Construction Accounting: The Complete Guide for Contractors

Retainage is the agreed-on percentage of the project price that is withheld from a contractor for a defined period until the job is completed. The amount that’s held back is typically defined in the contract, usually amounting to 5%-10% of the contract value. Larger businesses and those who maintain inventory must use an accrual basis of accounting to comply with U.S GAAP (Generally Accepted Accounting Principles). This reaffirms how important it is to account for all costs in a project regardless of whether the project makes or even loses money.

QuickBooks Solopreneur

• The revenue management component manages owner contracts, invoicing, cash receipts and projections.
• Regular businesses typically offer 1-5 different types of products or services, whereas construction businesses offer a wide range of services.
• Premier is the most comprehensive construction accounting software on our list, earning the best overall.
• You should also add your income and expenses from each project into a general ledger to get an accurate overview of your gross and net income.
• The advantage of intuitive software is that you don’t need to spend time learning how to use it and can take advantage of all its features straight away.

Another crucial benefit of construction bookkeeping is that it helps contractors make informed business decisions. With accurate financial data, contractors can identify which projects are the most profitable and which areas need improvement. This information allows for better resource allocation and strategic planning, ultimately leading to increased profitability. CrewCost is a construction accounting software that solves all those problems for contractors.

Expert Analysis

For a change order to be valid, the owner and contractor must mutually agree on all the revised terms. Furthermore, construction firms must comply with local wage scales and regulations at each site. This might involve sourcing materials and machinery from nearby vendors to optimize efficiency and meet local requirements. With over a decade of editorial experience, Rob Watts breaks down complex topics for small businesses that want to grow and succeed. His work has been featured in outlets such as Keypoint Intelligence, FitSmallBusiness and PCMag. QuickBooks for Construction comes in at the best value of all the options on our list.

Automate Invoicing and Expense Tracking

Indirect costs are those which are essential to running your business across projects. Examples include repairs to equipment, insurance, transportation, and software. Having the right bookkeepers, either internally or externally, who understand construction accounting is crucial for your business’s financial health. Using a regular bookkeeper that doesn’t have construction experience will construction bookkeeping services get you in trouble quick.

Cash Flow Statement

Sage Intacct Construction and Sage Intacct Real Estate is designed for contractors and owners to be able to manage properties and projects effectively. When it comes to real estate management, the platform takes static information, such as lease contracts, and transforms them into dynamic information resources. This improves communication, opens up lease opportunities and can accommodate most real estate situations. The Advanced plan adds business analytics with Excel, the ability to manage employee expenses and the ability to batch invoices and expenses.

Retainage is a common practice in the construction industry where a percentage of the contract amount is withheld until the project is completed. This approach protects clients but can negatively affect cash flow for contractors. Properly accounting for retainage is essential for accurate financial reporting and effective cash flow management.

However, with proper construction bookkeeping, this process can be made more manageable. Here are some important ways that construction bookkeeping plays a crucial role in tax filings for contractors. Construction bookkeeping plays a crucial role in the success and growth of contractors’ businesses. Here are some key benefits that construction bookkeeping offers to contractors.

Firstly, construction bookkeeping allows contractors to have accurate and detailed financial records. This helps them keep track of their income, expenses, and profits, which is necessary for making informed business decisions. By having a clear picture of their financial situation, contractors can identify areas of their business that need improvement and make strategic decisions for the future.