Our Tips for Managing a Construction Business’s Finances
Accounting is a critical component of operating a successful construction company. However, properly handling your company's finances may not always come naturally—especially if you are not a numbers person. Furthermore, construction company entrepreneurs confront distinct difficulties when compared to other kinds of companies.
Separate Personal and Business Finances
The first step for every company owner is to open at least one separate bank account used only for business purposes. You may go to a bank or credit union to open a business checking account that meets your requirements. That will make it simpler to keep track of your money.
You will need the following items to open a business bank account:
Social security number or employer identification number (EIN)
Personal identification, such as driver's license or passport
Organizing documents filed with the state
Break Down Project Costs and Job Costing
Because construction accounting is project-based, you'll need a method to monitor, classify, and report transactions for each work. That is referred to as job costing.
Task costing is a technique of allocating costs and income to each job. Not only will this help you prepare for tax season, but it will also give a detailed assessment of profitability for each contract. This guarantees that your service pricing covers all overhead costs while still turning a profit.
Record Day-to-Day Transactions
Record day-to-day activities such as accounts payable, accounts receivable, labor expenses, and material costs in a diary, spreadsheets, or accounting software. You should describe each transaction, as well as the date and amount of income received.
You can charge your customers with construction invoice templates and maintain a paper record of all jobs and money earned.
Track Business Expenses
To keep track of your expenditures, you'll also need a "work costs" diary or spreadsheet. Payroll, subcontractor fees, equipment, and material expenditures will all be included. Again, make a note of the date, description, and payment.
You should also classify these expenditures by service and individual work so that you can simply monitor how much money came in and how much you spent on expenses. You can keep track of all of your expenditures by using an expense tracker and keeping your receipts.
Reconcile Bank and Supplier Statements
Your bank will give you a statement of your income and expenditures every month. After that, you'll want to reconcile your transactions to ensure they line up with your accounting system, invoices, payments, and so on.
Reconciling your transactions entails the following steps:
Comparing your bank records to your expense receipts
Looking for any discrepancies between your accounting system and your bank account
Comparing any transactions to what you have in your expense of revenue sheets
Contacting your bank to discuss any discrepancies
Work With an Accountant
While you may handle your accounting on your own, running a construction business has numerous complications that lead to expensive accounting mistakes.
As a decentralized owner with tasks and contractors in different places, hiring a professional accountant to assist you in balancing a multitude of transactions for diverse activities and services may make sense.
An accountant can assist you in making sense of the statistics, managing your accounts, generating reports, estimating your quarterly tax payments, and much more.
Construction accounting does not have to be complicated. Even if you have no prior accounting expertise, the proper procedure may help you save time on invoicing, accounting, bookkeeping, and tax preparation. Improving your process begins with knowing how construction accounting differs from other accounting and identifying the many types of work expenses incurred on each project. Tracking your day-to-day transactions, reconciling your accounts regularly, and using intelligent accounting software are the best ways to remain organized.
Managing your construction business is a breeze when you have a reliable company accountant. At New Wave, we have the best small business accountants in Gold Coast to cater to your needs. Contact us today to take your construction business to the next level.