Construction Bookkeeping is key to ensuring that your construction business is as profitable as possible and there are no surprises at tax time. Bookkeeping for construction or any small business must follow a few basic principles that are common to all small businesses. In this blog, you will learn the basics of construction bookkeeping that you can start implementing in your business right now and, when the time is right, outsource construction bookkeeping to the specialists, like all of us here at Working Numbers.
Construction Bookkeeping Basics
To keep a handle on your Construction business financials, you will need to keep track of all the money coming in and money going out. You can use the old-fashioned pen and paper method or bring your bookkeeping into the 21st century and use a digital spreadsheet. You can also take your bookkeeping up a notch and use Quickbooks. Regardless of what method you decide to use, there are two key points to remember. Firstly, keep all the receipts and invoices. Paper or digital; keep all copies of transactions coming in or going out so that if you need to prove your expenses to your business accountant or …the IRS, you have them. Secondly, be sure you stick to logging every transaction either on paper or on a digital spreadsheet. Bookkeeping doesn’t work if you don’t actually get the numbers into your logs.
Accounts Payable (AP) and Accounts Receivable (AR) – this is the basis, the nuts and bolts so to speak, of construction bookkeeping. Accounts payable are your debts – the money you owe others. Accounts Receivable is the money that is owed to you or your income. You have to log the money going out and the money coming in. While you will also have diminishing assets, losses, and other more technical accounting issues to consider when keeping your business books, accounts receivable and accounts payable are the cornerstones of good bookkeeping. Be sure to have separate books or separate spreadsheets for each. Of course, monitoring accounts payable and accounts receivable works better when they work together. The best way to accomplish that is with accounting software, like Quickbooks. Keeping separate logs, however, will make digitizing your AP and AR easier if you outsource your construction bookkeeping in the future.
Bookkeeping and Accounting get a bit more complicated from here. In fact most construction business owners won’t understand the more complex principles of accounting like how to calculate depreciating assets – where does that go in the books anyway? Taxes can also be a bit of a nightmare and, if the Accounts Payable and Accounts Receivable aren’t maintained properly, can result in overpayments or the dreaded underpayment that the IRS comes to collect later – with interest. Construction bookkeeping basics, however, allows you to determine if your construction business is making money or losing money and when you have all that information in the books, allows you to see if and where your business is hemorrhaging money so you can make adjustments. It also allows you to hand over the books to a construction bookkeeping pro who can work your numbers into a more usable format easily.
Construction Bookkeeping Wrap Up
In short, if you have receipts, invoices and other financials floating around the inside of your work truck, office, or wallet – stop. Wrangle all that information, get hardcopy or digital logs set up and start tracking all the money your business has coming in and going out. When you own a business, knowing your income and expenses, to the penny, is vital to knowing if your business is in the black. Managing the bookkeeping yourself or dealing with more complex issues like depreciating assets, payroll taxes and other pro accountant type issues might indicate it’s time to turn over your logs to a construction bookkeeping professional or invest in accounting software, like Quickbooks. Either way, you will have organized all the financial information you need to make better business decisions or to quickly access accounting help if and when you need it. So get your accounts payable and accounts receivable organized and get a better understanding of your construction business finances.