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Do You Make These 4 Common Construction Bookkeeping Errors?

2018-03-21 09:15:27.0

| Author: FAS

FAS specializes in small business bookkeeping and tax services. We work closely with small businesses in Katy, Fulshear, Houston and nearby areas. Call us for Free Consultation: 832-437-0385 .






 

   Bookkeeping challenges are present on all small businesses. Any business can encounter difficulties while doing this challenging, but very important tasks. It could vary from as simple as keeping track of unpaid invoices, failing to include taxes to your invoices, or not leveraging technology to have a more efficient operation. No business is really picture-perfect when it comes to this.

   Within specific industries, these are not the only bookkeeping challenges that they need to face. Industries like construction encounter more specific difficulties when it comes to bookkeeping. Here are four of the most common bookkeeping errors that most construction companies make and how to avoid them:

 

1. Inaccurate Allocation of Overhead 

   Overhead costs are normally the fixed costs not directly identifiable to a specific job or project but nevertheless important to track and allocate correctly.

   Overhead costs generally include rent, equipment and supplies, employee and staff salary, taxes, insurance, marketing, accounting, and legal expenses.  There are different methods of allocating the overhead costs to the job or project with the objective of calculating the total cost.  Consulting with an experienced bookkeeper or part-time CFO will provide business owners the proper guidance on the right method to use.

 

2. Inaccurate Cut-Offs in Job Costs

     Many construction businesses record their revenues when earned and expenses when incurred which is known as the accrual basis accounting. For the most part, small business owners use the cash basis accounting because it is simpler and easier to implement. Whatever you decide to use, keep in mind that proper matching of costs to revenue is critical in determining the true profitability of each job or project.

 

3. Poor Control Over Change Orders

    Change orders can bring about great opportunities, but also potential pitfalls for construction companies. There are complex rules for dealing with change orders and not being able to apply these rules can definitely result in errors and worst, not being paid for work performed. 

    The first thing that you need to ensure is that you have a proper approval for every change order before executing the job. Remember not to be too optimistic that it will lead to additional revenue because you might end up overestimating profits, and you’ll end up incurring more costs that will not get paid. Make sure that you and the owner agree on the scope and price, in writing, before going forward.

 

4. Inaccurate Job Cost Estimates

  This happens when you do not have a good accounting system to accumulate and track costs by project.  Without an accurate historical data, it will be difficult to have an accurate basis to estimate costs for future similar projects.

     To start with, every project will have three major cost components: Direct Materials, Direct Labor and Overhead.  Make sure that you have an established accounting system and technology to accurately capture these costs by job and use this for future planning or bid estimates.  

 

If you need help with bookkeeping, tax preparation, or avoiding the errors we mentioned above, contact us today at cristy@fas-accountingsolutions.com or 832-437-0385.

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