Construction accounting is a unique form of accounting requiring specific financial management tools. Here’s what you need to know.
The variety of skills the owner of a remodeling and custom building company must possess is endless. From the tangible job skill requirements to the energy required to effectively manage projects, the work of a business owner is never done. Yet, after working with many individual clients, I believe far too many remodelers and custom builders are highly skilled yet underpaid. It does not have to be this way.
Accounting for construction requires specific financial management tools unique to the construction field, and I sincerely believe that profit-margin woes can be reduced with an effective accounting system designed specifically for your kind of work.
My goal is to help business owners like you learn the specifics of construction accounting so that you can maximize your profits.
What’s So Different About Accounting for Construction?
Remodelers and custom builders are in a high-risk, service-oriented business. While job income is usually fixed within the parameters of a job quote, costs often eat away at a project’s profits. These can include factors, such as:
- Variable material prices
- Weather problems
- Labor overruns
This high variability leads to a complex accounting system distinctly unique from other business models.
What Financial Management Tools Do I Need?
The first step to designing a successful construction accounting system is to deeply understand how you run your business. A client may know he or she wants to redesign a kitchen, but only by asking questions concerning the frequency and type of cooking, entertaining requirements and appliance preferences can you design a kitchen that will be the best for your client.
So it is with your accounting system. You can’t create the ideal system for your business until you’ve evaluated your own needs. First define and clarify your vision of what you want for your company. See if you can answer questions like:
- What is your dream for your company?
- What is your company’s mission?
- What are your financial goals?
- What are your service goals?
- What are your operations goals?
- What information will help you monitor your progress toward each of these goals?
- How will you know the right things are happening and the wrong things aren’t?
- Are you willing to hear, face, and solve the wrong things when they occur?
The answers to these questions will help you define the outcome you are striving for.
Then set out to create a system to achieve your vision.
Some of the main tools you will need to establish a successful construction accounting system, include:
- A system for your accounts (i.e., a Chart of Accounts)
- A record-keeping method
- A billing and payment system
- A payroll system
- Management accounting reports (at a minimum: a Balance sheet, Profit & Loss reports, and Job Cost reports)
- Training for your employees
- And to help you manage all of the above, accounting software that is highly customizable for your business.
There are many tweaks and techniques in QuickBooks® that can help you create the exact accounting system you need, but this is a good foundation.
What If I’m New to Accounting for Construction?
That’s what we’re here for! BuildYourNumbers.com offers workshops and training to teach you all the basics and beyond to help your profits mirror your expertise and skill. Sign up today to get started. If you have any questions, please give us a call or email us.