Construction is perhaps one of the most challenging industries in terms of the handling of its cash flows. It comprises special accounting requirements like project-based cost, application of different regulations, payments to the subcontractors, progress billing, and tax laws related to construction operations. These complexities, therefore, make it mandatory for construction businesses to hire specialised construction accountants. In this blog, we shall discuss why it is vital for a business to obtain the services of professional construction accountants who appreciate the construction industry, especially when it comes to bookkeeping services.
Understanding of Industry-Specific Accounting Standards
Even though construction accounting is a branch of accounting like other branches of accounting, it is different as it involves transactions that are mostly in construction. Construction projects are often large-scale projects that are of long duration, multi-party projects and where cost and revenue are critical success factors. Industry-specialised construction accountants understand construction accounting rules that vary from country to country, such as the CIS in the United Kingdom or from one state to another or country to another in terms of project cost estimating.
These experts know the finer details of construction accounting, such as recognising revenues and expenses based on the percentage complete, handling retainage (amount which is kept back from subcontractors), and working in generally volatile cash flows. This experience guarantees you the right financial records that give a true and fair view of the financial position of your business, an important aspect in planning and also in the achievement of business credibility.
Accurate and Efficient Bookkeeping Services
Bookkeeping services are the core of any company’s finance management functions. To construction businesses, bookkeeping is not merely recording details but entails categorisation, identifying proper account classification for every expense, proper cost tracking of every job, as well as handling employee and subcontractors’ payrolls. There are construction accountants who offer professional services in construction accounting that are accurate and cost-effective.
Among the things that they assist in are keeping detailed records of each project so as to ensure that proper allocation of expenses is done and the right invoice is prepared at the right time. It is important to stress that the indicated level of detail is necessary for controlling the profitability of projects and minimising the extent of waste as well as possible mistakes. Bookkeeping also plays an important role in accurate budgeting and forecasting to enable construction companies to prepare well for future projects.
Project Costing and Job Costing Expertise
It is in construction where project costing and job costing are important in the determination of specific project viability. For such complicated fiscal issues, expert construction accountants have skills to handle related complications. These include labour cost, material cost, subcontractor cost, equipment cost, and overhead cost, which give a clear picture of the financial performance of the specific project.
Construction has its own unique way of setting costs for its various jobs, so correct job costing assists the business in knowing which of their projects is profitable and which is not and consequently, assists the business in the disbursement of resources, as well as making the right decisions for the future bids and contracts. It also helps businesses adjust their prices to match their costs and get the right profit margins for the services they are offering to their clients.
Compliance with Tax Regulations and the Construction Industry Scheme (CIS)
A firm cannot afford to ignore tax compliance, and this is very prominent in the construction industry. Construction accountants will focus on the contemplation of legal requirements on construction taxes as well as other construction-related laws. For instance, concerning the Construction Industry Scheme (CIS) in the UK, which requires the contractors to pay a portion of money to HMRC out of the subcontractor’s payment. CIS mismanagement can also result in fines and penalties because they can be very costly.
Contractor accountants make sure that your business is running in line with CIS and other tax laws through the right calculation of deductions, preparation of CIS returns on a monthly basis, and proper documentation. They also monitor any changes in tax laws that may be of relevance to your business so that you can always be in good standing and achieve the best tax effect.
Cash Flow Management and Forecasting
Cash flow management is a highly sensitive problem in the construction industry because of the project nature of work, the payment terms, and the retention of money. It is common to have a huge initial expenditure in human capital, goods, and tools in construction-related projects, but the corresponding income is not received until another phase is accomplished or the full project is completed.
Construction accountants are also charged with the responsibility of managing the cash flow in the most efficient manner possible. They offer information on cash flow trends, facilitate the control of progress billing, which is the invoicing done according to the stages of work accomplished, as well as preparing cash flow forecasts, taking into consideration expenditures and receipts expected in the future. By ensuring that there is enough cash to cover ongoing project costs, construction accountants help avoid liquidity issues and keep projects running smoothly.
