Construction accounting is a critical aspect of any building company. It helps builders reduce their tax liability, improve their business performance, meet their tax obligations, and reduce stress. By engaging with Construction Accounting builders can focus on running their business and achieving their financial goals. If you are a builder or contractor, consider working with a construction accountant to ensure that your business is on the right track.
Reduce your tax by maximising your building expenses
Improve your financials by designing your accounts to suite building operations
Professionalise your business by introducing financial standards and expectations
Construction accounting is a specialised branch of accounting that requires specific expertise, knowledge, and experience to handle the complexities of the construction industry.
One of the primary benefits of construction accounting is that it helps builders reduce their tax liability. Tax laws are complex and constantly changing, making it challenging for builders to keep up with all the regulations and requirements. Construction accounting professionals are experts in tax planning and can help builders identify tax-saving opportunities, such as deductions, credits, and exemptions.
Construction accountants can also help builders structure their business in a tax-efficient manner. For example, they can advise on whether to incorporate, form a partnership, or operate as a sole proprietorship, and they can help builders understand the tax implications of each option.
Another benefit of construction accounting is that it can help builders improve their business performance. By maintaining accurate and up-to-date financial records, builders can make informed business decisions based on reliable data. They can track their income and expenses, monitor their cash flow, and identify areas where they can cut costs or increase revenue.
Construction accountants can also provide valuable insights into the financial health of the business, such as profitability, liquidity, and solvency. They can help builders set financial goals, create budgets and forecasts, and develop strategies to achieve those goals.
Construction accounting is also essential for meeting tax obligations. Builders are required to comply with a range of tax laws and regulations, including income tax, payroll tax, sales tax, and property tax. Failure to comply with these regulations can result in penalties, fines, and legal issues.
Construction accountants can help builders stay on top of their tax obligations by preparing and filing tax returns, monitoring tax deadlines, and ensuring that all tax forms and payments are accurate and complete. They can also provide advice on tax compliance issues and help builders resolve any tax disputes or audits.
Finally, construction accounting can help reduce stress for builders. Managing the finances of a construction business can be a complex and time-consuming task, particularly for builders who are more focused on the day-to-day operations of the business. By hiring the best accountant that understands the construction industry, builders can free up their time and energy to focus on other aspects of their business.
Construction accountants can also provide peace of mind by ensuring that the business is compliant with all financial and tax regulations, reducing the risk of penalties or legal issues. They can also provide advice and support during challenging times, such as during economic downturns or financial crises.
A builders set of accounts must represent the building activities and the size of the business.
When designing a set of accounts for a construction company we need to identify the revenue streams that have direct costs associated to them. We can get this information from your quotes and past jobs. We also need to identify any other major revenue streams that we would like to identify separately.
Once we have set up your income accounts we then create the accounts for the direct costs associated with deriving revenue. This is a great way to ensures all of your business operations are individually profitable. For example, you may be adding a margin to materials an subcontractors, having the income and costs identifiable will allow you to check at the end of the month whether or not these margins are actually being recognised as your business goes about it's operations.
Lastly we want to ensure that no other variable costs are sitting in our overheads section and vice versa. Commonly we find that management salaries have not been pulled apart from the operating wages. This must be done to ensure a correct reading of the accounts.
This completes the top half of the income statement and the gross profit, this will give you some good insights into the company.
Different forms of profit, deposits, tracking categories, and timing are discussed below.
We like to show different levels of profit, typically most statements might have net profit and profit after tax. However another good figure is you operating profit or EBITDA. This shows the companies performance before the current ownership structures costs, this can have better comparability over time as the companies capital structure changes.
Deposits can cause a headache for most admin staff trying to reconcile these payments. The true way to record these are on the balance sheet, however this should be determined by the size of the building company. A larger company with more resources should be spending the time to get this accurate where a smaller company can use a more simplified approach. In either case however come the year end this must be recorded accurately.
Timing is the last key issue for builders, we must do our best sometimes creatively to align the revenue streams with the costs otherwise we risk throwing out our gross profit. Typically what happens is a builder would receive an invoice from a subbie but not be at a stage to invoice their client. There are a few ways around this especially if you have received deposits.
Further breakdown of the income statement can also be achieved through tracking categories, most accounting systems have this extended feature. This is not represented in the above example as it is even more company specific. We do however believe that most construction companies should be utilising this feature.