record them carefully.

If a construction company chooses to work more than one contract at a time, these costs can quickly become difficult to manage. A company’s insurance typically covers all contracts. However, there is only one bill, meaning the clients must split the cost. Even if a company owns their own equipment, such as forklifts, bulldozers, and cranes, they may still owe payments on such machines. Heavy equipment also requires fuel, maintenance, and other upkeep.

Methods

One of the most popular methods of charging for contract work is the percentage of completion method. While most industries can charge once for a finished product or service, construction is an ongoing process, and contracts take weeks, months, or even years to complete. During that time, the construction company needs to pay for labor, building materials, etc. The percentage of completion method uses the estimated percent of work completed along with the estimated revenue expected from the contract to judge profit and loss during on-going work.

Unfortunately, since the percentage of completion method relies so heavily on estimates, it cannot be used for all contracts. The most popular alternative is the completed contract method. It works well in situations with too many variables to provide reasonable estimates and involves significantly less guesswork.

Software Tools

Quickbooks Enterprise offers industry-specific features to make life easier for users and is likely the best choice for a construction company keeping its own books. Enterprise’s many tools can help manage vendors, create estimates, and analyze profitability. However, there are specialized contractor editions of other Quickbooks products, and it’s a good idea to make a list of your bookkeeping weaknesses before making a purchase. Are you in need of help managing expenses or payments? Do you have trouble with indirect expenses for multiple contracts? Figure out what you need before you go shopping for bookkeeping software, and the process will be much easier. While some programs have better options and services for construction than others do, it’s still important to find Quickbooks training to help you get the most out of your software.

Outsourcing

Many contractors find that hiring professional bookkeeping services saves them more in both time and money than they could save by managing their books on their own. Even skilled bookkeepers can take comfort from having another pair of eyes to look over their books in the months before tax season. Outsourcing is an especially good idea for small business owners. Many start construction companies because they have some level of hands-on experience to contribute, and the convoluted process of bookkeeping for construction can hinder a business’s productivity. Would you rather hire an extra supervisor to take care of the work on-site while you spend the day bookkeeping, or would you rather outsource your bookkeeping so you can be more involved with your business?

Running a construction company is complicated enough without the frustrations of bookkeeping. Bookkeeping is a struggle for business owners from many industries, but construction contractors bear a greater burden than most. Fortunately, there are expert bookkeeping services available and Quickbooks support for those who prefer to keep their books themselves. There are tools and services available to solve any problem.

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About Alisha Raesz

Alisha is our Services Manager extraordinaire at Fourlane, Inc. She has over 13 years of experience, specifically working those in manufacturing and inventory, and is a certified QuickBooks ProAdvisor with advanced certifications in QuickBooks and QuickBooks Enterprise, Acumatica, and Acctivate. She is often praised by clients for her candid communication and detail-oriented work. That, combined with her financial expertise, truly makes her a valuable resource for clients.

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