Construction Accounting: 3 ways

contractors can stop wasting money

Construction accountants are responsible for taking care of the financials of your business to
ensure money is not wasted while you focus on your clients. As the construction industry is
volatile, it is important to avoid wasting money. You should avoid making uninformed decisions.
When the market is down you need to cover unexpected costs. During price hike, you may be
required to purchase excessive material for big projects. Discussed below are three ways that
construction accountants can use so that contractors avoid wasting money.

1. Improve Estimate Accuracy

Due to inaccurate estimates, contractors often end up overspending which minimizes their profit.
Job costing allows construction businesses to accurately measure the profitability of a project as
it progresses.

It allows you to identify errors and tackle them before you do overspending. It shows contractors
an overview of the financial health of every project allowing them to adjust estimates with time.
With accurate construction accounting procedures, it’s easier to keep track of the materials you
must buy and paychecks you write.

2. Get Paid Faster

More than 50% construction business professionals wait for more than 30 days just to collect
retainage. Getting paid for the whole project takes even longer, accumulating large amount of
outstanding debt. However, getting paid faster is a top priority for many contractors. To speed up
the payment process you should improve your invoicing practices by adapting the following
processes:

● Updating numbers consistently

Construction accounting is an ongoing process that takes place separately for every
project. As the project progresses, the cost increases. By developing reports, you stay
updated on the detailed costs of every product allowing you to understand how much you
should charge your client hence avoiding underbilling or overbilling.
 ● Produce payment applications that get paid faster.
Payment applications are detailed, costly and takes time to get approved. If there is a
mistake in payment application, payment is delayed till the next payment. In case of
payment delays, you are required to pay interest as well. To ensure that your application
is approved quickly, you should work from current job costing and work-in-progress
reports.
● Reporting your outstanding accounts receivable.
You can keep track of account receivables through construction accounting reports. This
helps you in identifying when to send invoice reminders, demand letters, or file a
mechanics lien.

3. Predict the Future

Construction accounting also helps you create forecasts. By maintaining accounting details and
cashflows, you can forecast your future cashflows. If your forecast is accurate, it will give you a
clear idea of how you can maximize your profit as accurate cash flow projections help you:

 Create consistent billing schedules.

Every project payments are made in installments. If your cash flow projection is
wrong, it may lead you to spend too much in one period leaving you insufficient
cash to cover costs incurred in the next period.
 Analyze past trends and adjust.
You can study market trends and analyze when the business market slows down
and when it boosts. With this information you can adjust accordingly to maximize
profit.