Construction Bookkeeping Services – Our Favorite Bookkeepers For Construction
Construction bookkeeping services is a form of bookkeeping service employed when sales, assembly, and delivery of a particular kind of product is done by mobile means. This means that every stage involved in selling a product to a customer is done at the location of the customer.
Bookkeeping is the means of recording financial transactions which include payments, sales, receipts, and expenses. It is done in other to ensure profit, which means that the amount of money coming in is consistently larger than cost, which is the amount of money going out. Bookkeeping is a procedure that must be taken into consideration in any form of business in order to guarantee profitability.
Construction companies require bookkeeping services because they must identify various forms of a cost that originates from time spent on traveling, costs on utilization such as loading of multiple tools used for construction, cost on transportation and delivery of building materials to the project site, and cleaning and clearing of the site after a project is completed. All these constitute a lot of expenses.
As such, the operations of the construction business are not restricted to a particular location, and it is transported to wherever the client requires it along with the supplies needed for the work.
Also, business involving construction takes account of revenue generated as a result of the anticipated profit to be amassed from a contract and also the percentage of work that has been completed in the project. As a result, it is important that construction companies employ bookkeeping services to monitor their expenses accurately, to observe both profit and loss obtained from the project.
There are a lot of benefits in understanding the essence of construction bookkeeping. It is alarming to discover that there are many erroneous management decisions that occur from inaccuracies in report formulation by construction business owners who have poor knowledge of the need for construction bookkeeping services.
Business owners who keep adequate records of business transactions are more likely to make effective decisions about their business. To avoid mistakes or inaccuracies which can be costly to business operation and management, there is a need to employ the services of a construction bookkeeper.
If jobs are not efficiently undertaken, the profit made from the completion of a job not adequately reviewed, mistakes not correctly sorted out, and accuracy in carrying out a business transaction not improved, there would be a lot to forgo as regards increased the possibility of making a considerable profit.
STEPS FOR EFFECTIVE BOOKKEEPING SERVICE IN CONSTRUCTION
Excellent bookkeeping leads to better-informed decisions by the business owner. It helps to operate and develop the construction company which is in an industry where cost is essential. In other to preserve profit margins, construction firms have to employ adequate methods of bookkeeping which in the long run would lead to the desired growth and development of the business.
It is imperative for construction company owners to apply bookkeeping services in their financial transactions to increase their chance of attaining lasting success with profit making. Effective bookkeeping does not only help a construction company to conform to tax regulations but also to perform business operations typical of the construction industry.
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However, there are a number of steps to follow to ensure construction company owners achieve a maximum level of profitability in their business:
With regular and continuous maintenance of the business records, there is a reduction in the complexities involved in performing duties in the construction company such as constant changes to the costing of the project and schedules of the contractor.
The size of the company actually determines the amount of bookkeeping to be done. In a smaller company for instance, since the activities performed are minimal, bookkeeping can be done weekly to enable any inaccuracies with financial transactions to be easily noticed and resolved. In the case where a construction company possesses a lot of workers, they would need to obtain reports from each sector of the company daily. With this, problems are quickly noticed and resolved
Adequate reporting of records
Construction companies usually work on several projects at the same time, and as such, there is a need to avoid any form of costs that are not warranted. Also, there is a need to develop a tactic to attain maximum level of profit and make sure the prediction of cash flow is done with precision. This helps to ascertain the acquisition of lasting success in the construction business.
Prediction of the cash flow in and out of business helps in the proper planning and preparation for tight periods where there might be little cash available for expenses. This does not remain the same however as there is a high possibility of bouncing back and become financially capable. This allows the company to be able to pay employees consistently without delay.
Also, it is necessary to reduce the cost and expenditure of a construction company to meet up with profit goals. An effective way of doing this is by employing a budget and variance analysis.
A budget analysis helps to plan costs at a particular instance adequately and helps to provide funds that are adequate for this purpose. Then a variance analysis is employed to compare the budget with money spent during each period.
In this procedure too, the size of the company is also taken into consideration. For a smaller company, it is necessary to employ a system of budget and variance analysis monthly in order to detect any financial inaccuracies and find a solution to it.
