Bad bookkeeping habits can set your construction company up for disaster. Bookkeeping is a significant accounting function for determining the financial health of your company. If you are not diligently recording transactions in an organized manner, your financials will be a mess. With messy financials, how can you confidently make decisions and ensure the profitability of your construction company? Below are tips to improve construction bookkeeping, so you can be confident in your books and get ahead of the game.
Outsource construction bookkeeping
Perhaps it may not make sense to have an in-house bookkeeper. Sometimes there is not enough work to keep an individual busy full time or you would rather add headcount to your field labor force. In those cases, it may make sense to outsource construction bookkeeping. A danger many companies do is add bookkeeping as a collateral duty to an office manager or receptionist. For one thing, it is not a part of their skill set. Additionally, what happens when that one person is out sick for a length of time or leaves the company?
It may be in a company’s best interest to outsource bookkeeping to a highly skilled specialist or team of specialists. Just as your labor force is skilled at their trade, a good bookkeeper is skilled at their trade as well. Outsourcing your bookkeeping lets you focus on your construction business and the work of construction versus bookkeeping.
Using the right accounting software
When your company is ready to take on bookkeeping and account functions in-house, accounting software will be helpful in keeping your team organized. Accounting software helps bookkeepers record financial transactions in one centralized location.
There is lots of different accounting software on the market. Many are finely tuned based on the specific needs of a small, medium or enterprise-sized business. With many small to medium-sized construction businesses, general accounting software may be suitable. However as the company grows, it may make sense to start exploring accounting software developed specifically for the construction industry. It will help make construction bookkeeping easier as the company grows and the financial transactions become more complex.
Back up all relevant records
Bookkeepers must organize and store everything from invoices to receipts. If you choose to keep hard copies of documents, the bookkeeper must organize them in a way that is easy to find. Additionally, the bookkeeper should store them in a fireproof filing cabinet. A best practice would be to create a digital copy in the event that the hard copies get damaged or lost. It can be stored in the accounting software or in a cloud-based storage system. The beauty of a cloud-based storage system is that the information is safe in the event of physical damage to the building or server. The one catch is that when you no longer pay your subscription, you will lose access to your important documents.
Recording job costs
One of the core parts that make construction bookkeeping complex is job cost tracking. Recording financial transaction to projects and tasks enables construction owners to track accounts receivables and payables by specific projects. How close are our actuals tracking against the estimates?
Tracking costs to specific jobs will help the owner determine which projects are more profitable than other projects. Learning this information will help refine estimates by providing historical job cost information or even allow the construction company to specialize on specific projects.
Track change orders diligently
Change orders are a norm in construction. They have the power to make or break profits on a project. Construction bookkeepers must diligently track change orders and their effect on the overall budget. Bookkeepers can record any extra materials or labor used to the change order specifically rather than just the job. This will help the construction bookkeeper, project manager, and owner know exactly how much the change orders can take a project’s financials sideways.
Integrate with other software systems
Although they are not out their building, the accountants and bookkeepers are getting their hands dirty. They are working through all the financial data to ensure the project is a financial success. Accounting is a critical part of the construction project workflow. The field team provides information to the accounting team in order to process billings. The Accounting team provides information to the project management team in order to track project profitability. Project and financial information flows throughout every department. It may not make sense for a company to move to an all-in-one solution. However, it makes perfect sense that the financial information flows freely between all departments within a company and their corresponding solutions. Whether it is a direct integration with automatic synchronizing or import of information, the seamless flow of information will minimize manual entry and ensures accuracy of information.
Bookkeeping is the recording of financial transactions—purchases, sales, receipts, and payments. It begins as a simple process of ensuring the input of cash is larger than the output of cash. However, to position your construction company for long-term financial success, bookkeeping is a serious function that one should manage meticulously. Good construction bookkeeping provides owners with the confidence of financial health and long-term viability.