Businesses in the construction sector spend and earn tons of capital every year, worldwide. In fact, U.S. experts predict that construction spending will hit more than 1.5 trillion by 2022.
With massive amounts of capital comes an equal number of opportunities to slip up on estimates and invoices, misfile numbers sheets, exceed scope without documentation, or fall subject to other mistakes that risk business health. Established construction entrepreneurs know that no matter how long or how well you’ve operated a company, certain recurring issues can upend stable growth at any time. Be ready to tackle these common challenges in your own construction business with smart, actionable accounting solutions that protect you against potential losses and IRS issues.
Construction Business Challenge 1 – Project Estimate Issues
The bigger the project, the greater the chance of mis-estimating the total cost. Especially for multi-month or multi-year projects.
To get ahead of this, schedule internal accounting reviews of all projects on at least a monthly basis. Map the line items and costs estimated exactly to the actual line items and costs per project so that you can start accumulating data of when and what kinds of new costs creep into a project, how equipment issues impact the budget sheet, and where labor estimate models can be tweaked for improved accuracy.
The easiest way to conduct these ongoing reviews is to set up an automated data system that your office team can use to input cost information and map trends, facilitating the delivery of complete, big picture snapshots of any project in your portfolio, any day of the month, with minimal effort. Having these reports ready and up-to-date will not only help you build better estimates; they will also help you adjust if and when scope creep becomes an issue.
Construction Business Challenge 2 – Preemptively Omitting Costs
Job costs that impact the company within the same financial period as they are paid or charged usually make it into the managerial accounting formula without issue. It’s those costs with delayed invoices or partial payments that might end up impacting the budget outside the period of goods or services received. That can become problematic. Delayed costs like these can give construction professionals an inaccurate reading of their state of expenses, and throw off the budget when omitted cost invoices arrive in a later pay period.
One easy way to get around this issue is to do some basic balance adjustments by creating cost liability placeholders in statement data, whether or not cost invoices have yet impacted the gross total.
Construction Business Challenge 3 – Issues with Payroll Reporting
Payroll reporting mistakes can happen for several reasons, including:
Inaccurate time and overtime records
Incorrect staff forms
Lack of transparency
While most of these issues can be resolved by hiring careful admin staff, one accounting solution that will help you manage payroll issues is assembling clear internal guidelines for laborer classifications and direct deposit payments. Ideally, your construction company should follow a system where various laborer types receive internal tags that guide your administrative staff for maintaining regulatory compliance and make the correct tax forms easier to distribute come year end.
365/24/7 Construction Bookkeeping Troubleshooting
The above solutions will help you avoid surprise issues in your construction bookkeeping. However, if you don’t have internal staff with the time, experience, and knowledge to put these or other accounting business solutions into practice, you’re handicapping your productivity from project day one.