For contractors and construction business owners, maintaining accurate financial records is crucial for success. From managing budgets and job costing to handling payroll and subcontractor payments, the financial complexity of construction projects requires expertise. While it might seem tempting to manage your business’s finances on your own, hiring an experienced accountant or construction bookkeeping service can help streamline operations, ensure compliance, and allow you to focus on what you do best—building and growing your business.
However, not all accounting services are the same, especially when it comes to the construction industry. There are specific considerations and knowledge areas that make an accountant or bookkeeper a good fit for construction-related businesses. In this article, we’ll cover the key factors to consider when choosing construction bookkeeping services and how to find an accountant who understands your unique financial needs.
1. Industry-Specific Experience
The first and most important factor to look for when hiring a construction bookkeeper is experience in the construction industry. The financial landscape of a construction business differs greatly from other industries due to the complexity of managing large, long-term projects, varying payment terms, and fluctuating material costs. An accountant with construction-specific experience will be familiar with the unique challenges of the industry and be able to provide tailored advice and insights.
Construction bookkeepers should understand things like:
- Job costing: How to allocate costs to specific projects and track profitability throughout the life of the project.
- Project-based accounting: The ability to track income and expenses for multiple jobs at once.
- Work-in-progress (WIP) reporting: Understanding how to account for revenue and expenses on projects that span months or years.
Having someone who understands these nuances can save you time, minimize errors, and help you make informed decisions.
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2. Knowledge of Construction-Specific Financial Regulations
The construction industry is subject to a wide array of financial regulations and tax laws. These regulations can vary based on location, type of construction (residential, commercial, government contracts, etc.), and the size of your business. The right construction accountant will be knowledgeable about both local and federal tax laws and regulations that affect construction businesses, such as:
- IRS 1099 requirements: Knowing when and how to issue 1099 forms to subcontractors.
- Sales tax: Understanding what items are taxable, especially with the use of materials and supplies in construction.
- Prevailing wage laws: Comprehension of wage requirements for government contracts and how to handle them on payroll.
- Job costing rules: Understanding the correct way to allocate costs to different phases of a project for tax and profitability reporting.
Your bookkeeper or accountant should not only be familiar with general financial regulations but also the specific ones that apply to contractors and construction firms.
3. Expertise in Job Costing and Project-Based Accounting
Job costing is an essential part of construction bookkeeping. Unlike traditional businesses, construction projects typically span months or even years, and costs can fluctuate during that time. Properly tracking all expenses and revenues related to each specific project is critical for ensuring profitability and staying within budget.
An accountant with experience in job costing will be able to:
- Track individual project costs: They should know how to track and allocate materials, labor, equipment, and overhead costs to specific projects.
- Monitor project profitability: Proper job costing ensures that each project is profitable and prevents cost overruns by identifying issues early.
- Maintain accurate work-in-progress (WIP) schedules: Contractors often have multiple projects at once, and a construction accountant needs to keep accurate records of ongoing jobs, both in terms of income earned and costs incurred.
A well-versed bookkeeper can also help you break down project costs into phases or milestones, making it easier to track progress and stay on top of financial goals.
4. Proficiency with Payroll Management
Construction businesses often have a mix of employees and subcontractors, making payroll one of the more complex aspects of bookkeeping. An accountant who understands construction payroll will be able to handle the complexities of employee wages, overtime, fringe benefits, and subcontractor payments.
Key payroll management considerations for contractors include:
- Union and prevailing wages: If your projects require compliance with union agreements or government contracts, your accountant must be familiar with the wage rates and benefits required.
- Subcontractor payments: Managing subcontractor agreements, ensuring timely payments, and handling any disputes over contract terms.
- Overtime calculations: Construction employees often work overtime or in different labor categories, which can make payroll calculations more complicated. A knowledgeable bookkeeper will ensure you comply with labor laws and pay workers accurately.
- Payroll tax filings: Construction payroll can be subject to special taxes, such as unemployment insurance, workers’ compensation, and state-specific taxes, all of which need to be managed accurately to avoid penalties.
Having an accountant who specializes in construction payroll will help ensure compliance and avoid any costly errors.
5. Experience Managing Subcontractor Payments
Subcontractors are a critical part of any construction project, and managing payments to them is a key part of maintaining good relationships and ensuring that projects run smoothly. An accountant who understands how to manage subcontractor payments—such as tracking progress payments, withholdings, and retention—can ensure that these payments are made on time and according to contract terms.
Subcontractor payments can involve several complexities:
- Retainage: Many contracts stipulate that a certain percentage of payment is held back (retainage) until the project is completed. Your accountant needs to track this retainage and ensure proper documentation of payments made.
- Progress payments: Some construction projects involve progress payments to subcontractors at various stages of completion. An accountant must ensure these are properly documented and accurately reflect the progress of the work.
- Lien waivers: To protect against mechanic’s liens, contractors should collect lien waivers from subcontractors. A construction-savvy accountant will know when and how to collect these documents to avoid legal issues.
A knowledgeable accountant will help you manage subcontractor relationships smoothly by ensuring timely payments and protecting your business from potential legal complications.
6. Technology and Reporting Capabilities
In today’s digital age, it’s important to hire an accountant who is proficient with modern accounting tools and software. While this article focuses on the qualities of a good accountant, the right accountant should also be able to use technology to your advantage.
Look for an accountant who is comfortable working with construction-specific accounting software and can generate detailed financial reports, such as:
- Cash flow reports
- Profit and loss statements
- Balance sheets
- Custom job costing reports
Having real-time access to these reports will allow you to monitor the financial health of your business, assess the profitability of individual projects, and make informed decisions based on accurate data.
Conclusion
Hiring the right accountant or bookkeeping service for your construction business is crucial for managing your finances effectively, ensuring compliance with tax regulations, and keeping projects profitable. By seeking a professional with industry-specific experience, a strong understanding of job costing, payroll expertise, and familiarity with subcontractor payment management, you can streamline your bookkeeping and focus on growing your construction business.
When evaluating potential candidates, make sure to ask about their experience in the construction industry, their approach to job costing, and their knowledge of construction regulations. A good accountant will be an invaluable partner in your business’s financial success, helping you stay organized, save time, and avoid costly mistakes.
