The Evolution of Construction Accounting
Everything changes. You see it in construction every day.
Whether it’s the most popular style of house or painted vs stained cabinetry, things are always changing and evolving.
Some of those changes are great and make business faster and easier.
But some of those changes can be confusing or hard to learn, like how to do construction accounting.
Luckily, Flexbase has a simple solution that not only makes it easier to track your spending but makes getting paid a piece of cake.
Check out this article to find out how Flexbase can make accounting for builders and developers a breeze.
One of the biggest questions business owners face is how to maintain construction company accounts and track spending. You need to know how to pay and get paid as quickly as possible.
Flexbase streamlines paperwork and provides an automated system that reduces human error and helps businesses get paid faster. It exists to help construction companies improve their cash flow with a payment automation platform.
Running your company’s finances doesn’t have to be a major headache. Flexbase offers a simple, painless solution that can put you ahead of the competition.
Construction Accounting vs. Regular Accounting: What’s the Difference?
If you own a construction business, you know that you have unique accounting needs. What works for a brick-and-mortar store or online business is not going to meet your specific needs.
Large construction companies or contracting firms may have highly paid accountants to handle the books. Small- to medium-sized businesses often have to keep track of accounting themselves.
But if you don’t know what you’re doing, it could end up costing you a lot of money. Or worse, it could get you in trouble with the government.
So what makes construction accounting different? Let’s look at a few of the basics.
Generally Accepted Accounting Principles (GAAP)
US businesses need to follow the Generally Accepted Accounting Principles, or GAAP, as standard practice in their accounting.
As the method adopted by the US Securities and Exchange Commission (SEC), GAAP is built on ten principles for tracking financial transactions and recording financial information for companies.
The 10 Principles of Generally Accepted Accounting:
- Principle of Regularity: Accountants will follow the established rules and regulations.
- Principle of Consistency: Consistency in standards exists throughout the accounting process..
- Principle of Sincerity: Accurate and objective reporting will be expected of all accountants.
- Principle of Permanence of Methods: Financial reports will be recorded and maintained using consistent procedures.
- Principle of Non-Compensation: All aspects of an organization’s performance, whether positive or negative, are fully reported with no prospect of debt compensation.
- Principle of Prudence: Speculation does not influence the reporting of financial data.
- Principle of Continuity: When assessing valuations will be done with the assumption that the organization’s operations will continue.
- Principle of Periodicity: Standard accounting periods, such as fiscal quarters or years, will be used when reporting of revenues.
- Principle of Materiality: Any and all financial reports will fully disclose the organization’s financial situation.
- Principle of Utmost Good Faith: All parties involved in financial transactions are assumed to be acting honestly.
Chart of Accounts for Construction Company Transactions
Construction businesses need to have a list of all the company’s financial accounts. These are recorded as the Chart of Accounts in the general ledger.
The accounts are typically divided by categories, including (but not limited to):
- Assets
- Liabilities
- Expenses
- Equity
- Revenue
Some companies may have a bookkeeper that handles this, but for small businesses it can be confusing and is susceptible to human error.
3 Types of Cost in Construction Accounting
Accounting for builders & developers is especially important because you have to know how much a project is going to cost before you can give a quote or make a bid.
Construction is expensive, and if you don’t calculate the projected costs accurately, you could end up losing out big time.
Record keeping and expense tracking are vital to your success. You need to know where your money is going and why.
There are three main types of cost to track in accounting for construction. Company bookkeepers need to record money spent for:
- Construction in progress.
- Job costing.
- Cost of goods sold.
Construction in progress, or work in progress, tracks accounts that are currently active or under contract. The work has not been completed so money is going out, not in.
This type of cost can determine cash flow and future earning potential.
Job costing estimates the amount a project will cost by breaking it down into smaller parts and then using the price of those more specific tasks to calculate the cost of a project.
This is a critical step for budgeting your project.
Companies need to monitor expenses throughout the life of the project to determine profit or loss.
You are able to give more accurate bids and better estimate profits with good job costing practices.
The cost of goods sold is how much you are spending on things for each project. It lets you know where the money is going for that build.
Each project in progress will have specific expenses. Cost of goods sold include things like:
- Labor
- Materials
- Equipment rental
- Project-specific purchases or rentals
- Et cetera
Any expense that is tied to a specific project, whether it is material or management, is considered the cost of goods sold.
Construction Accounting: The Dark Ages
As far as accounting goes, construction companies, especially small businesses, operate in the Dark Ages.
Many companies are still sending out invoices by fax or paying vendors with a check.
It is difficult to track expenses and manage finances if you have to do it all by hand. It is time-consuming, difficult, and mentally draining.
This manual bookkeeping method also brings problems, such as:
- Leaking cash
- Lost receipts
- Forgetting to record a payment
- Lost checks
You don’t have to live this nightmare. There is a better way.
Construction Accounting: Welcome to The New Millennium
Running a business in the Modern Era requires modern methods.
Why write everything in a paper logbook? With Flexbase, you can simply scan a receipt and it goes right into the system. The tracking is done for you.
Who wants to learn how to maintain construction company accounts in Excel when you can use a fast, simple, and painless system that doesn’t require hours in front of a spreadsheet?
Flexbase is the only accounting software you’ll ever need.
Ever given someone a hundred dollar bill to go to the store and pick up a toilet seat, and they come back with a seat and no change? Maybe they conveniently lost the receipt?
It happens. But with Flexbase, it doesn't have to happen to you.
Flexbase can get you set up with a credit card just for your construction business - with a credit limit determined by your company's cash flow.
You'll be able to track every dollar you spend and automate the collection of receipts to know what project the expenses are for.
We help you know where your money is going.
You are busy. You don’t have time to waste sitting at a computer or desk manually recording your expenses.
Time spent tracking your accounts by hand is money wasted. You have better, more important things to do.
You also don’t have time to wait to get paid. On average, it takes 88 days for a company to get paid for construction work.
You need money faster. Your business depends on it.
With Flexbase, you have the option to sell your invoice so you get paid immediately instead of sitting around and waiting for payment.
You can get started on your next project and have the cash flow to take on more jobs. Talk about a smart business move.
With Flexbase, everything is automated and in one place. That means you can pay, and get paid, without hassle.
And you aren’t having to manage payments or spend additional time going over expenses.
You can set it up so you pay vendors and suppliers when you get paid.
You get money faster and have your accounts settled automatically. What could be easier than that?
You already have enough on your plate. Dealing with the hassle of construction accounting and managing finances doesn’t have to be a burden.
And you don’t have to deal with spreadsheets or paper ledgers to know where your money is going.
Flexbase offers a fast, simple solution to all of your construction accounting needs. Why waste time and money on hard-to-use software or expensive bookkeepers?
Pay and get paid faster. Track expenses and monitor accounts. Know where your money is going.
Let Flexbase handle the heavy lifting. Then you can get back to running your business.
