Construction companies often have complex financial needs that require professional accounting assistance. They face many complexities, including tight deadlines, budget constraints and shifting priorities.
Accounting practices can help businesses run more efficiently and meet tax requirements despite the industry’s complexity. Accurate job costing, for example, allows contractors to track their labor, materials and overhead costs and create correct profit margins.
Taxes
Accounting for construction companies can be daunting, especially if they need the right software or tools to help them track their costs and manage their financial accounts. Hiring an accountant for independent contractors is the best way to ensure they stay compliant with tax laws and make sense of their numbers.
As with any industry, taxes play a vital role in the success of a construction company. They need to account for their money on materials, equipment and labor. They also need to pay attention to local and state taxes, which vary significantly by location and project.
Depending on their company structure, contractors and subcontractors can deduct some of their business expenses as a write-off. It includes the cost of any rental or lease payments you made for equipment used on the job site, including drills, hammers, saws and wheelbarrows.
In addition, construction workers and self-employed contractors can deduct their business mileage if they use a vehicle. It can include the cost of gas, oil changes and repairs.
Sales tax treatment of construction companies varies widely from state to state, and it is essential to keep up with current regulations to avoid fines or penalties. Using an experienced sales tax expert can help ensure that your company stays on the right side of the law and protects narrow profit margins.
Profitability
Profitability is a crucial part of the success of any construction company. It’s not only a sign of financial stability, but it also signals your ability to keep up with the demands and scope of your industry.
You must take the proper steps in all areas vital to your business to improve your profitability. First, you must accurately calculate your overhead costs and profit margins. If you are not, your business will have problems managing cash flow and operating efficiently.
Second, you must be accurate with estimating and project management efforts. If you are, it will be easier to determine which jobs are high- and low-profit.
Third, you need to have a solid accounting system that will help you track the status of your projects. It will help you identify any problems affecting your finances and give you the tools to rectify them quickly.
Fourth, you need to be able to manage change orders on projects that you are working on. It is essential because change orders often occur on multiyear projects and can significantly impact profitability.
Finally, you need to be able to calculate the amount of money that you have on hand to run your construction business. It is because a construction company can only survive with enough cash to pay for materials, wages, and other necessary expenses.
Project Management
Keeping project management on track is a critical part of any construction company. A streamlined process can make all the difference in a smooth, efficient workflow and help your team reach its goals.
A project management software tool can help you keep everyone on the same page with shared resources, schedules, and documents. It allows teams to collaborate effectively without worrying about misunderstandings or missing deadlines.
Another benefit of a quality project management tool is that it can be used to build repeatable processes for similar projects. It can save time and money in the long run by reducing errors.
For instance, project management software can help you track what materials are being ordered and when they will arrive at the site. It will prevent delays and cost overruns from occurring.
While there are a lot of tools to choose from, it’s essential to find one with the right features for your needs. A good project management software should have dashboards that show you a high-level view of your projects in real-time.
The dashboards should also allow you to monitor your project’s progress in a way that is easy to understand. Then you can use these metrics to see where your team stands and what they should do next.
Insurance
Construction companies face unique risks, so they need different layers of protection than many other types of businesses. A strategic risk advisor should be involved when establishing your insurance strategy.
Unlike other industries, where work is done at a fixed location, construction companies often move labor and equipment from site to site as they complete jobs. It can be challenging to track and account for, so careful financial management is essential.
One of the most critical aspects of construction accounting is keeping track of labor costs, materials, and project expenses to ensure that your company has sufficient cash to complete projects. The cost of materials and labor can change significantly throughout long-term contracts, and it isn’t easy to estimate how much money will be needed in the future.
A successful construction accounting process includes real-time financial tracking, accurate estimates, and robust construction accounting software to meet tax requirements. If your business has yet to establish a well-organized financial management system, you could experience severe problems.
Adding completed operations liability to your commercial general liability policy is a crucial step that will help protect you and your company from potential claims after a job is complete. Having this coverage can make all the difference in a claim settlement and can also help you avoid litigation down the road.
