Accounting for Builders: 5 Tips to Consider
As you’re no doubt aware, accounting for builders is challenging. Construction companies tend to have unstable workforces, wage rates that can change by location, and multiple ongoing projects with various costs and durations. Here are some accounting tips that can help you stay organized and set up your business for success in the coming year.
Tip 1: Use Job Costing
The tracking of specific job costs — known simply as “job costing” — is useful because it helps pinpoint the specific costs of each project, which can later lead to more accurate estimates and job budgets. Job costing also can help you determine which types of projects are profitable and which ones to avoid.
Put simply, the process involves breaking down a project into phases and then listing the tasks needed to complete each phase. Tasks are then divided into three expense categories: 1) labor, 2) materials (direct and indirect costs), and 3) overhead. Those costs are then added together. Going forward, tasks can serve as line items that you can easily add or delete from estimates as the scope of a potential project is defined.
Tip 2: Tighten Up Tracking of Labor Costs
Your construction company’s labor force might include a combination of salaried employees, union- and nonunion workers, and independent contractors. To have good accounting records, you must diligently track the hours and type of work performed by everyone.
Unfortunately, the tracking of labor hours and costs on multiple projects can easily become disorganized or, worse, inaccurate, and turn into a number-crunching headache. There are many Web-based tools and mobile apps available for construction companies of all sizes to automate the process and reduce human error and oversight.
Tip 3: Improve Inventory Tracking
It’s not unusual for a job to require more labor or materials than originally anticipated. If you’re constantly taking materials from inventory, you can quickly go over budget on that project and find yourself short-supplied for others.
With supply chains in such bad shape recently, maintaining a solid inventory of materials could allow you to stay operational while competitors are waiting for their shipments. But you might need to upgrade your accounting efforts and software to keep a more accurate inventory of materials and their related expenses. Doing so should enable you to more easily see where your resources are going and budget accordingly.
Tip 4: Don’t Let the Ink Dry
Many contractors wait until a project is complete or almost done to start recording costs or incoming payments. But your books should always have “wet ink” — that is, recently updated figures and details to keep you apprised of what’s really going on.
After all, unexpected expenses can occur at any time that requires immediate adjustment to a job’s budget or even your company’s overall budget. On a more positive note, a properly documented and processed change order could mean you’ll receive more revenue from a project than expected.
Tip 5: Ask for Help!
Establishing and maintaining these and other accounting best practices isn’t easy. We’re here to review your month-end, offer advice on better financial recordkeeping, suggest ways to improve payroll management, and even help you identify opportunities for growth.