Employment of staff or use of contractors
Construction companies usually find it difficult to choose whether to employ workers or obtain the services of contractors with the consideration of cost. With a large number of staff, the expenses incurred on payroll would be enormous, and this leads to a reduction in profit. Alternatively, using the services of contractors can be challenging when issues of inability to meet the deadline of projects arise.
Staff are more dependable and can keep to the time set for a particular project, but contractors are more economically efficient because there is no need to incur excess costs such as payments of bills, invoices and also avoid sorting out PAYG (Pay As You Go) and superannuation bills.
Any of the two resolves have their advantages and shortcomings. If the decision is to employ staff, then there would be a need to employ software for bookkeeping which involves handling payroll to manage the payments of PAYG and superannuation efficiently. A professional bookkeeper would help to decide what bookkeeping software would be required to train and assist employees on how to effectively use features of the payroll.
The mobile system of business operation
Due to the structure of the construction work, whereby the majority of the activities are done on site, it is necessary to employ a mobile and portable system of bookkeeping to allow an instant recording of any essential detail such as a need for a change order. This makes it faster and easier to be done.
After selecting the most effective method for bookkeeping for a construction business, it is necessary to train staff and employees so they can acquire a basic understanding of how the mobile system of bookkeeping works. This helps to ensure that staff are paid when due and also integrate inventory regulation and monitor any sudden changes.
Efficiency in the work operation
Various bookkeeping activities can be entirely mechanized to ensure a maximum level of efficiency in operation. Also, less time and money would be spent and also ensure precise delivery of data and records
The size of a company does not affect the use of mechanized bookkeeping activities. It can be applied to all sizes. The activities include submission of inventory reports that determines when the level of stock is low and a need to restructure items, avoiding entry of data manually by developing secure bank feeds and creating codes for job costing to streamline invoicing.
It is convenient to leave bookkeeping and anything that has to do with financial transactions to professionals that can handle it. This enables the business owner to focus more on other aspects of the construction. Professionals would help get the best out of financial transactions and employ bookkeeping solutions that are typical to the construction industry.
METHODS OF BOOKKEEPING FOR CONSTRUCTION COMPANIES
Construction companies have a wide range of options of bookkeeping as opposed to other business taxpayers due to the unique nature of activities they perform and the inaccuracies that can result from calculating profits at various instances during construction work. The options for bookkeeping includes:
- Cash method: In this method, revenue, cost, and expenses are realized from receipts and payout of funds. This method ensures coordination in planning for the acknowledgment of incomes that are taxable, spurred by the process of giving out adequate vendor payables with a view to attaining maximum level of profitability.
In other words, income is acknowledged when received and expenses recognized when they are paid, and there is no effort to link income to expenses
- Accrual method: In this method, revenue is generated when billing is carried out, and expenses are realized on the receiving of invoices or when costs are identified to occur when invoices are yet to be received. This means that revenue is acknowledged immediately it is received. Under this method, the tax is placed on excessive billings.
Accrual method gives a more precise detail of a company’s financial situation, and construction companies can utilize this method in their various projects.
- Completed Contract Method (CCM): In this method, both income and expenses are only recognized on the completion of a construction project. Construction companies that carry out large projects must employ this method to ascertain job costs that are indirect such as expenses made on a project different from that on labor and materials used.
Also, general and managerial costs not applied to any project can be reduced, and examples of such costs include business promotion and advertising costs. In the completed contract method, there is an adequate opportunity to comply with income and tax.
When the completed contract method is used, it is necessary to consider the backlog. A backlog helps in maintaining the deferral and on completion of work, the taxpayers can acknowledge the complete deferral.
- Percentage of Completion Method (PCM): This method is concerned only with the income acquired as costs and expenses are taken care of using the accrual method. Income is recognized based on the continuity of the project which is ascertained by either the PCM or the accrual method.
This is a cost contrast method, and it requires obtaining the percentage of the projected job completed at a particular period. The percentage is now employed in the amount of the contract to ascertain the revenue that would be generated for that particular period. Also, the work comparison method can be applied to recognize the revenue generated based on the level of work completed for that period, but it requires detailed and comprehensive documentation to use this method.
