A builders set of accounts must represent the building activities and the size of the business.
When designing a set of accounts for a construction company we need to identify the revenue streams that have direct costs associated to them. We can get this information from your quotes and past jobs. We also need to identify any other major revenue streams that we would like to identify separately.
Once we have set up your income accounts we then create the accounts for the direct costs associated with deriving revenue. This is a great way to ensures all of your business operations are individually profitable. For example, you may be adding a margin to materials an subcontractors, having the income and costs identifiable will allow you to check at the end of the month whether or not these margins are actually being recognised as your business goes about it's operations.
Lastly we want to ensure that no other variable costs are sitting in our overheads section and vice versa. Commonly we find that management salaries have not been pulled apart from the operating wages. This must be done to ensure a correct reading of the accounts.
This completes the top half of the income statement and the gross profit, this will give you some good insights into the company.
Different forms of profit, deposits, tracking categories, and timing are discussed below.
We like to show different levels of profit, typically most statements might have net profit and profit after tax. However another good figure is you operating profit or EBITDA. This shows the companies performance before the current ownership structures costs, this can have better comparability over time as the companies capital structure changes.
Deposits can cause a headache for most admin staff trying to reconcile these payments. The true way to record these are on the balance sheet, however this should be determined by the size of the building company. A larger company with more resources should be spending the time to get this accurate where a smaller company can use a more simplified approach. In either case however come the year end this must be recorded accurately.
Timing is the last key issue for builders, we must do our best sometimes creatively to align the revenue streams with the costs otherwise we risk throwing out our gross profit. Typically what happens is a builder would receive an invoice from a subbie but not be at a stage to invoice their client. There are a few ways around this especially if you have received deposits.
Further breakdown of the income statement can also be achieved through tracking categories, most accounting systems have this extended feature. This is not represented in the above example as it is even more company specific. We do however believe that most construction companies should be utilising this feature.
If you have any further questions or need assistance with Construction Accounting's services, feel free to reach out to us anytime
If you have any further questions or need assistance with Akaunt, feel free to reach out to us anytime
