Bookkeeping is a crucial component of running any business. It includes standard accounts like cash, accounts payable, and accounts receivable, as well as construction-specific accounts such as outside labor and service expenses. Separate account designations for payroll, taxes, and client payments allow for more accurate financial reporting. It also makes it easier for you to make strategic business decisions.
Set Up Your Taxes
Construction business owners are responsible for paying a variety of taxes. Setting up a system that keeps personal and business expenses separate is important. It includes setting up a company bank account and credit card to keep financial records clear from possible confusion at tax time. It also means having clear processes for tracking equipment that may be used for work and personal reasons, such as company vehicles. A double-entry bookkeeping system is the best way to ensure accuracy and reliability. However, many small businesses track their transactions through a spreadsheet until they can afford to invest in accounting software.
Construction companies have unique accounting needs due to the nature of their projects. These include job costing, per-project pricing, and recognizing revenues based on completion percentages. These special requirements can make a construction business more complex than other companies. However, the right bookkeeping for construction companies can ease your stress and enhance your company’s financial health.
Set Up Your Chart of Accounts
Your financial transactions are arranged in an accounting structure called a chart of accounts, which allows you to create financial statements. It consists of a set of numbered accounts with names and brief descriptions. The basic categories include assets, liabilities, equity, and revenues and expenses. Within those, you can create project-specific accounts, cost categories, and revenue accounts specific to your construction business. Managing your accounting procedures, enhancing inventory control, and making better decisions based on reliable data are all simpler with this degree of flexibility and structure. For example, you’ll want to establish a project-specific account for each job to track costs and revenue on the job level. It allows you to analyze each job’s profitability and allocate resources effectively. Similarly, you’ll want to establish expense categories that include labor, materials, subcontractors, overhead, and equipment rental. This way, you can see the true nature of your daily expenses and reconcile them with your bank account.
Set Up Your Accounting Software
Accurate accounting is key for any business, but it’s even more important for construction companies. Not only will inaccurate bookkeeping make it difficult to run your business, but it can also come back to bite you at tax time. For this reason, it’s essential to use a reliable accounting program designed with the construction industry in mind. Look for an accounting solution that offers clients a safe and convenient way to pay online and the tools you need to save time on invoicing, tracking expenses, and generating financial reports. The best construction accounting solutions also support job costing, which is necessary for tracking profitability per project and ensuring that your service prices cover all costs. Be sure to open a separate business bank account and credit card to keep personal expenses from your company’s records. Paying personal expenses from a corporate account, which can raise serious concerns for an auditor, is one of the costly errors it will help you avoid.
Set Up Your Payroll
Construction accounting processes differ from other types of businesses, so setting up a strong foundation is important. It includes establishing billing processes, such as using time and material or a completion percentage. Deciding how to recognize revenue—cash or accrual- is important. Complying with state and federal wage laws and guaranteeing equitable remuneration for laborers are two of the construction industry’s most important functions of certified payroll. You must submit certain information about your employees and contractors, including personally identifiable information, employee classifications, hourly rates, wages, deductions, etc. It’s worth considering using construction payroll software, which can save you time and money by automating your submissions.