- Method Choice: The IRS has designed three methods from which a construction company can choose from. They first need to group the projects according to duration and length such as long-term and short-term projects. For short term projects with the initiation and completion of the projects in the same year, construction companies can employ the regular cash method or the accrual cash method.
The next procedure is to organize long term projects into simple construction or general complex construction. After that, the classification of the company’s size is necessary. Large contractors should employ the percentage of completion method (PCM) for complex contracts and the completed contract method (CCM) for simple constructions.
However, it is imperative to take an overview of each contract to determine the type of construction bookkeeping method to adopt and if it is able to formulate a tax deferral and shift paying taxes to a future date. In the construction sector, the cost is important and formulating these deferrals would be favorable to the day-to-day construction operation.
NEED FOR ACCOUNTING TECHNOLOGIES IN CONSTRUCTION BOOK-KEEPING
Construction bookkeeping is usually more complicated than other forms of business bookkeeping. The ability to document and take account of costs and other forms of expenses in construction work is necessary for the process of bidding for a project. It is also necessary for determining how much profit can be gotten from a project, how to charge a client moderately and how to make the best use of the assets of a construction firm.
Construction bookkeeping services actually require a day-to-day record of every financial transaction undertaken in and out of the project site. Book-keepers would then document the records into an accounting system generated for that purpose. This procedure usually takes a lot of time and generates surfeits on paperwork.
An effective way of keeping tabs on all the expenses made in project work is by employing an incorporated software program that permits key workers or employees to tender daily expenses made and also a progress a report on their daily activities. The reports submitted are then collated and documented digitally and made accessible to every employee, and this enables an instant solution to any issues that might arise with costing.
CONSTRUCTION BOOKKEEPING SERVICES
Construction bookkeepers are employed to oversee various expenses their clients have incurred over time. Their services are necessary in order to make sure no important details are missing or forgotten which may be detrimental to the business.
A qualified construction bookkeeper possesses adequate experience in job costing which is an utmost consideration for construction companies.
It is necessary to get a professional bookkeeper for construction because of the broad knowledge and skill they have acquired. They have made intentional efforts to become specialists in construction bookkeeping. They have taken it up as a profession and have the enthusiasm and zeal for it.
Construction bookkeepers have invested a lot of hours to understand the essentials of bookkeeping and accounting. Afterward, they begin to apply their professionalism in bookkeeping by working for industries and/or business organizations. They go on to use the opportunity to expand their knowledge and master the difficulties involved in bookkeeping.
The work of a construction bookkeeper is extremely demanding as a result of the difficulties in business transactions they are faced with. They should be provided with an efficiently-designed working guide to enable them to know what to do at every stage.
They should be provided with working devices, both hardware and software, in a suitable working environment in order to achieve suitable working conditions. They work on the complex transaction processes because of their knowledge and skill in book-keeping services.
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FUNCTIONS OF CONSTRUCTION BOOKKEEPERS
The duties of construction bookkeepers are valuable in the complexities involved in transactions. Their duties include:
- bank transfers
- non-recurring cheques
- keeping track of retention that is unpaid to a contractor
- keeping track of retention that is due to sub-contractors
- engage in wired transfers
- taking accounts of regular journal records
- debit and credit card deals
- management of funds between a cash account and an investment account
- staffs loans and compensations
- payment of bills
ADVANTAGES OF ORGANIZED CONSTRUCTION BOOKKEEPING SERVICES
Reduction in costs
Effective bookkeeping service helps to reduce cost in many ways. The benefits obtained from a reduction in cost are the absence of payroll taxes, all-expense paid vacation and other side attractions that come with employment. Payment of construction bookkeeping services is usually less costly than payment of employees.
A construction bookkeeper serves as an overseer over a construction company’s financial business and always tries to lower costs at every possible opportunity and focuses on the aspect of the finances that needs attention. A bookkeeper would not always reveal negative financial information about a business to the owner but find ways to solve the problem.
