How is bookkeeping different for construction companies?
The biggest difference is job costing. Regular bookkeeping tracks income and expenses by category. Construction bookkeeping tracks everything by project. When you buy materials, they get coded to a specific job. When your crew works, those hours hit the project where they were spent. Without this structure, you know if your company made money overall but have no idea which jobs actually made money and which ones lost money.
Progress billing creates accounting complexity that most businesses never deal with. You bill based on percentage of completion, not when work is finished. You might invoice $50,000 this month for work that won’t be complete for another three months. Recognizing revenue correctly requires tracking what’s been billed, what’s been earned, and what’s still in progress.
Retainage is another construction-specific element. Customers often hold back 5-10% of each payment until the project is finished and inspected. That money is earned but not collected. Your books need to track retainage receivable separately so you know what’s actually owed to you and when you can expect it.
Subcontractor management adds a layer that most small businesses don’t have. Contractors often pay more to subs than to their own employees. Each sub needs to be tracked by job, and you’re responsible for collecting W-9s and filing 1099s at year end. Miss a 1099 and you could face IRS penalties.
Equipment creates allocation questions. A piece of equipment might work on three different jobs in a month. Properly allocating those costs to jobs requires either tracking equipment hours or using reasonable allocation methods. Just expensing equipment costs without allocation defeats the purpose of job costing.
Change orders need separate tracking from the original contract. Without separating them, you can’t tell if you went over budget on the original scope or if the additional work was properly approved and billed.
Cash flow timing works differently in construction than in most businesses. You often pay for materials and labor before you bill for them, and you get paid weeks or months after you invoice. Managing this requires understanding your work in progress and committed costs, not just what’s in the bank today.
Generic bookkeeping setup doesn’t work for contractors. The chart of accounts, the project tracking, and the billing structure all need to be configured for how construction companies operate. Macomb, MI bookkeepers who understand these requirements will set up systems that actually tell you which jobs are profitable and where your money is going. Without that construction-specific setup, you’re running blind on the numbers that matter most.
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