11 Ways Your Construction Company Can Avoid Accounting Mistakes
Kirsch CPA Group
Mar 16, 2023
One of the not-so-secret ways to run a profitable construction business is to follow sound accounting practices. Mistakes in financial reporting can be costly, potentially leading to budget overruns, cash shortfalls, delayed projects, unpaid bills and underfunded payroll. Here are 11 ways to minimize the potential for such errors:
1. Separate project expenses. In as much detail as possible, distinguish job costs from general expenses to ensure the former are accurately attributed to each project. Doing so will help prevent inaccuracies that could affect your company’s overall budget.
2. Ensure estimates reflect true job costs. When estimators don’t have a complete understanding of current costs, both direct and indirect, projects often end up costing more than what was budgeted. Obviously, estimates should be as close as possible to the final job costs. But that’s easier said than done in an inflationary environment.
One way to help ensure accuracy is to use coded job costing, which essentially assigns price tags to individual tasks based on the resources consumed. You can use cost codes as line items in estimates, easily adjusting or deleting them to account for scope changes.
3. Schedule payments. Establishing a regular billing schedule makes managing accounts receivable less complicated and helps you track monthly income. Progress-billing contracts allow you to bill regularly or when designated milestones are achieved. Equally important is establishing a straightforward process in contracts for change order approvals and invoices that allows you to timely bill for additional work.
4. Track job costs in real time. With prices on the rise and profit margins at risk, it’s important to closely monitor costs throughout a project. Regularly comparing estimated costs to actual ones will help you catch mistakes and adjust to cost fluctuations, whether related to materials, labor or equipment. Capturing this data will also assist you in determining whether you’re billing customers appropriately.
5. Maintain accurate records. Keeping and organizing relevant financial documentation — including invoices, receipts and purchase orders — helps to ensure all expenses and revenue are accounted for so you can identify errors before they become major problems. Organized records are also critical for tax and audit purposes.
6. Track materials and inventory. If your construction business stores materials or other items, have you upgraded your inventory system recently? Tracking the availability and usage of materials across projects can make managing these commodities easier and minimize the risk of losses. With the right technology, you can monitor deliveries and avoid wasteful spending.
7. Reconcile bank accounts monthly. Checking the balance in each bank account statement against the balance in your accounting records helps to identify discrepancies. These can include bank errors, checks that haven’t yet cleared and transactions that were improperly recorded. Reconciliation can be done for loan and credit card statements as well.
8. Have financial statements double-checked. Scheduled reviews or audits of financial statements can help identify and address discrepancies, downward trends and areas of weakness. Audits are by far the more thorough assurance service.
9. Upgrade accounting software. If you’re not already, consider using accounting software specifically designed for the construction industry. Before buying, make sure it can integrate with your other systems. Integrated solutions help streamline financial management and reduce the risk of errors caused by paper processes, manual data entry and manual transfers of data from one system to another.
10. Train and upskill employees. To the extent feasible, invest in continuing education and “upskilling” (refining existing skills) for your accounting staff. But don’t stop there; ensure all employees understand their roles in the financial management process. This particularly includes project managers, who can have a huge impact on gathering data and controlling costs.
11. Don’t go it alone. Top-performing construction companies rely on professional advisors for a reason. Kirsch CPA Group firm can help you establish and follow the right accounting practices to minimize mistakes and maximize the utility of your data.
We can help you tackle business challenges like these – schedule an appointment today.
© Copyright 2023. All rights reserved.
About The Author
Kirsch CPA Group is a full service CPA and business advisory firm helping businesses and organizations with accounting,…
Tags
Sign Up for Email Updates
Related Articles
Do You Know How SECURE 2.0 Will Affect Your Manufacturing Company?
- 03-16-23
- Kirsch CPA Group
Top 3 Federal Tax Law Changes that Could Affect Your Business Return
- 03-02-23
- Kirsch CPA Group
What Are the Most Common Form 990 Mistakes Not-for-Profits Make?
