Ensuring your construction company’s accounting and bookkeeping are accurate and handled appropriately is crucial to running your business smoothly. But it takes time and skills to keep your bookkeeping up to date and on track for each project. One way to solve this problem is by hiring a virtual assistant for your construction company.
At Virtual Construction Assistants, we can help you find expert accounting employees who can remotely manage all areas of your bookkeeping, allowing you to spend more time running your business and less time crunching numbers.
Since construction accounting is a specialized form of bookkeeping, it’s essential to understand the basic foundations and how they differ from other general accounting principles.
What’s different?
Construction accounting has a unique quality due to the nature of the work and the fact that each project and contractor can operate under different terms and conditions. This can create a wide range of contracts, invoices and payments processed within a construction company and make for some complex accounting and bookkeeping.
Some reasons that construction accounting varies from general accounting include:
Construction work is billed by project
Since construction work is usually billed by individual contracts and projects, revenue can fluctuate greatly month over month, creating complexities in the accounting work. Each project will have different costs, and the required bookkeeping can vary greatly. Someone who handles construction accounting should have a unique set of skills — like excellent time management and attention to detail — to ensure their work helps drive profit and generates revenue for the business.
There is a lack of predictability
Another big difference in construction accounting compared to other industries is the lack of predictability. Since construction work can be seasonal or shift from project to project, it can be challenging for business owners to understand how each project impacts the company’s profitability. Since material and labor costs can fluctuate greatly, a skilled construction virtual assistant can track expenses and ensure the company is operating as profitably as possible.
One of the most significant benefits to hiring a virtual assistant for a construction company is the flexibility involved. Virtual assistants can work hourly or per project, saving business owners’ overhead in the slower months when accounting isn’t as essential. This will not only save the company money and ensure you have a reliable virtual assistant when business picks back up in busier months.
The Different Methods of Construction Accounting
Managing construction accounting and bookkeeping can be a complicated process. There are usually several vendors, payroll, labor needs and more that present unique challenges. At its foundation, there are a few basic principles of construction accounting.
Job Costing
Unlike businesses in other industries, construction companies use a decentralized accounting model, creating different profit and loss statements for each project that contribute to the overall financial wealth of the company. This is the basis of job costing — it involves tracking specific costs associated with each project.
An accounting virtual assistant for a construction company can help with job costing to ensure these expenses are correctly tracked to ensure the budget is aligned and decisions are being made to drive profit for the project. While contractors have the main responsibility to keep costs on track, their partner in accounting will ensure vendors are paid, payroll is accounted for, and all finances associated with the project are tracked.
Contract Revenue Recognition
The other main accounting function in construction is called contract revenue recognition. This method refers to the way contractors and construction companies account for the revenue they’ve earned on the project. Contract revenue recognition is a form of accrual accounting used across the construction industry to determine how profitable a company is.
This type of revenue tracking differs from a cost-basis model, which considers revenue when it’s been paid and received. Since construction contracts can last several months or years, the contract revenue recognition method is more broadly used so contractors can determine at what point in the project they’ve started to make a profit.
Cash Method
While the cash method is a popular way for construction businesses to track their revenue, the IRS has set an average annual amount the company must hit to be eligible for this kind of accounting for tax purposes. Unlike an accrual method of accounting, the cash method is when companies record revenue once payment is received and record the expense when they are paid.
Tips and Tricks for Construction Accounting
No matter which method of construction accounting you use, hiring a virtual assistant for your construction company can help ensure your finances stay streamlined and accurate. Here are some best practices to ensure your accounting team is ready to handle any project.
Invest in Accounting Software
Since construction accounting involves so much complexity and attention to detail, investing in reliable software for construction accounting can keep your virtual assistant organized and compliant with any tax or reporting laws. Most construction virtual assistants with accounting experience are familiar with this type of software and can help you streamline all of your documents and accounting associated with projects.
Speak With a Tax Expert
Since each construction accounting method carries different reporting and tax implications, it’s essential to consult with a tax professional that can offer advice and suggestions on which method works best for your company.
Depending on your business, and the volume and length of contracts, one method might be more advantageous over the other. For example, if you’re an owner or partner in a firm, there can be tax implications around personal income tax by deducting business losses. These questions can all be answered by a tax professional who can provide tailored advice for your situation.
Don’t Hesitate to Ask for Help
Accounting and bookkeeping are complicated and specific functions of your business that require the utmost care and attention to detail. If you don’t have the time or abilities to manage the accounting, consider hiring a virtual assistant for your construction company to help.
Our team at Virtual Construction Assistants can help you find qualified and professional employees that can work remotely to address any accounting needs you have. Ready to get started? Contact us today for your virtual construction accounting needs.