How Bookkeeping for Construction Companies Differs from Other Industries
Bookkeeping is essential for any business, but in the construction industry, it comes with unique challenges and requirements that set it apart from other sectors. Unlike retail or service-based businesses, construction companies often juggle multiple projects, complex contracts, fluctuating costs, and extended timelines. These factors make precise, specialized bookkeeping practices not just helpful — but critical for profitability and compliance.
In this article, we’ll explore how bookkeeping for construction companies differs from other industries, the key considerations for success, and how to set up systems that keep your finances in check.
1. Project-Based Accounting vs. General Accounting
One of the most significant differences in construction bookkeeping is the focus on project-based accounting.
In most industries, bookkeeping tracks overall company income and expenses. But in construction, each project acts as a separate profit center. This means that revenue, expenses, and labor need to be tracked by individual jobs to determine profitability.
Why it matters:
Identifies which projects are profitable and which are not
Helps in setting accurate bids for future jobs
Supports better cash flow management
Key tools: Job costing systems in software like QuickBooks Online Plus or QuickBooks Desktop Contractor Edition can make tracking much easier.
2. Long-Term Contracts and Revenue Recognition
Construction projects often span weeks, months, or even years, which brings in special revenue recognition rules.
Two common methods used are:
Percentage of Completion Method (PCM): Recognizes revenue based on the progress of the project.
Completed Contract Method (CCM): Recognizes revenue only when the project is finished.
These methods are more complex than standard accrual or cash accounting and require careful tracking of costs, estimates, and billing schedules.
3. Managing Retainage (Retention)
In many construction contracts, clients withhold a percentage of payment — called retainage — until the job is complete. While this protects clients, it can strain contractors’ cash flow if not accounted for properly.
Bookkeepers in construction must:
Track retainage receivable separately from standard accounts receivable
Monitor contract terms to know when retainage will be released
Plan cash flow accordingly to avoid shortfalls
4. Variable Costs and Change Orders
Unlike industries with predictable costs, construction faces constant variables: material prices can fluctuate, labor availability changes, and weather delays can disrupt timelines.
Change orders—modifications to the original project scope — can significantly impact project profitability. Proper bookkeeping ensures that change orders are:
Documented in writing
Approved before work begins
Billed accurately to the client
5. Compliance and Reporting Requirements
Construction companies must navigate additional compliance layers:
Certified payroll for government contracts
Union reporting
State-specific licensing and bonding requirements
Sales tax on materials and labor (varies by state)
Failing to meet these requirements can result in fines or even loss of licenses. Bookkeepers in this field need to be familiar with both local and federal regulations.
6. Equipment and Asset Management
Construction companies often own expensive equipment — bulldozers, trucks, scaffolding — that must be tracked as fixed assets. Bookkeeping involves:
Recording depreciation
Scheduling maintenance costs
Distinguishing between capital purchases and repairs
This differs from other industries where asset management is less central to financial tracking.
7. Subcontractor Management
Many construction projects rely on subcontractors, which means bookkeepers must handle:
W-9 collection and 1099 filings
Tracking subcontractor payments against contracts
Ensuring compliance with insurance and lien waivers
Poor subcontractor tracking can lead to IRS penalties or disputes over payments.
Q&A: Bookkeeping for Construction Companies
Q: Can I use the same bookkeeping system for construction as I would for a retail store?
A: Not effectively. While general accounting software can work for basic tracking, construction companies benefit from systems with job costing, progress billing, and retainage tracking features.
Q: How often should I review project financials?
A: Monthly at a minimum, but for large projects, weekly reviews can catch issues early.
Q: Do I need a specialized bookkeeper for my construction company?
A: Yes, ideally. A bookkeeper experienced in construction will understand the nuances of project-based accounting, compliance, and cost tracking.
Q: How can I avoid cash flow problems caused by retainage?
A: Build retainage into your project budgets and keep a detailed schedule of expected release dates so you can plan expenses accordingly.
Q: What’s the best way to track change orders?
A: Use project management software that integrates with your accounting system so every approved change automatically updates your budget and billing.
How Brecken Business Solutions Can Help
At Brecken Business Solutions, we specialize in bookkeeping for construction companies. We understand the unique demands of the industry — from tracking multi-phase projects to managing retainage and subcontractor payments.
Our team can help you:
Set up job costing and project tracking
Implement revenue recognition methods that comply with IRS rules
Manage subcontractor compliance
Improve cash flow planning and budgeting
Stay on top of reporting requirements
Whether you’re a small contractor or a growing construction firm, we can provide the systems and expertise to keep your books accurate and your projects profitable.
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Contact us today to get expert bookkeeping support designed specifically for construction businesses!
