Keys for Construction Accounting
Construction accounting is significantly more complex than it is for most businesses. Being able to track, report and categorize costs and other expenses in your construction business is important for understanding how to bid on projects, which projects are profitable for your business, how to bill clients accurately and fairly, and how to make the most of your firm’s resources.
• Sales – Regular businesses account for sales and usually offer 1-5 categories of products and services. Construction businesses offer a greater range of service categories – service work, consulting, engineering, labor, design, physical products and materials, and more.
• Cost of Goods Sold – Regular businesses simply record the cost of the product sold. In construction accounting, it is never so simple. Each job incurs both direct and indirect job costs that fall into hundreds of categories.
• Expenses/Overhead – In regular businesses, the distinction between Cost of Goods Sold and Overhead is very clear, but this is not the case in construction. Many of the items that grocery stores would call “Overhead” fall into the “Cost of Goods Sold” category in construction because they are directly connected to the customer’s project.
• Break Even – In regular businesses, the direct relationship between income and expenses makes break-even points very easy to calculate. In construction, however, there are far too many categories of items to easily understand how to break even on a project. Additionally, most projects are one-of-a-kind custom jobs, with intricate requirements and a variety of associated costs.