Construction in Calgary is booming as usual. We have seen record breaking years in the past five years in construction projects and new housing starts, which opens up the doors for construction startups and contracting services branching out on their own.
As Calgary's construction sector continues to expand, companies face the exciting challenge of scaling up their operations to meet growing demands. Amidst this rapid growth, effective bookkeeping practices play a crucial role in ensuring financial stability, transparency, and sustainable expansion. In this article, we'll explore key bookkeeping strategies tailored to support the growth trajectory of construction businesses in Calgary.
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1. Embrace Digital Solutions:
Believe it or not, there are still home improvement businesses that use a pencil and paper to do their bookkeeping, and Calgary Alberta is no exception. While the vast majority of contractors and builders in business have made the switch to digital bookkeeping, some prefer manual bookkeeping for simplicity’s sake, or because they do not want to learn accounting software.
For others, it may be a matter of low transaction volume and it just isn’t worth it to use accounting software. If a tradesman only has one customer such as a general contractor, and material is supplied by the customer, there may not be much bookkeeping to do. Yet every business wants to deduct as many expenses as are allowable by the Canada Revenue Agency, so it may be worth their while to hire a bookkeeper to process all their business transactions and have financial statements each period.
For those contractors that prefer to continue invoicing with the old-style carbon copy invoices, we can perform all bookkeeping by entering all financial data from the invoices and accounting for all income and expenses from the business bank and credit card account statements.
Transitioning from manual bookkeeping to digital platforms can streamline processes, enhance accuracy, and improve efficiency. Implementing accounting software tailored to the construction industry allows for easier tracking of expenses, invoicing, payroll management, and project-specific financial analysis. Cloud-based solutions offer the added advantage of accessibility from anywhere, facilitating collaboration among teams and stakeholders.
QuickBooks is by far the most common small business accounting software and construction firms seem to find it a good fit for them. There is also Sage accounting, but as an accountant, I would say it is rather hard to use for someone who does not have an extensive accounting background. QuickBooks is build for small businesses and is easier to use, even for those who do not have a background in accounting.
More and more, QuickBooks is pushing their Online software, but be aware the user has to be online to access their financial information. At Dymas Services Ltd., we have found the best setup to be QuickBooks Accountant Desktop for our clients in the construction trades here in Alberta. Our clients use an outside invoicing software such as Invoice2Go, or use QuickBooks Online for invoicing.
In today's day in age, a construction company needs to be using bookkeeping software or at least hire a bookkeeper to keep up with reporting demands. We offer bookkeeping services with plenty of experience in the Construction industry.
2. Segmented Cost Tracking:
As construction projects become more complex with growth, it becomes essential to track costs meticulously. Implementing a system that allows for the segmentation of costs by project, phase, or category enables better insight into expenditure patterns. This granular approach not only facilitates accurate financial reporting but also aids in identifying areas for cost optimization and efficiency improvements.
It can be easy to get stuck in a bad contract due to underbidding a job in Calgary, especially for general contractors and handymen who are not in the same line of work day in and day out. Tracking income and expenses in segments such as per project, phase or category can indicate which jobs are making the most money and which are not profitable for the business.
Cost control is another benefit of segmenting costs in bookkeeping software. When costs are segmented, construction companies have better control of their expenses since it is easier to identify unexpected expenses and cost overruns. Segmented cost tracking can be used as a corrective measure to get larger projects back on budget when tracking costs related to each phase of the construction project.
Segmented cost tracking is also a nifty way to nail down your billing through the phase of the project. Customers will be impressed with detailed records of project related costs and labour. It helps to diminish any billing disputes with difficult clients that might otherwise arise, and that can happen especially on those long, drawn out construction projects where everyone just wants to be finished already.
By accurately estimating the costs involved in a project, contractors can allocate sufficient resources to that project based on the phase of the project and can understand bottlenecks that might occur in those types of projects.
When project segments are accounted for, it allows readers of the financial information to glean valuable data for measuring the overall project performance. In comparing the actual vs budgeted costs for each segment, the construction business owner can identify areas that need improvement in their process, allowing them the opportunity to make changes necessary for the growth of their company.
Finally, segmented cost tracking allows business owners to identify and mitigate risks more effectively. Based on past performance, future potential cost overruns can be spotted and dealt with. Project delays can be avoided and disruptions can be minimized.
Need a bookkeeper? We do full service bookkeeping including everything from GST, payroll, and income tax filing! We are located right here in Southern Alberta.
