General contractor accounting is a unique form of financial management. A general contractor CPA keeps track of individual jobs and their impact on the company as a whole. General contractor accounting follows the basic principles of general accounting but has unique characteristics and features.
What Makes General Contractor Bookkeeping unique?
There are three key factors that make construction accounting and bookkeeping unique.
1. Production is decentralized
2. It is project-based
3. Contracts are long-term and payments can get extended
Contractors usually oversee jobs that happen at different job sites as opposed to a fixed location, such as a manufacturing plant. Equipment and labor may be moved from job site to job site, which entails mobilization costs. A general contractor CPA may need to track labor costs and equipment used for each site to make sure that the proper cost is assigned to each job.
A restaurant chain might treat each restaurant as a profit center. For the hospitality industry, retail, manufacturing, and many other industries, their profit centers are generally stable and predictable.
Conversely, general contractors view every project as a short-term profit center. Each construction job may have unique requirements. Even when multiple jobs have similar requirements, there are variables that may impact general contractor bookkeeping, such as local legislation, local rates for labor, and the availability and cost of materials.
Traditionally, the best way for general contractors to control cost is to bid intelligently. One way to do this is to review the history of their general contractor bookkeeping to use past expenses to predict future expenses. Fusion CPA general contractor financial advisers may be able to show you how to use past bookkeeping to improve the accuracy of your future job costing.
Construction contracts can last for multiple years. They may have extended payments throughout that time. Some contracts give customers up to 90 days to pay the invoice. Disputes can make that time even longer. For this reason, general contractors should approach cash management and revenue recognition differently. Precise reporting and tracking are essential.
The Unique Challenge of General Contractor Tax Planning
General contractor tax planning for contractors who work in multiple cities or states usually takes on an added level of complexity. Employees who work in multiple cities or states might have multiple tax withholding on one payroll.
Contractors should be wary of double taxation for employees who live in one state but work in another. Some states have a reciprocity relationship where the worker's state of residence gives the worker a tax credit on income earned out-of-state. Still, general contractor CPAs should pay careful attention to time cards and pay stubs.
General contractor accountants may need to watch that they don’t overpay the unemployment tax on employees who work in multiple states. Unemployment is typically owed in only one state for each employee. If it is overpaid, general contractors should not expect the IRS to clamor to provide them with a refund.
Financial Advice For General Contractors
IRS rules for construction contracts can be complex. For this reason, the CFO advisory services we offer at Fusion CPA include tax planning strategies that many general contractors may benefit from. It is common for us to encounter generally contractors who are unaware of or are not using tax planning strategies tailored to their industry.
Our goal is to help general contractors, like you, keep more money in their pockets. This may give you more cash to cover day-to-day operations. When you partner with us, our team of financial advisers strives to accommodate each step of your development. We offer to help address tax income issues, financial reporting, or routing accounting and bookkeeping. Are you looking for the next step to grow revenue? If so, our team is here to help identify unique opportunities for your growth. We are financial professionals dedicated to and experienced in handling financial and tax matters related to construction companies. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written, and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.