3 construction accounting mistakes to avoid
One of the most important aspects of management as well as administration in any business is accounting. In companies with several departments, the accounting team must accurately track the movement of assets into and out of the company in order to ensure transparency and profitability.
Firms and contractors in the construction industry, however, face some unique challenges when it comes to accounting. For example, an accountant for a restaurant would use typical accounting principles because he or she is dealing with a business that is selling a product from a fixed location. The accountant knows the cost of each item that the restaurant sells, and the overhead is relatively constant.
The accountant for a construction company, on the other hand, has to keep track of several different categories of costs such as travel time, mobilization costs ( of packing tools and equipment), delivery of materials to job sites, and job site cleanup. A construction company “moves” its business as well as its materials to the customer. This can create indirect costs that must be taken into account for accurate financial reporting.
When errors are made in your construction companies accounting, it can create big problems. Three common construction accounting mistakes that can create headaches for company owners include:
- Not being organized
- Over/underestimating on time and money
- Poor accounting practices
We can help with all 3!
Most construction companies use the “Percentage of Completion Method” to reconcile revenue. This is based on the estimated profit of a contract as well as what percentage of that project has been completed. When mistakes occur, it’s usually the result of underestimating costs, inaccurate actual costs accumulation, or accidentally leaving out revisions due to a change order.
In the construction industry, each job incurs direct as well as indirect costs that can be broken up into a large number of categories. It can be complicated trying to keep track of a cost history for all of them. This is why organizing accounting practices is so important in order to avoid making costly mistakes. Using the right accounting software that provides easy to understand reporting can be the difference between running a seamless operation vs a disorganized one.
If you’re a general contractor, it can be overwhelming having to deal with cash flow, job costing, overhead costs, bidding procedure, compliance, and much more. At GYL, our team of professional experts are knowledgeable about the challenges of the construction business and can provide you with solid and innovative solutions for all of your accounting needs.
Doing our part
GYL provides a full range of services in accounting for construction companies so that your company can avoid the common accounting mistakes that many construction companies make. Our team has years of experience helping construction companies, contractors, subcontractors, architects, and engineers in and around San Diego and the Inland Empire.
Call our San Diego or Ontario office to arrange a free consultation.