Construction contractors often have long days on the construction site with additional tasks to do once they are offsite. Crunching numbers, drafting proposals, and a full day ahead onsite can be a huge headache for construction contractors. The most effective solution to this issue is hiring an accounting professional to take the burden off of your back. Below you will find the top reasons why contracting companies need accounting solutions.
Reasons Why Contracting Companies Need Accounting Solutions
Construction companies are a project-based business which makes them uniquely different from traditional businesses. Most businesses sell a product or service that lasts decades. However, construction companies complete different projects with different budgets, timelines, and materials. There are a number of reasons why contracting companies need accounting solutions as the industry is unique as compared to traditional businesses.
Construction projects can last months to years. Because of this, costs can be difficult to predict that far in advance. There are direct and indirect costs that can be estimated, but there are factors that could dramatically change those numbers as the project continues.
A professional skilled in bookkeeping for contractors can be a major benefit due to their financial and industry expertise. They understand that estimating overhead expenses can be easily predicted, but that materials can often change as the project progresses. An accounting professional is undoubtedly valuable to contractors when it comes to budgeting long-term construction projects.
Labor costs are a major part of a construction project. Because construction projects are based on bidding, it’s important to accurately estimate the project costs from the very beginning. Overestimating the labor costs can result in the company not getting the contract. However, underestimating the costs can dramatically reduce the project’s profit margin.
There are a number of factors to consider when determining the project’s payroll budget. Government contracts require that companies pay the prevailing wage, which can be different based on the state and locality. If union labor is required, companies need to be aware of the hourly wage for each trade. Labor from employees who live and work in different states or counties can have different tax liabilities. Some projects require extensive reporting which increases administrative costs. These are all necessary factors an accountant would consider when examining the payroll budget.
There are options when it comes to revenue recognition for tax purposes. Construction companies are a unique business that can decide when they choose to recognize their revenue. Despite the great benefit of having options, the accounting process is complex. Making mistakes when it comes to revenue recognition can cost a company a lot of money.
Accounting professionals are skilled in understanding when to use which method. The two methods include “cash” and “accrual.” The cash-based method involves recognizing revenue when it is received and recognizing expenses when they are paid. The accrual method is much more detailed as revenue is recognized when it is earned, whereas expenses are liabilities once received. While these may seem clear cut, the detailed accounting behind them both are best done by a professional. Not only can an accounting professional help you with the financial accounting component, but they can also advise you on what is best for your company.
A retainage fee is a huge part of construction projects as it protects the company from issues that arise after the project is completed. The fee can be anywhere from 5 to 10 percent of the total project cost. This is a crucial financial element that is best understood by accounting professionals. In fact, an accounting professional can help construction companies establish effective financial management processes that reduce the company’s tax liability. They can also ensure that the company has a strong balance sheet that is consistently accurate.
Online Bookkeeping Solutions
Construction contractors can easily make accounting errors due to the expertise required when it comes to business finances, in addition to the fact that they have a number of other responsibilities to consider on a day-to-day basis. The best solution to addressing this issue is online bookkeeping solutions. A professional accountant can offer a number of services to meet the unique needs of the construction industry. Avoid making costly mistakes and reach out to the experts at Indevia Accounting today! They can help you navigate your business finances and get you on the right track for the long haul.