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Emil @ CPA-LA: 11 ways your construction company can avoid accounting mistakes




One of the not-so-secret ways to run a profitable construction business is to follow sound accounting practices. Mistakes in financial reporting can be costly, potentially leading to budget overruns, cash shortfalls, delayed projects, unpaid bills and underfunded payroll. Here are 11 ways to minimize the potential for such errors:

1. Separate project expenses. In as much detail as possible, distinguish job costs from general expenses to ensure the former are accurately attributed to each project. Doing so will help prevent inaccuracies that could affect your company’s overall budget.

2. Ensure estimates reflect true job costs. When estimators don’t have a complete understanding of current costs, both direct and indirect, projects often end up costing more than what was budgeted. Obviously, estimates should be as close as possible to the final job costs. But that’s easier said than done in an inflationary environment.

One way to help ensure accuracy is to use coded job costing, which essentially assigns price tags to individual tasks based on the resources consumed. You can use cost codes as line items in estimates, easily adjusting or deleting them to account for scope changes.

3. Schedule payments. Establishing a regular billing schedule makes managing accounts receivable less complicated and helps you track monthly income. Progress-billing contracts allow you to bill regularly or when designated milestones are achieved. Equally important is establishing a straightforward process in contracts for change order approvals and invoices that allows you to timely bill for additional work.

4. Track job costs in real time. With prices on the rise and profit margins at risk, it’s important to closely monitor costs throughout a project. Regularly comparing estimated costs to actual ones will help you catch mistakes and adjust to cost fluctuations, whether related to materials, labor or equipment. Capturing this data will also assist you in determining whether you’re billing customers appropriately.

5. Maintain accurate records. Keeping and organizing relevant financial documentation — including invoices, receipts and purchase orders — helps to ensure all expenses and revenue are accounted for so you can identify errors before they become major problems. Organized records are also critical for tax and audit purposes.

6. Track materials and inventory. If your construction business stores materials or other items, have you upgraded your inventory system recently? Tracking the availability and usage of materials across projects can make managing these commodities easier and minimize the risk of losses. With the right technology, you can monitor deliveries and avoid wasteful spending.

7. Reconcile bank accounts monthly. Checking the balance in each bank account statement against the balance in your accounting records helps to identify discrepancies. These can include bank errors, checks that haven’t yet cleared and transactions that were improperly recorded. Reconciliation can be done for loan and credit card statements as well.

8. Have financial statements double-checked. Scheduled reviews or audits of financial statements can help identify and address discrepancies, downward trends and areas of weakness. Audits are by far the more thorough assurance service.

9. Upgrade accounting software. If you’re not already, consider using accounting software specifically designed for the construction industry. Before buying, make sure it can integrate with your other systems. Integrated solutions help streamline financial management and reduce the risk of errors caused by paper processes, manual data entry and manual transfers of data from one system to another.

10. Train and upskill employees. To the extent feasible, invest in continuing education and “upskilling” (refining existing skills) for your accounting staff. But don’t stop there; ensure all employees understand their roles in the financial management process. This particularly includes project managers, who can have a huge impact on gathering data and controlling costs.

11. Don’t go it alone. Top-performing construction companies rely on professional advisors for a reason. Our firm can help you establish and follow the right accounting practices to minimize mistakes and maximize the utility of your data.

© 2023


One of the not-so-secret ways to run a profitable construction business is to follow sound accounting practices. Mistakes in financial reporting can be costly, potentially leading to budget overruns, cash shortfalls, delayed projects, unpaid bills and underfunded payroll. Here are 11 ways to minimize the potential for such errors:

1. Separate project expenses. In as much detail as possible, distinguish job costs from general expenses to ensure the former are accurately attributed to each project. Doing so will help prevent inaccuracies that could affect your company’s overall budget.

2. Ensure estimates reflect true job costs. When estimators don’t have a complete understanding of current costs, both direct and indirect, projects often end up costing more than what was budgeted. Obviously, estimates should be as close as possible to the final job costs. But that’s easier said than done in an inflationary environment.

One way to help ensure accuracy is to use coded job costing, which essentially assigns price tags to individual tasks based on the resources consumed. You can use cost codes as line items in estimates, easily adjusting or deleting them to account for scope changes.

3. Schedule payments. Establishing a regular billing schedule makes managing accounts receivable less complicated and helps you track monthly income. Progress-billing contracts allow you to bill regularly or when designated milestones are achieved. Equally important is establishing a straightforward process in contracts for change order approvals and invoices that allows you to timely bill for additional work.

4. Track job costs in real time. With prices on the rise and profit margins at risk, it’s important to closely monitor costs throughout a project. Regularly comparing estimated costs to actual ones will help you catch mistakes and adjust to cost fluctuations, whether related to materials, labor or equipment. Capturing this data will also assist you in determining whether you’re billing customers appropriately.

5. Maintain accurate records. Keeping and organizing relevant financial documentation — including invoices, receipts and purchase orders — helps to ensure all expenses and revenue are accounted for so you can identify errors before they become major problems. Organized records are also critical for tax and audit purposes.

6. Track materials and inventory. If your construction business stores materials or other items, have you upgraded your inventory system recently? Tracking the availability and usage of materials across projects can make managing these commodities easier and minimize the risk of losses. With the right technology, you can monitor deliveries and avoid wasteful spending.

7. Reconcile bank accounts monthly. Checking the balance in each bank account statement against the balance in your accounting records helps to identify discrepancies. These can include bank errors, checks that haven’t yet cleared and transactions that were improperly recorded. Reconciliation can be done for loan and credit card statements as well.

8. Have financial statements double-checked. Scheduled reviews or audits of financial statements can help identify and address discrepancies, downward trends and areas of weakness. Audits are by far the more thorough assurance service.

9. Upgrade accounting software. If you’re not already, consider using accounting software specifically designed for the construction industry. Before buying, make sure it can integrate with your other systems. Integrated solutions help streamline financial management and reduce the risk of errors caused by paper processes, manual data entry and manual transfers of data from one system to another.

10. Train and upskill employees. To the extent feasible, invest in continuing education and “upskilling” (refining existing skills) for your accounting staff. But don’t stop there; ensure all employees understand their roles in the financial management process. This particularly includes project managers, who can have a huge impact on gathering data and controlling costs.

11. Don’t go it alone. Top-performing construction companies rely on professional advisors for a reason. Our firm can help you establish and follow the right accounting practices to minimize mistakes and maximize the utility of your data.

© 2023

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Tax, Accounting, Consulting - Emil Estafanous, CPA, CFF, CGMA