Fairness in viewpoint
The services of a construction bookkeeper help to offer unbiased and impartial information about the financial situation of a business. It can be a positive or negative stance, but in any of the ways, it turns out to be beneficial to the business owner. A construction bookkeeper leaves out any form of emotions when it comes to dealing with the financial operations of the business.
Trustworthy and reliable
Construction bookkeeping services are usually interested in a lasting relationship with the contractors, and they stay committed and reliable. Without a bookkeeper, there would be difficulty in running a business efficiently, but once they are hired, they work on a long term basis.
A touch of professionalism in a business
There are professional bookkeepers for the different forms and dimensions of business. For a construction industry, getting bookkeepers can add a touch of expertise to the business. Records of business transactions are handled with the best level of proficiency and skill.
Attention is given to the important aspect of the business
Applying the services of construction bookkeeping would enable the business owner to pay attention to the important aspects of the business at any period. For instance, if the consideration of the business at a particular point in time is towards sales and development of the business, a bookkeeper would provide the financial analysis that would be required to achieve the goal.
Also, using a construction bookkeeper would lessen the burden and concern of a business owner on anything that has to do with the financial records of the business and enable the owner to pay attention to other things.
METHODS OF IMPROVING OUR CONSTRUCTION BOOKKEEPING SERVICES
Lousy bookkeeping services can be detrimental to your business and if transactions are not properly recorded, it may cause untidiness with your finances. This, in turn, would lead to the inability to improve the profitability of your business
Some methods can be applied however to improve your construction bookkeeping services:
Outsourcing construction bookkeeping
It may seem sensible to actually apply the services of a contractor as regards construction bookkeeping in order to beat down on the cost of paying a huge amount of salary for little or no work done by an employee. The reality is that many times, individuals employed as staff for bookkeeping are not faced with a lot of work particularly when it is a small-scale construction business
Some construction companies take a different approach by transferring the duty of bookkeeping to either the receptionist or the person in charge of administration. Unfortunately, it is not part of their capabilities, and this may be costly as there would be a lot of financial inaccuracies.
It is, however, better for a construction company to outsource bookkeeping services to an expert that has the required skill for this practice. Also when bookkeeping is outsourced, there would be more opportunities to pay attention to other important aspects of the construction business.
Working with the right software for bookkeeping
The software enables the process of construction bookkeeping to be organized and efficient. It eases the work of a bookkeeper by allowing financial transactions to be recorded in a unified platform. There are numerous bookkeeping software available for the bookkeeping needs for different scales of business.
Small or medium-scale construction companies can use general bookkeeping software, but as the company develops, it becomes necessary to start making use of software that is exclusively designed for a large construction business. This would help to lessen the burden of the complexities involved in the financial transactions as the company becomes larger
Keep a back-up of all financial records
Construction bookkeepers must collect, organize and store documents and financial records in an orderly manner so it can be easily retrieved when needed. For hard copy documents, it must be properly arranged in a file cabinet. For soft copy documents, it must be stored in the bookkeeping storage system such as a cloud-based system in such a way that it can be easily accessed without going through much stress.
The benefit of the cloud system of storage is that in the case of a fire outbreak in the building and everything within the building is damaged; the important files can still be accessed.
Monitoring job costs
A difficult aspect of the construction bookkeeping process is monitoring job costs and expenses. Taking records of financial transactions involved in a project allows construction company owners to be able to keep tabs on both account receivables and payables that comes from an on-going project.
Monitoring costs of various projects would enable the job owner to ascertain the level of profitability in each project. Knowing about this would help to improve estimates by providing necessary information about old job costs and even permit the construction company to be more profitable in certain projects.
Follow up on change orders
In the construction industry, change orders are common features, and they occur often. They can either increase or reduce the level of profitability. Construction bookkeepers must efficiently monitor and follow up on change orders and the outcome it poses on the total budget.
Extra materials or labor utilized in the change order can be recorded by the bookkeeper apart from those that are used in the original job. This would enable the construction owners and the bookkeepers to determine the kind of effect change orders can have on a project’s finances
Integrate with other systems in the construction business
Although construction bookkeepers are always indoors, they perform an arduous task of ensuring the financial success of a construction company. They go through all the financial data presented to them and try to limit all inaccuracies. Bookkeeping is a critical feature of construction activities.
