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Construction Accounting - Basic Understanding
Construction Accounting - Basic Understanding

Construction Accounting - Basic Understanding

Why is construction accounting different?
If you work in the construction industry, you’ll know there’s rarely a fixed business structure. The site manager probably doesn’t employ the other people working on a project. They are likely to be a contractor – and so is everyone else.
Contractors make up the bulk of the construction workforce. They may be working on several projects at the same time, spending a few hours or days on each. They might also employ their own subcontractors to help out.
Temporary workers will come and go as required. And if you do have a formal payroll, it may change on a weekly basis. So compared with a conventional business, this is much more fluid and changeable.
In this guide we’ll look at what you need to know about construction accounting. This will help you keep your business in the black and out of trouble.
Start at the beginning
Like any other entrepreneur, if you’re starting a construction business it pays to do it properly – right from the start. That means getting your business and your accounts in order before you take on any work:
  • Incorporate your business
    Incorporating as a small business gives you legal protection. This does depends on the type of company you set up, for example it could be set up as a limited liability company, partnership or sole trader.
  • Buy insurance
    Construction can be dangerous, from both a physical and a legal perspective. Get specialist insurance to cover you in case things go wrong.
  • Hire an accountant or a bookkeeper – or both
    Bookkeepers will help you manage your day-to-day accounts, processing expenses, bills and invoices. Accountants will help you with your business structure and advise on ways you can save tax. It makes sense to hire both. They will probably save you more than they cost.
  • Keep your skills up to date
    Laws change, especially safety laws. Keep your certification up to date by going on training courses. This is important whether you’re a builder, electrician, plumber, carpenter or other worker. Your insurance may also depend on up-to-date certification – and you’ll probably get more work too.
Get the details right
Construction accounting regulations vary around the world. You may have choices about how you manage your accounts. The following examples apply to the US, but other countries have similar arrangements:
  • Cash accounting
    This usually applies to smaller construction projects. Income and expenses are accounted for when money changes hands. Income is taxed after expenses are deducted.
  • Accrual accounting
    This is used on larger projects. Income and expenses are accounted for when they are incurred, not when they are actually paid. Accounts may be based on the proportion of the contract that’s been completed. That’s especially true for projects that span more than one tax year.
For further assistance and advice in the setting up of your business - please contact us:

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