Accounting for construction companies
The construction industry has many distinctive features and is unlike most other sectors. It is made up primarily of contractors, and this brings with it a unique set of accounting requirements. As with all businesses, accounting practices are central to success, but for many business owners the day-to-day financial management is challenging.
That’s where North Advisory excels. We are highly experienced in accounting for construction companies and we understand the importance of implementing the best accounting methods to support our construction clients.
Being able to oversee multiple projects, decentralised work and cost fluctuations are all part of the accounting process… and we know how to help you keep on top of the dollars.
While basic accounting principles are the same regardless of industry sector, construction accounting tends to be more complex. The primary reason for this is the nature of the work. Each project is individually priced and every time you undertake a project the operating costs can increase or decrease depending on requirements.
It’s essential that construction companies have complete visibility of expenses and can easily report on quotes, invoices and even payroll data to understand the impact on cashflow and potential tax obligations.
We understand that construction is not a fixed-price product or service. Every piece of work completed has a slew of variables that need to be identified and correctly recorded.
Project based work
Forecasting profit is not that easy when construction is predominantly project-based. Every job will have its own elements that influence the cost and therefore the profitability. Even two projects that appear to have similar scope of works will result in different outcomes depending on labour, location, accessibility, equipment and working conditions.
In these instances, applying the job costing method can help to keep each project’s profit and loss data separate. This will enable you to have full visibility of the financials and make sure that each of your jobs is profitable.
Irregular and fluctuating costs
Within the construction industry costs are constantly changing. Unlike other businesses where there are often fairly stable overheads, construction companies face greater irregularity because much of their pricing is based on estimates.
You have to estimate the timeline of a project and this invariably affects the total cost you incur. You also have to differentiate what is a project cost versus a standard overhead and this can be difficult.
We can help set up processes that enable you to quickly and easily discern how to allocate costs to ensure they are appropriately billed.
Revenue recognition methods
Your revenue recognition method will usually depend on your company size, annual revenue and the length of your projects. Whether you choose to work on a cash basis, a percentage of completion or a completed contract method, we have the expertise to help streamline your accounting processes and support your business growth.
Here at North Advisory, we understand the unique accounting needs of construction companies and have the ability to support your business today and well into the future. To find out more about how our team of accountants can help you, please contact us today.