Construction companies have unique accounting challenges that require specialized accounting methods. These challenges include specialized billing and revenue recognition processes, retainage, and tracking change orders.
Moreover, these businesses often manage long-term contracts with varying end dates. Hence, they must use job costing to identify each contract’s actual costs and profitability.
Saves You Time
In addition to the usual accounting tasks like managing accounts payable and receivable, construction businesses have unique challenges that make it essential to work with a skilled accountant. For example, many jobs are special custom projects that must be closely monitored for profitability. Additionally, it’s common for contractors to manage temporary workers that come and go every week. With a skilled construction accountant, you can focus on monitoring the projects that need your attention and leave the bookkeeping to the experts.
Unlike general business practices, construction accounting requires tracking direct and indirect costs for every project. Direct costs are the expenses that are specific to a project and include labor, equipment, and materials. Indirect costs are the expenses that affect all projects and have things like insurance, transportation, and software. With an experienced construction accountant, you can rest assured that your costs are recorded accurately for each job.
For example, construction companies use methods like job costing to apportion expenses and revenue to specific projects and production activities. This practice helps ensure that service prices cover all overhead costs and that contractors profit from each project. In addition, long-term contracts typically require special treatment for both GAAP and IRS accounting, requiring either the percentage of completion method or the completed contract method.
Beyond this, an accountant who understands the intricacies of construction leasing, for example, can also be of great help if your construction company does not only operate in traditional avenues but has also expanded into rental and hiring of equipment. In this case, your CPA will likely utilize lease accounting and management software from providers such as ezlease.com. Software like this automates compliance with any necessary accounting standards; provides a single, centralized database for all of your important documents; and provides you with step-by-step walkthroughs to optimizing the lease closing procedures, making it a comprehensive solution to all lease management needs and limiting the risk of non-compliance, saving you money in the long run.
In addition to ensuring accurate cost recording, a good construction accountant can help you save money by staying current on tax regulations and laws. This ensures your company meets all local, state, and federal employment requirements, payroll, sales, and property tax regulations.
Saves You Money
While many business owners learn bookkeeping basics like debits and credits, financial statements, and tax deductions, an experienced construction accountant can save money by helping you optimize your accounts and streamline your books. Most importantly, an accountant specializing in your industry knows accounting practices that fit the unique needs of construction businesses.
For example, construction companies use methods like job costing to apportion expenses and revenue to specific projects and production activities. This practice helps ensure that service prices cover all overhead costs and that contractors profit from each project. In addition, long-term contracts typically require special treatment for both GAAP and IRS accounting, requiring either the percentage of completion method or the completed contract method.
An accountant with experience in the construction industry can also help you manage your business’s bonding needs, ensuring you get a better rate and shorter turnaround time from your surety underwriter. In addition, an accountant can assist you in setting up a business line of credit for your construction company.
By freeing up your resources, an accountant can help your business save money on bookkeeping, accounting software, and even payroll processing fees — not to mention the time saved by eliminating illegible or lost paper time cards and misunderstandings between you and your bookkeeper!
Saves You Mistakes
A construction accountant is necessary for any business building or maintaining structures. Whether you’re lugging heavy equipment and cement or managing the employees who do, you need a quality accounting team to help you keep your finances in check and make informed financial decisions.
Accounting for construction businesses is complex and requires specialized knowledge of the industry. It’s also important to understand that construction accounting differs significantly from traditional business accounting.
For example, contractors must follow a specific accounting method called job costing to account for each project accurately. This allows contractors to determine their true profitability by determining each contract’s labor, materials, and overhead cost. Moreover, job costing is essential for preparing for tax time and maintaining a healthy cash flow.
Additionally, construction companies must manage long-term contracts with delayed payments, which can be problematic for cash flow and revenue recognition. A reputable CPA will ensure that your construction company follows the best revenue recognition practices and reconciles every transaction.
Managing the financial side of your construction company can be challenging, but it doesn’t have to be. A quality construction accountant can save you money and stress in the long run. Invest in a construction accountant, and you’ll be well on your way to a more profitable, successful business.
Saves You Stress
Owning a construction company is difficult enough without having to worry about accounting and financial management. A good CPA can take the weight off your shoulders by providing professional guidance for the most tax-efficient and accurate method of managing your business finances.
It’s common for contractors to manage several projects simultaneously, making it challenging to stay on top of the money flowing into and out of each job site. In addition, juggling payroll and bookkeeping for union and non-union workers with varying wage rates can be complicated. A CPA can help you develop a plan for recording the financial transactions of each project and reconciling them to your bank statements.
Another big challenge is managing a long-term contract and estimating the materials and labor costs for the duration of the contract. Inaccurate estimates can throw off your revenue recognition methods, which will impact the profitability of each project. A CPA can help you create a system for tracking change orders and working unforeseen expenses into your estimate process so you aren’t caught off guard at tax time.
Using the percentage of completion method for determining taxes is a great way to minimize your tax burden while ensuring you aren’t leaving any unpaid income on the table at the end of each year. This method can be more complex than the completed contract method, which requires you to report income once a project is complete (although payments may be received throughout the length of a contract). A CPA can help you decide which method works best for your business.
