Construction Bookkeeping Tips to Maximize Contractor Success

On average, freelance bookkeepers charge lower rates than firms do, since they have less overhead. A freelance bookkeeper is the most affordable option if your finances are simple, and you’re okay with your bookkeeper not being available for you every single business day. Learn how to build, read, and use financial statements for your business so you can make more informed decisions. Janet Berry-Johnson, CPA, is a freelance writer with over a decade of experience working on both the tax and audit sides of an accounting firm. She’s passionate about helping people make sense of complicated tax and accounting topics.

Setting up a Bookkeeping System

• The more years a bookkeeper has been in the field, the better they can handle your financial tasks.
• In the case of an audit, it is helpful to have everything separate, primarily if you classify yourself as a business.
• One of the best ways to find a reliable bookkeeper is by asking people you trust.
• It will also be easier for you to see your income and expenses as an independent contractor if your bookkeeping is transparent.
• In construction accounting, every expense, whether large or small, must be recorded accurately to provide a clear picture of your financial health.
• By examining your past and present, financial reports can help your organization get ready for the future and get you ready to make decisions.

It’s essential that contractors have an effective method for keeping track of income and expenses, and for reconciling every transaction. Construction companies also experience fluctuating overhead costs. Consider the cost of insurance, travel, workers’ compensation, materials, subcontractors, equipment, and more. You will need to factor this into your construction accounting for each construction project and for the business as a whole.

• It is advantageous to have everything separated in the event of an audit, especially if you consider yourself to be a business.
• One big difference between being an employee and being a contractor is what you get paid for.
• This can make it difficult to track expenses and effectively calculate the profit generated from each service category.
• Managing finances effectively is crucial for general contractors to ensure business success and long-term stability.
• They will be better equipped to accurately pay their taxes to the IRS.
• You are considered a business by the law because you are an independent contractor.

Seek Professional Help When Needed:

Being accountable for your books might help you save money while beginning your firm because cash flow can be limited in the early stages. You will have to pay taxes and maintain your bookkeeping as a business. You probably chose to work independently because https://digitaledge.org/the-role-of-construction-bookkeeping-in-improving-business-efficiency/ you wanted to escape the routine weekday or because you possessed a specialty that companies sought after.

Identifying Cost-Saving Opportunities

You can decide wisely on how to expand your business thanks to the transparency of the financials. You may create financial reports that will enable you to plan and make informed decisions for the future with the aid of proper bookkeeping. The IRS requires independent contractors to pay self-employment taxes.

You can usually ask for references of customers similar to you, so you can get an honest picture of what it’s like working with that firm. Since some bookkeeping firms also employ accountants, they may be able to handle your tax filing—and other accountant duties—in-house. Typically, it’s more expensive to hire a firm than a freelance bookkeeper, since firms have higher overhead to cover. Even if your bookkeeper is insured against errors and omissions, you—or your business—are on the hook in case of errors. The effect of incorrect books could range from misinformed business decisions on your part, to misreported taxes (and the resulting IRS penalties) on the part of your business. A freelancer may or may not have experience working directly with CPAs.

Software for Bookkeeping and Accounting

Her work has appeared in Business Insider, Forbes, and The New York Times, and on LendingTree, Credit Karma, and Discover, among others. With the steps in this guide, you have everything you need to do construction accounting for your company the right way. For those looking to streamline their operations further, explore our post on the best construction apps to enhance your efficiency. You’ll also want to categorize these expenses by service, and by individual job so you can easily track how much money came in as well as how much you spent on expenses. Using an expense tracker and saving your receipts can help you keep track of all construction bookkeeping of your expenses and project profits on each job.

If you only have 2 hours per week to outsource, but it may grow to 20 hours per week in a couple of months, then maybe hire a part-time employee. The information provided in this blog is for general informational purposes only and does not constitute financial, accounting, or legal advice. Because a firm coordinates the work of multiple employees, it’s unlikely you’ll encounter the same service gaps you might expect from a single freelance bookkeeper. You don’t need to worry about your bookkeeper getting sick or leaving on vacation, since your books can be picked up by other other bookkeepers at the firm.