The various practitioners in the construction business provide detailed information about financial transactions to the accounting department to record invoicing. The accounting department then reports to the project management department in order to determine the best means to make maximum profit.
It is necessary for the financial process to flow from one department to the other and not concentrate it in a section of the construction of the company. It can be either be applying an automated solution to bookkeeping or bringing in information. Whatsoever the case, the smooth flow of financial information would help to avoid the means of manual entry of data and errors in information.
COMMON HIGHLIGHTS OF CONSTRUCTION BOOKKEEPING SOFTWARE
The bookkeeping software construction companies make use of has a lot of varied features. The primary aim of every construction company is to make a profit from any project they undergo and as such the bookkeeping software is the most commonly used software.
Every bookkeeping software can handle the essentials of account payables and receivables and other general journals. Nevertheless, construction companies require specific bookkeeping software designed specifically for construction because of their distinct mode of business operation.
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There are some common indicators to determine which accounting software has the requirements to handle the financial transactions involves in construction business:
Complex office division
Construction companies that consist of several multiple departments would require a bookkeeping software that would be able to handle all financial dealings from every division or department. Each department in a construction company usually has distinct financial objectives, and it adds to the entire profit-making goal of the whole establishment.
The structure and flow of activities in construction companies that constitute several departments are varied. For this kind of large organization, they utilize a software solution, such as Sage 300 CRE because of its capacity to effectively monitor transactions for numerous business organizations and at the same time offer enhanced financial records.
AIA method of invoicing
Some projects require a billing form designed by the American Institute of Chartered Architects which makes use of the G702 and G703 standard of forms to bill as the project continues. For this purpose, they make use Foundation software for bookkeeping which has AIA billing implements integrated into the software. The information derived from records and schedule values can then be produced on a paper.
Since there is a section for AIA billing form in Foundation software, the data obtained from the billing records can then be directed to a general ledger of job costs.
Tracking Job costs and expenses
The ability to generate profit in a business is determined by how much costs and expenses are monitored so that they can be reduced by any means possible. This is an important aspect of bookkeeping software. Bookkeeping software such as Sage 100 or 300 CRE enables a compact tracking of costs. They are able to identify items that might affect the profitability of the business.
Time and material costing
Projects that do not employ the AIA method for billing can use the time and duration of projects and materials to bill. Construction companies utilize bookkeeping software that establishes an invoice based on the expenses made in the project and other markups. Foundation software is flexible enough in systematizing the costs of time and materials.
The software permits markups to be done in a variety of ways such as by cost-plus, fixed rate, and percentage. Also, billing of time and material is forwarded to the general ledger or job costing.
Tools and inventory
These are essential features in construction companies, and they pose a substantial investment. Bookkeeping software enables entry of fixed assets and control depreciation schedule such that it tallies with IRS.
Also, alongside management of the equipment used for construction, construction companies also handle depots where they store their products. As a result, there would be a need for proper records and management of the product in terms of sales and purchase.
Bookkeeping software enables easier and quicker management of the inventory taking into consideration the monitoring of product costs, payments, and usage. Monitoring of the inventory allows for constant supplies which ensures progress to the project.
This also has a similar billing method employed with time and material as any inventory recorded is posted on the general ledger to guarantee precise estimates as compared to the real cost of the project.
Evaluation and reporting of financial transactions
With these, Quickbooks can be used. Although it is a bookkeeping software designed for small and medium scale companies it has extensive and sophisticated tools for reporting to help in the management of the construction company.
Users of this software have the ability to modify reports and transfer them through email on a planned basis.
There are numerous bookkeeping software that can be used; however, in terms of selecting the appropriate one, consideration must be given to the size of the company. Some software solutions are more suitable for small sized construction companies while some are suitable for large scale companies.
Construction companies in search for construction bookkeeping services can rely on our favorite bookkeepers for construction. They ensure proper and effective integration with other services in the construction industry. They utilize software systems in concordance with other systems available, and at the end every sector of the business is satisfied.
They also ensure an adequate and continuous flow of work from one department to the other in the company.