Accounting for construction contractors

Construction accounting has problems other businesses do not: revenue recognized across periods, retainage held for months, equipment that is both an asset and a cost center, and a workforce that moves between employee and subcontractor status. Getting these right affects both the tax bill and whether a bonding company will work with you.

Revenue recognition

Completed contract, percentage of completion, and the exceptions available to smaller contractors each produce different taxable income in a given year. Which method you are on, and whether you should be, is worth revisiting as the business grows.

Job costing

Knowing which jobs make money requires costs allocated to jobs rather than to the month. Contractors who cannot see this are usually surprised at least once a year, and rarely pleasantly.

Retainage

Money held back on a completed job affects both cash flow and, depending on method, when it becomes taxable. It needs tracking separately rather than sitting in receivables.

Bonding and financing

Sureties and banks want figures presented in a particular way, and the working capital picture is usually what decides the outcome. I do not prepare surety statements, but I will advise on how yours should look and work with whoever does prepare them.

Worker classification

Subcontractor versus employee is scrutinized in construction more than in most industries. Misclassification is expensive, and the fix is cheaper before an audit than after.