Bookkeeping is the foundation of financial management. It’s not the sexiest topic in construction, but understanding the ebb and flow of cash within a construction business is critical to its continued success.
Tracking finances makes it easier to see where the money is going, predict future costs, and ensure healthy cash flow over a project timeline. Bookkeeping is extra important for construction firms, which are often dealing with multiple diverse projects all at once, each with its own expenses and payment timelines. Construction administrators also have to distinguish direct and indirect costs to bill to each project.
Here, we’ll discuss the challenges contractors face in tracking their finances and offer some construction bookkeeping tips for making finances work smarter in your business.
What sets construction bookkeeping apart?
Bookkeeping entails tracking and analyzing expenses and revenue across a company, project, or team. Construction bookkeeping can be even more complex than in other industries because it involves multiple projects at once, each with its own payroll costs and considerations, duration, timeline, and contract value.
Implement a digital accounting system
The sheer number of moving parts involved in construction finances can be overwhelming, but construction bookkeeping software can help make sense of them all for better financial clarity. Construction accounting software can help automate many of the bookkeeping processes, saving time and reducing human error.
Popular accounting software for construction businesses
There are many popular digital construction bookkeeping solutions that can help contractors with their accounting needs.
Quickbooks for Construction
Quickbooks, one of the big names in the accounting game, offers some features that can make life easier for contractors, including the ability to attach invoices on the go, access analysis on which construction projects are profitable at any moment in time, and custom-tailor reports for the project’s specific needs.
Sage 300
Sage offers a suite of products for construction businesses, not the least of which is Sage 300. This accounting system integrates well with other solutions for a seamless experience that nullifies the need for data to be entered multiple times. Sage 300 can automatically detect transactions that haven’t been recorded yet, and finds errors in existing entries for easier reconciliation.
Premier
Premier includes accounting as part of its all-in-one construction platform that takes a project all the way from job costing to closeout. Premier’s AI-powered financial tools enable contractors to automatically extract invoicing information to eliminate manual data entry in AP processes and recognize and match bank reconciliations on the spot.
Transitioning to a new accounting system
Changing any business process is a big deal, and it’s bound to come with some growing pains. Still, adopting a new accounting system can vastly improve a business’s efficiency. Treat migration with the time and respect it deserves for a more seamless transition.
1. Research
Don’t skip on the research when deciding on a new accounting system. Choosing any new software requires a deep dive into which business processes are currently lacking and which features your business needs to do better.
2. Plan
Once you’ve decided, put a plan together for migration that includes a project manager and team to head it up and a deadline for full migration.
3. Prepare
Back up your data before attempting any migration process – two backups is best practice.
When you’ve chosen a new system, comb through all your data to make sure it’s necessary and up-to-date, removing duplicates and correcting errors before copying it to a new system.
4. Test
Complete a few migration tests on different data sets before going all in on the process. Make sure everything that transferred is complete and accurate.
5. Train
Make sure your team is up to speed on the new system to smooth the way once migration occurs.
Once the accounting software is up and running, make sure it’s connected to all the other business processes for the most efficient operations.
Truss integrates with construction accounting systems to make invoicing, accepting payments, accounts payable, and reconciliation faster and more efficient, and eliminates a lot of manual data entry.
Track expenses and income
Before a business can get a handle on how to improve any process, it must have an idea of the current situation. When it comes to managing finances, that means accurate and complete tracking of all business expenses and income. It’s hard to overstate the importance of this tracking process.
Start with tracking when all invoices are sent, when the client receives them, and when payment is received. Doing so will make it easier to catch any outstanding invoices and gauge the impact late payments have on the business cash flow.
Record all the purchases made for each project every day. Any materials purchases, tool replacement bills, or permit payments go on the ledger each day.
Get ready for milestone billing early, gathering up all the information to apply for payment by the deadline in the contract. Milestone payments make cash flow management easier over the course of the whole project.
Keeping a close eye on all the expenses and the payments coming makes it possible to control spending to stay within the budget. A digital payments system like Truss can automatically track expenses using unique project tags and automatically upload receipts for credit card reconciliations.
Manage cash flow
Part of what makes financial management so tricky in construction is that there may be long stretches between milestone payments, yet project expenses continue consistently throughout the project. Cash flow has to be carefully managed so that the money doesn’t run out to pay for everyday expenses before the next cash influx occurs.
Build out a cash flow management plan at the project outset to decide how to handle times when it looks like the cash might get tight.
Cash flow management may mean deferring paying some bills until a milestone payment comes in, buying materials in bulk to get a discounted rate, and making sure to invoice in a timely manner to keep payments coming as scheduled.
By integrating your bookkeeping software with Truss, it’s easy to monitor cash flow and stay on top of construction billing due dates for better cash flow management and financial health.
Monitor project profitability
Accurate bookkeeping and ongoing cash flow management can help predict which projects will be profitable – that is, which projects will make money for a contracting business versus those that might break even or even lose money. As the contractor tracks expenses and payments into the accounting system, It will become clear which projects are struggling.
Profitability may be impacted by scope creep, delays caused by weather issues or labor or material availability, or increasing costs. The contractor can then take steps to mitigate any loss and make informed decisions.
Automated bookkeeping not only allows contractors to identify waning profitability, but can actually help to reduce it through more efficient internal processes that reduce manual input and save time.
Consider outsourcing bookkeeping services
Some construction companies may choose to contract their financial tracking to an external construction bookkeeper. Outsourcing bookkeeping can help the contractor save time. It’s also possible to save money by hiring accounting services to do specific tasks rather than to pay for a full-time accountant to keep on staff. By hiring specialists in the field, contractors may find their bookkeeping is more accurate and efficient.
However, hiring an external bookkeeper does put sensitive financial data into another company’s hands, whose processes and values may not fit well with internal culture and practices. Contractors should select accounting partners whose systems mesh well with existing processes so that disruption can be kept to a minimum.
Contractors should also consider whether outsourcing their accounting will remove them too far from the process. The act of crunching all the numbers in-house can foster a greater understanding of the full financial picture, which may lead to more informed decision-making. Contractors should choose accounting firms that encourage full engagement and understanding of the financial picture.
Regardless of whether the accounting team is an in-house department or an external company, Truss can complement accounting processes with full integrations and simplify construction financial management.
Automate construction bookkeeping with integrated solutions
Bookkeeping involves tracking the money into and out of a construction business. Complete and accurate tracking is critical for the ongoing financial health of each project, and of the business as a whole.
Digital accounting systems can help make proper bookkeeping faster and more efficient, and help contractors to analyze the health of cash flow and budget adherence throughout each project. Whether choosing to handle bookkeeping in-house or outsourcing, integrating financial tracking practices with the rest of the construction company’s processes will eliminate additional data entry and allow for a more global view of the company finances. Truss helps streamline operations financial operations by integrating with accounting software to help reconcile payments and invoices throughout a project.
Embracing good bookkeeping practices will not only ensure smoother project execution but also enhance overall financial stability and success in the construction industry.
Automate your payments and bookkeeping with Truss and save hours on reconciliation every month. Book a demo to learn more.
