08Aug

Building a Strong Financial Foundation: My Top 8 Bookkeeping Tips for New Construction Businesses

New in the industry? You came to the right place. You can’t deny the excitement that comes with starting your own construction business, but it does come with its fair share of challenges, particularly when it comes to managing finances. Building a strong financial foundation from the get-go is crucial for the success and sustainability of your business. In this blog post, we’ll explore essential bookkeeping tips that will help new construction business owners set up efficient financial systems and practices.

1. Set Up a Dedicated Business Bank Account

The first step in establishing a solid financial foundation is to separate your personal and business finances. Open a dedicated business bank account to ensure all your business transactions are kept separate from your personal ones. This will make it easier to track expenses, manage cash flow, and simplify your bookkeeping process.

Tip: Look for a business bank account that offers features like online banking, mobile check deposit, and low or no fees. Some banks also offer specialized accounts for construction businesses that include additional perks and services.

Reason I mentioned having online banking is so that you can access your bank anytime, anywhere. It’s important that you have visibility over your accounts whenever you need to. Saves you a trip to the bank as well, that’s for sure!

2. Choose the Right Accounting Software

I’ll never get tired of saying it: Investing in reliable accounting software is crucial for effective bookkeeping. Accounting software helps you manage your finances more efficiently by automating tasks such as invoicing, expense tracking, and financial reporting. It also provides real-time insights into your business’s financial health.

Some of my personal favorites:

QuickBooks Online: Widely used by small businesses, offering industry-specific features for construction.
Buildertrend: Amazing tool for project management, lead generation, and more that syncs to QBO.

Tip: When choosing accounting software, consider factors like ease of use, scalability, and customer support. Look for software that integrates with other tools you use, such as project management software.

3. Implement a System for Tracking Expenses

Accurate expense tracking is a non-negotiable for understanding your business’s financial health and ensuring you stay within budget on projects. Create a system for recording all expenses, including materials, labor, equipment rentals, and subcontractor payments.

Tip: Use your accounting software to categorize expenses and link them to specific projects. This will help you track costs more accurately and provide insights into which projects are most profitable.

4. Master Job Costing

Job costing is the process of tracking all the costs associated with a specific project. It’s essential for creating a financial foundation for construction businesses because it helps you understand the true cost of each job, set competitive prices, and identify areas where you can improve profitability.

Steps to Effective Job Costing:

Estimate Accurately: Start with a detailed estimate that includes all potential costs.
Track in Real-Time: Use your accounting software to record costs as they occur, rather than waiting until the end of the project.
Analyze and Adjust: Regularly review your job costing reports to identify discrepancies between your estimates and actual costs. Use this information to adjust future estimates and improve accuracy.

Example: If you notice that labor costs are consistently higher than estimated, you might need to re-evaluate your labor rates or improve project planning to reduce overtime.

5. Maintain Accurate Records

Keeping accurate financial records is not only a legal requirement but also essential for making informed business decisions. Ensure all transactions are recorded correctly and keep all receipts, invoices, and financial documents organized.

Tip: Implement a digital filing system to store and organize your financial documents. This makes it easier to retrieve records when needed and reduces the risk of losing important paperwork. If you don’t have a filing system yet, I highly recommend you create one ASAP. The earlier you start, the lesser the chance that your books would need any sort of clean up!

6. Monitor Cash Flow

Cash flow management is critical for any business, but it’s especially important in the construction industry, where project payments can be delayed, and expenses are often high. Regularly monitor your cash flow to ensure you have enough funds to cover your operating expenses and project costs.

Strategies for Managing Cash Flow:

Invoice Promptly: Send invoices as soon as work is completed to avoid delays in payments.
Follow Up on Late Payments: Implement a system for following up on overdue invoices to ensure you get paid on time.
Maintain a Cash Reserve: Keep a cash reserve to cover unexpected expenses or delays in payments.

Tip: Use your accounting software to generate cash flow statements and forecasts. This will help you anticipate potential cash flow issues and take proactive steps to address them.

7. Plan for Taxes

Taxes can be complex for construction businesses, especially if you operate in multiple states or jurisdictions. Plan ahead for your tax obligations by setting aside funds throughout the year and staying up-to-date with tax laws and regulations.

Steps to Effective Tax Planning:

Consult a Tax Professional: Work with a tax professional who understands the construction industry and can help you navigate tax laws and deductions.
Keep Detailed Records: Maintain accurate records of all income and expenses to simplify the tax filing process.
Set Aside Funds: Regularly set aside a portion of your income to cover your tax liabilities.

Tip: Use your accounting software to track deductible expenses and generate reports that make tax filing easier.

8. Review Financial Reports Regularly

Regularly reviewing your financial reports is crucial for understanding your business’s performance and making informed decisions. Key reports to review include the profit and loss statement, balance sheet, and cash flow statement.

Tip: Schedule a monthly review of your financial reports to identify trends, spot potential issues, and make data-driven decisions. Use these insights to adjust your business strategy and improve profitability.

Conclusion

Building a strong financial foundation for your construction business starts with effective bookkeeping practices. By setting up a dedicated business bank account, choosing the right accounting software, tracking expenses accurately, mastering job costing, maintaining accurate records, monitoring cash flow, planning for taxes, and regularly reviewing financial reports, you’ll be well-equipped to manage your finances and support the growth of your business.

At Beyond Books Solutions, we specialize in helping construction businesses establish solid financial foundations. Our team provides comprehensive bookkeeping, accounting, and payroll services tailored to your unique needs.