Mitigation of Financial Risks
There are always certain risks associated with construction projects, such as delays in construction, increases in the cost of construction, disputes with clients, changes in regulations on construction, etc. The specialisation of construction accountants is observed in how they are able to analyse certain financial issues that could lead to certain risks and come up with ways and means of dealing with the risks. They review financial matters on a frequent basis, track costs for projects and give variances for a comparison of the expected and actual costs.
Through the monitoring of the profitability of a construction project, construction accountants are able to identify possible problems and correct them early. Such an approach lowers potential losses and contributes positively to the organisation’s profits.
Improved Financial Decision-Making
It is imperative to present accurate financial information for any given business to make good decisions. Some of the services that construction accountants offer include the preparation of financial accounts, which enables the business owners or managers to have a feel for their business. Such reports are project profitability reports, overhead costs’ distribution, cash flow statements, etc.
With access to such data, construction companies can proceed more confidently with their choice of new projects to bid on, the ways they can work existing projects, ways to grow the business, and whether to invest in new equipment. Enhanced and effective financial decision-making, therefore, entails enhanced resource acquisition, operational efficiency, profitability, and growth.
Technology Integration and Automation
It is worth stating that the construction industry more and more often adapts digital applications and solutions to work with. Construction accountants know the software that is friendly to construction industries and the tools that can be used in construction accounting, such as Xero, QuickBooks, and Sage, etc.
These professionals are useful in the implementation of accounting software with other business automation tools such as project management tools and payroll. Mapping of recurrent processes such as issuing of invoices, salary computations and preparation of accounts also helps in cutting down on time as well as potential blunders. Construction accountants play an important role in supporting organisations to get a sustainable competitive advantage in a dynamic environment through the use of technology.
Strategic Planning and Business Growth
The construction accountants perform more than the computations; they are valuable allies in the business’ progress. They give important information regarding financial trends in profitability margin and cost savings opportunities for strategic executions. For instance, they can detect which kinds of projects are most lucrative and suggest the appropriate pricing or approaches for offering the best value to the customer at the least cost possible.
The expert accountants can also help construction companies when seeking to grow by planning for how to grow construction operations, where to fund growth and expansion, and how to merge or acquire other construction companies. The integral skills that they possess make sure that the financial decisions made have a tallied goal in the company.
Enhanced Stakeholder Confidence
Accurate financial records and tight controls create confidence around the company among the stakeholders, such as investors, financial institutions, customers, and vendors. Construction accountants support corporations in realising proper, up-to-date, standard and specified records. This is very important to avoid loss of credibility, especially when looking for funding or signing contracts with various parties.
When the public can observe that a construction company is financially competent and determined to maintain its financial health in all its economic undertakings, the public is likely to engage in financial transactions with the construction company by either offering to invest in its corporal values or seeking to engage in business with the company. This in turn results in better financing terms, improved contracts, and good business relations in a business organisation.
Conclusion
There is a need to involve specialised construction accountants in firms that are in the construction industry due to the complex issues that this sector has financially. From accounting services, cost and construction quotations, tax requirements, and cash flow management, these professionals offer extensive assistance and support these businesses to succeed. Construction accountants make work easier for business people by offering their services in what they do best—management of construction projects while they handle the financial part. More than that, the cooperation provided a proven guarantee towards the compliance and efficiency that give way to sustainable development in an industry that is undeniably rife with competition.
We at E2E offer a wide range of outsourcing services, including specialised construction bookkeeping and accounting services in and outside the UK. These include outsourced payroll services, outsourcing bookkeeping and accounting services, tax and VAT outsourcing, and management accounting. Let us take care of your business with all the latest technologies that best fit your company’s needs and requirements so you can concentrate on building a successful company.
Contact us today to get yourself the best bookkeeping and accounting services near you that can help you streamline your process and save time and cost!
READ MORE: One touch
