Construction accounting plays a critical role in helping contractors effectively manage finances, control costs, and maximize profits. Proper procedures provide invaluable insight that allows construction companies to avoid unnecessary expenses, fees, or compliance issues especially if they start taking on government construction contracts. Here are some of the key ways that construction accounting helps save money:
Improve Job Costing and Estimate Accuracy
Inaccurate estimates are a major source of unexpected costs in construction. Robust job costing gives contractors real-time profitability tracking for each project. By comparing actual costs to estimates, you can identify discrepancies early and adjust budgets before overspending occurs. Tracking all labor, materials, subcontractor expenses, union costs, and other pricing is essential for creating accurate future estimates too.
Don’t forget to consider prevailing wage and union reporting. Incorporate certified payroll reporting into your job costing practices to ensure compliance with prevailing wage regulations and accurate labor cost tracking.
Speed Up Invoice Approval and Payment Cycles
Slow payments put a massive strain on construction cash flow. Good construction accounting facilitates faster payment through:
- Preventing Payment Delays or Withholding: For public works or government funded jobs, accurate certified payroll reports submitted on time will prevent payment withholding by government agencies and increase efficiencies in payment cycles.
- Consistent Number Updates: Construction bookkeeping involves ongoing monitoring, with costs increasing as projects progress. Regularly updating project reports allows you to stay informed about detailed expenses, ensuring accurate client billing to avoid underbilling or overbilling.
- Efficient Payment Applications: Payment applications are detailed and time-consuming, and errors can lead to payment delays and additional costs. To expedite approval, work from current job costing and work-in-progress reports.
- Managing Outstanding Receivables: Tracking accounts receivable through construction accounting reports enables timely invoice reminders, demand letters, or mechanics lien filings.
Create Accurate Cash Flow Projections
With detailed accounting records and cost tracking, accountants can generate insightful cash flow forecasts. Reliable projections help avoid potential cash shortfalls by:
- Consistent Billing Schedules: Enabling development of optimal project billing schedules. Inaccuracies lead to imbalanced cash inflows.
- Market Trend Analysis: Analyzing spending trends to plan and adjust for seasonal fluctuations or downturns. This maximizes profits in any market conditions.
Accurate construction accounting is invaluable for keeping projects on budget and avoiding unnecessary costs. Our compliance solution at Certified Payroll Reporting helps accounting streamline mandatory prevailing wage reporting and control expenses. Contact us today to learn more!
