If you own a construction business or if you are planning to in the future, you should know that accounting is one of the most important parts of a business. Having this department well organized and updated ensures profitability and transparency.
Construction companies will face some special challenges that not every company is going to face. That is why in this post we want to talk about those challenges and learn the difference between the accounting for a regular company and a construction company.
How is the accounting process for construction companies different from others?
A regular company, like a restaurant for example, will follow normal accounting principles. They know their numbers and the processes are going to be repeated every month or so.
Construction companies offer a different and customized type of work, and that work is often mobile. Another important thing is that construction companies need to manage different categories of costs.
How much does it cost you to arrive at the location of the construction? How hard was the mobilization of all the tools and materials? How much time is going to be spent on cleaning after everything is done?
You can say that this job does not have a specific location, so you will need to move your materials, tools, and team to the customer. This creates a lot of costs that need to be considered in the process when you are putting your numbers in order.
There are also some construction companies that use something called the Percentage of Completion where revenue is accounted based on the profit that was estimated at the beginning of a contract and the percentage of that project that has been completed.
So, after a contract is finished the payment would be the full amount, but sometimes it remains unfinished.
That is another important reason to keep your accounting process organized because missing something can mean big losses for your company.
Main differences between regular companies accounting and construction accounting
- Many of the things that a regular business would call “overhead” are in the “cost of goods sold” category in construction. That is because those are connected to the customer directly. If you do not know the difference this will cause you to lose money and time in the accounting process.
- A construction company has a bigger amount of services. They can work directly as a construction service but also as consultants, engineers, designers, materials providers, etc. This makes the tracking of expenses and profit much more difficult.
- With a construction company it is not so simple to identify and calculate a breakeven point as it is for regular companies. As mentioned before there are many more categories of items to take into consideration. Another thing to consider is that many projects will be different, and this will cause a variety of requirements that are hard to track.
- Regular businesses simply record the cost of the product sold. In construction accounting, it is not as simple. The direct and indirect costs of every job can fall into many different categories and keeping track of all of those can be complicated.
If you have a construction company, you see the need to have an organized accounting department. It is understandable that managing one of these companies is complicated so if you want to outsource or at least get some help with your accounting process we are here for you.
We are Terra Business Solutions and we are able to help you in your accounting and tax savings process if that’s something you have been thinking of.
If this is something you think might help you, you can schedule a call with us.
Without any commitment, we can hear your needs and identify if we can help you reach your financial goals with the right business structure.
Are you interested? Click here to get a call with our experts.
Having a construction company is not easy but luckily you can always get extra help. See you in the next post.