accounting for construction

5 Common Mistakes Made While Doing Accounting for Construction

Accounting for construction can be confusing if you try to do it on your own. Things beyond your control happen in the construction business. You order the right materials, but the wrong materials show up. Clients change their minds, and you must recalculate what you need. Costs fluctuate depending on the changes, and chargebacks happen. For a business that can carry multiple projects, each with its own set of changes to inventory, timelines and overhead, self-directed accounting for construction can be overwhelming. 

Here are 5 common self-directed accounting errors:

Miscalculated Overhead

Tools, training, property insurance and workers’ compensation quickly add up and create a dent in your profits. Using labor costs for estimating is common, but it doesn’t account for jobs where more equipment or higher insurance premiums raise total overhead costs. Proper job costing can help smooth out these fluctuations. Great costing requires great accounting, so you have solid information to draw from.

On-the-Fly Change Orders

One hallmark of construction is that plans change. You may not be the one who initiates the change, and sometimes they can make you money, but often they eat into your profits. Changes made on the fly can easily be overlooked or improperly recorded, leading to incorrect financial information, which can be disastrous for your bottom line. Accounting for construction relies on timely information input to keep costs in check.

Inconsistent Job Costing

Generalized job costing leads to underbidding problems and big losses. It’s true that in certain cases, you can purposefully take on a loss contract, but those losses must be accurately recorded in terms of labor, materials, equipment and insurance. Loss contracts are just as important for building a job costing system as profitable ones.

Mismanaging Accrual Accounting

Accrual Accounting records all revenue and expenses in the period when they occur. As a result, it provides a better picture of your overall performance and better balances the costs of doing business against the invoices requiring payment. But when monies owed to you aren’t paid immediately, you may make costing or spending decisions based on incomplete information and end up short.

Putting it Off for Later

Accounting takes up a lot of time, and backlogged invoices are easy to set aside when you have site work that needs your attention. Unfortunately, this only compounds the accuracy problem. Adding a professional third-party accountant to your team can set you on the path to better financial control.

Working Numbers can corral your accounting under one set of professional Generally Accepted Accounting Principles (GAAP), ensuring financial compliance, timely reports and an accurate picture of your finances. Our business focuses on accounting for construction, allowing us to provide you with cost-effective and accurate service. In addition, we can help with a one-time special project or ongoing bookkeeping needs. 

We provide accounting results that you can use to minimize costs and increase profits. Let us help improve your business’s success. Call us today to discuss your construction accounting needs.

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