Basic bookkeeping may be enough when a contractor has a small number of transactions and only one or two straightforward projects. As the company grows, however, the same bookkeeping process may no longer provide the information management needs to monitor receivables, subcontractors, payroll, equipment, cash flow, and job profitability.
Growth does not necessarily mean the company needs to replace its current bookkeeper. In many cases, the business needs a clearer accounting structure, stronger monthly procedures, and professional oversight for more complicated accounting and tax matters.
The Bank Is Reconciled, but the Records Are Still Incomplete
A completed bank reconciliation confirms that recorded cash transactions agree with the bank statement. It does not confirm that all supplier invoices, customer receivables, holdbacks, payroll liabilities, loans, or unbilled work have been recorded properly.
Construction bookkeeping often requires supporting schedules that explain significant balance sheet and project balances.
A clean bank reconciliation is essential, but it is only one part of a complete month end accounting process.
Management Cannot See Results by Project
If all revenue and costs are accumulated in broad general ledger accounts, the owner may know whether the company made money overall but still have no clear idea which projects produced the profit.
This limits the usefulness of the accounting records for estimating, pricing, and project management.
As a contractor grows, management should consider whether project codes, cost categories, employee time records, and purchasing information are being used consistently enough to compare actual project results with the original estimates.
Invoices and Change Orders Are Delayed
Accounting staff cannot bill work they do not know has been completed.
The bookkeeping process needs to connect with project managers and field documentation so that progress billings, field tickets, approved changes, and other billable work are invoiced promptly.
Where billing is delayed, the problem may be operational rather than accounting. A good month end process should identify unbilled work and assign responsibility for obtaining the information required to issue the invoice.
Accounts Receivable Is Increasing Faster Than Revenue
A growing receivable balance is not automatically a problem, especially when sales are increasing. However, the accounts receivable aging should be reviewed regularly by customer and invoice age.
Older receivables may indicate disputed invoices, missing documentation, ineffective collection procedures, or customers experiencing their own cash flow difficulties.
The bookkeeper can prepare the aging report, but management still needs to review it and take action on overdue or unusual balances.
GST, Payroll, and Subcontractor Reporting Require Last Minute Work
Recurring tax and information filing requirements should be supported by records maintained throughout the year.
If the company regularly needs to reconstruct GST, payroll, or subcontractor information immediately before a filing deadline, the bookkeeping process is not operating efficiently.
For GST purposes, businesses need adequate records and supporting documentation for input tax credit claims. Construction businesses that meet the applicable requirements may also have T5018 reporting obligations for payments made to subcontractors.
Equipment Loans Are Being Recorded as Expenses
A loan payment generally includes both repayment of the outstanding principal and an interest component.
Recording the entire payment as an expense can misstate both the company’s profit and the loan balance shown on the balance sheet.
The bookkeeping records should also distinguish ordinary repairs and operating costs from purchases that create longer term assets.
Complicated or unusual transactions should be referred for professional review rather than recorded based solely on the description appearing on a bank or credit card statement.
Year End Adjustments Are Large and Repetitive
Some year end adjustments are normal. However, recurring corrections to accounts receivable, accounts payable, payroll liabilities, loans, GST, capital assets, or other significant balances may indicate that the monthly accounting process needs improvement.
Recurring adjustments should be reviewed with the bookkeeper so the underlying issue can be corrected in the following year. This can reduce year end work and improve the reliability of monthly financial information.
A Scalable Accounting Arrangement
A growing construction company may eventually require one of several accounting arrangements.
- Complete outsourced bookkeeping
- An internal bookkeeper supported by external accounting oversight
- A stronger internal accounting function supported by the company’s year end accountant
The right arrangement depends on transaction volume, staff capability, project complexity, reporting requirements, and the information management needs during the year.
The objective is to handle routine work efficiently while ensuring that more complex accounting and tax matters receive appropriate professional attention.
Construction Bookkeeping in Edmonton
Seniuk and Marcato provides bookkeeping, accounting, financial statement, and corporate tax services to owner managed businesses in Edmonton and throughout Alberta.
We can work with your existing bookkeeper or discuss whether a more comprehensive accounting and bookkeeping arrangement would better suit the company’s current needs.
This article provides general information only and is not accounting, tax, legal, or financial advice for a specific business.
