Construction businesses run such complex activities that bookkeeping is not only essential but requires a specific form that is unique to construction. The aim is the same as any bookkeeping activity: keeping track of all transactions, all income, and all expenses… but because construction includes so many different areas, construction bookkeeping can become particularly complex.

In this article, we’ll discuss the importance of bookkeeping for construction companies and the tools that can help you with it.

Why is bookkeeping important for construction companies?

All you need to know about bookkeeping for construction companies

As we’ve mentioned, the importance of construction bookkeeping is given by its complexity. But what is this complexity made of?

  • Scattered custom projects

Construction companies and their work are decentralized by nature. While there may be a connection point that coordinates all the activities, these activities are many, no matter how small the construction site is: designers, engineers, suppliers, transport… Each function requires specific skills, a specific budget, specific care, plus it needs to be coordinated with the surrounding areas.

  • Unicity of projects

No two construction projects are the same. For this reason, it’s unlikely that you can implement the same strategies, expenses, or plans that you’ve already used on other projects.

  • Direct and indirect Costs

No two construction projects are the same. For this reason, it’s unlikely that you can implement the same strategies, expenses, or plans that you’ve already used on other projects.

The construction industry involves direct and indirect costs. Direct costs are those associated with a specific project and they may include labor, equipment, materials…

Indirect costs are those that are essential to run a construction business: insurance, transportation, equipment maintenance, software…

  • The entity of construction projects

Because construction projects usually have a high price, and because contracts can have a very long duration, keeping track of every transaction becomes extremely complex and requires unique scheduling and collection.

Because contracts are so long, furthermore, bookkeeping becomes even more important.

  • External influences

Construction project costs are never the same because they can vary according to weather conditions, transport, the cost of materials, and more… This makes bookkeeping even more complex and more important.

  • Payrolls

Nobody can run a construction company or a single project on their own. Construction projects always involve workers, and because there are tons of workers you need to deal with tons of payrolls. They all need to be precise and punctual, and you can’t manage them without a perfect bookkeeping strategy.

Construction bookkeeping: how do you do it?

All you need to know about bookkeeping for construction companies

Construction bookkeeping can get complicated but it’s not impossible. In this section, we’ll go through every detail you need to record with your bookkeeping and what tools can help you do it.

  • Payment and invoice details

You probably already know that you need to keep all your receipts. You’ll need them to calculate your profits and your expenses, and you’ll also need them for proof in case you ever get audited.

It’s important that you also keep a record of every detail related to your payments and invoices: you can do it manually or – most recommended – you can use software. Less

Accounting saves all your payments and invoices and automatically keeps track of every detail. Whenever you need to check anything, you can start a search and find everything with ease.

  • Job Costing

Job Costing is the process that allows you to determine the costs of working on a project. This is a fundamental phase because it lets you understand how much you should charge for the project.

If you perform this process manually, it can become very complex and time-consuming. Again, using software is the best option. 

The most recommended approach is to divide the project into phases and start considering how much each phase is going to cost. This way makes things easier because even though it’s true that no two projects are the same, some phases can be similar and you can search your software for an evaluation of the costs you’ve already done for a particular phase: a chunk of the work is already done, just like that.

  • Use multiple bank accounts

When you have all your company’s money in the same bank account, you are exposed to many mistakes. The fact is that not all the money in that single bank account is yours: you may have debts, and you certainly need to pay your taxes.

The best practice is to at least have two bank accounts, one with the money you need to pay to creditors and financial authorities, and one with the money you can actually spend.

Managing two bank accounts can seem more complicated than managing one. On the contrary, especially if you use software, dividing the money you can’t spend on projects from the money at your disposal makes things easier.

  • Use milestone payments

Construction projects are often very expensive. Using milestone payments facilitates your clients and yourself. Milestone payments are payments paid out after the construction company achieves a defined stage of the progress on their project.

This way, for the client it’ll be easier to face a big expense, and you won’t have to wait until the end of the project to be paid. Again, managing milestone payments gets very complicated if you don’t use software.

Conclusion: The importance of software

We’ve been through the complexity of construction bookkeeping and, during the article, we realized how software can make things a lot easier. Yes, there are tons of aspects to manage and coordinate, but software can do a lot of things on your behalf.

Using an accounting software solution like Less Accounting simplifies the work of bookkeeping, leaving you the time and freedom to take care of the most creative aspects of your construction projects. When you can focus better on a project, the quality of your work improves and so does the satisfaction of your clients.