- 02-16-23
- Kirsch CPA Group
8 Ways to Insulate Your Construction Company Against Rising Costs
- 02-10-23
- Kirsch CPA Group
Tax Treatment of Debt Forgiveness: Watch Out for Tax Bills Delivered COD
- 01-18-23
- Kirsch CPA Group
Manufacturers: Be Aware of These 3 Business Tax Provisions Currently in Limbo
- 01-18-23
- Kirsch CPA Group
The Tax Deductible Mileage Rate for Business Driving Increases for 2023
- 01-04-23
- Kirsch CPA Group
Succession Planning Considerations for Construction Business Owners
- 12-14-22
- Kirsch CPA Group
Prevent Fraud at Your Construction Company With a Holistic Approach
- 11-30-22
- Kirsch CPA Group
Manufacturers Must Act Now to Maximize Depreciation-Related Tax Breaks for 2022
- 11-09-22
- Kirsch CPA Group
It’s Time for Businesses to Rethink Their Working Capital Practices
- 11-09-22
- Kirsch CPA Group
Social Security Wage Base and Earnings Test Amounts Increase in 2023
- 10-27-22
- Kirsch CPA Group
New Law Enhances Payroll Tax Break for Small Manufacturers’ Research Expenses
- 10-13-22
- Kirsch CPA Group
How Buy-Sell Agreements Factor into Business Owners’ Estate Plans
- 09-14-22
- Kirsch CPA Group
SALT Cap Workaround Law Could Save Ohio Business Owners Over $100 Million
- 08-31-22
- Kirsch CPA Group
How Manufacturing Companies Can Benefit from the Section 179 Expensing Deduction
- 08-04-22
- Kirsch CPA Group
Could the Work Opportunity Tax Credit Help Your Construction Company?
- 06-23-22
- Kirsch CPA Group
Good News: IRS Boosts Standard Mileage Rates for Second Half of 2022
- 06-23-22
- Kirsch CPA Group
Education Benefits Can Help You Recruit and Retain Smart Employees
- 05-26-22
- Kirsch CPA Group
Ensure Your Construction Accounting System Has the Right Features
- 05-12-22
- Kirsch CPA Group
John Kirsch Named to Greater Butler and Warren Counties Business Hall of Fame
- 03-25-22
- Diane Glover
Manufacturers Need to Act Soon to Take Advantage of 100% First-year Bonus Depreciation
- 03-17-22
- Kirsch CPA Group
Commission Fraud: Salespeople Getting Paid More Than They’ve Earned
- 02-04-22
- Kirsch CPA Group
Consider a New Approach to Meeting Your Business Real Estate Need
- 09-17-21
- Kirsch CPA Group
Beware: Teleworking Arrangements May Cause State Tax Withholding Issues
- 08-18-21
- Kirsch CPA Group
5 Common Construction Accounting Risks — and How to Address Them
- 07-07-21
- Kirsch CPA Group
Supreme Court Finds No Standing to Challenge a Provision of the ACA
- 06-24-21
- Kirsch CPA Group
Labor Shortage: Unlock Solutions by Evaluating Your Employment Value Proposition
- 06-09-21
- Kirsch CPA Group
Material Participation Standard is the Key to Unlocking LLC Tax Losses
- 05-27-21
- Kirsch CPA Group
Know Your Legal Obligations Under the Americans with Disabilities Act
- 05-13-21
- Kirsch CPA Group
PPP Loan Not Forgiven? There’s a Safe Harbor for Deducting Expenses
- 12-03-20
- Kirsch CPA Group
What You Need to Know About the Deferral of Payroll Tax Obligations
- 09-15-20
- Kirsch CPA Group
PPP Loan Forgiveness – Significant Borrower Friendly Changes on the Horizon
- 06-04-20
- John Kirsch
Tax Filing Deadline Remains April 15 – Payment Due Extended to July 15
- 03-19-20
- John Kirsch
Prepare to Receive a Social Security Administration No-Match Letter
- 10-15-19
- Kirsch CPA Group
IRS Announces Changes for Personal Use of Employer-Provided Vehicles
- 06-10-19
- Diane Glover
Watch Out for these Tax Issues When Planning for Your Business in 2018
- 06-26-18
- Diane Glover
What Image Does Your Organization Present to Large Contributors?
- 03-15-18
- Kirsch CPA Group
8 strategies to help you adapt to economic down turn without layoffs
- 02-24-18
- Diane Glover
Remember To Take Required Minimum Distributions at Age 70 1/2 Or Face Penalties
- 02-17-17
- Sue Schloemer
Time is Money: Don’t Spend Valuable Time Inputting Data into QuickBooks
- 06-18-22
- Diane Glover