Accurate bookkeeping is central to the success of all businesses. For custom home builders, a specialized approach to bookkeeping can help provide a more detailed and accurate overview of the company's financial standing.
Here are three tips that you can use to improve the way you track and record your construction company's financial transactions in the future.
Use Multiple Accounts
One way that you can improve the overall quality of your company's bookkeeping efforts is to set up multiple bank accounts. If you rely on a single account, you will be provided with a skewed overview of your financial standing. All of the money in the account may not necessarily belong to your construction company. Some of the money could be reserved for payroll, expenses, and taxes.
By setting up separate accounts for all major expenses, you will be able to gain a more accurate idea of how much money your custom home-building business is generating each month.
Select the Right Revenue Recognition Method
The method that you employ to recognize incoming revenue. Various methods are used by modern construction companies, and each tracks payments in a unique way. You can opt to use a completed contract method, which only registers incoming payments as revenue once a contract has been fulfilled.
The installment method allows you to recognize revenue in the period during which it was collected rather than at the time of sale. Using installment revenue recognition can help you avoid paying taxes on money that your clients have not yet provided. The percentage of completion revenue recognition method allows your company to recognize gains and losses related to a long-term project during each period where work was completed.
Identifying the right revenue recognition method will help you streamline your bookkeeping and minimize financial discrepancies over time.
Account for Contract Retainage
It's not uncommon for a client to withhold part of the money a contractor is owed until a significant portion of the work on a custom home has been completed. This practice is referred to as contract retainage. Most construction contracts will mandate that anywhere from 5% to 10% of the total contract price be held in retainage. You must account for retainage in your bookkeeping practices in order to keep your custom home building company afloat.
Don't count the retainage as revenue when budgeting for the materials and labor required for a project. This will prevent you from overspending and help maintain your company's financial health.
if you are in need of bookkeepers for custom home builders, contact a local company today.Share
16 December 2021
Accounting is the absolute most important element of running a business. If you mess up the bookkeeping even the slightest bit, the entire business could be in trouble. I know how costly a small bookkeeping error can be. About three years ago, I made a seemingly small mistake in the financial records for my business and the next year when I filed my taxes, things were very bad for me. What would have required a small tax payment had suddenly turned into a big tax bill and quite a headache. Since then, I have worked with an accountant and things have been better.