3. Strong Financial Reporting:
Using accounting software allows contractors and business owners to view some impressive financial reports that would otherwise be next to impossible to produce manually. Even the basic Balance Sheet, or statement of financial position and the profit and loss statement, or income statement, would take quite a bit of effort to produce manually.
With growth comes the need for more comprehensive financial reporting. Establishing standardized reporting formats that capture key performance indicators (KPIs) such as project profitability, cash flow projections, and overhead costs provides management with valuable insights into the financial health of the business. Regular review of these reports enables informed decision-making and proactive management of financial resources.
Bookkeeping software will give any business owner easy access to financial statements such as the profit and loss statement, balance sheet, statement of cash flows, statement of changes in owner’s equity, and statement of retained earnings.
As bookkeepers, we provide all of our clients with regular periodic Profit & Loss statements and Balance Sheets. These financial statements are part of the financial report our clients receive at the end of their accounting period. We also give them a Sales Tax report, account reconciliation reports, and notes to management.
As a good practice, an accountant should go over the company’s balance sheet and profit and loss statement to find profitability ratios, current ratios, and so forth. These are great metrics readers can use to determine the overall health of the company.
Strong financial reporting can make all the difference in the world when it comes to the profitability of your construction company.
4. Integrate Job Costing Systems:
Investing in job costing systems allows construction companies to allocate expenses directly to specific projects or jobs. By integrating job costing with bookkeeping processes, businesses can accurately track project profitability, identify cost overruns, and assess the financial viability of future projects. This level of granularity empowers companies to make data-driven decisions that optimize resource allocation and maximize profitability.
To integrate job costing systems for construction companies, a standardized accounting system needs to be established in the company’s bookkeeping practices. All relevant costs associated with each construction project need to be captured including labour, materials, equipment, subcontracted expenses, and overhead costs.
Next, all expenses related to each project must be accurately tracked and recorded in the company's accounting records. This may involve coding expenses to specific job numbers or cost centers to facilitate easy identification and allocation.
Utilizing accounting software or specialized job costing software that integrates seamlessly with the company's bookkeeping system is preferred. This software should allow for the direct allocation of expenses to specific projects or jobs, as well as provide detailed reporting and analysis capabilities.
As any good bookkeeper will tell you, regularly reconciling job costing data with the company's general ledger will ensure accuracy and consistency between the two systems. Any discrepancies should be promptly investigated and resolved to maintain the integrity of the financial records.
Anyone responsible for recording expenses and tracking job costs should fully understand the importance of accurate data entry and how it impacts both job costing and overall financial reporting.
Procedures should be implemented for reviewing job costing reports on a regular basis to monitor project profitability, identifying cost overruns or inefficiencies, and making informed decisions to optimize resource allocation and improve project performance.
By integrating job costing with bookkeeping processes, a construction company can gain valuable insights into the financial performance of individual projects, enhance cost control measures, and improve overall profitability and efficiency.
Knowing your costs can save you money in the future. Know what else can save you time and money? Outsourcing your bookkeeping to us! Give Dymas Services Ltd. a call today for expert bookkeeping services.
5. Stay Compliant:
As the construction industry evolves, so do regulatory requirements. Staying compliant with tax regulations, licensing obligations, and industry standards is paramount for sustained growth. Dedicate resources to ensure that bookkeeping practices align with local regulations and industry-specific compliance standards. Regular audits and reviews can help identify and address any compliance issues before they escalate.
Canadian construction companies have several tax obligations they need to fulfill:
Income Tax: Construction companies are required to pay income tax on their taxable income, which is calculated based on their net profit after deductions and credits. They need to file an annual corporate tax return (T2 return) with the Canada Revenue Agency (CRA) reporting their income, expenses, and other relevant financial information.
Goods and Services Tax (GST)/Harmonized Sales Tax (HST): Depending on their annual revenue, construction companies may need to register for and collect GST/HST on their taxable supplies of goods and services. They must remit these taxes to the CRA through regular filings, typically on a monthly, quarterly, or annual basis, and report their collected and paid amounts on their GST/HST returns.
Payroll Taxes: Construction companies that have employees are required to withhold and remit payroll deductions, including income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums, from their employees' wages. They also need to contribute their share of CPP and EI and remit these amounts to the CRA. Employers must file T4 slips and summaries annually to report employee income and deductions.
Workers' Compensation Insurance: Construction companies are typically required to register with their province's workers' compensation board and pay premiums to provide coverage for workplace injuries and illnesses suffered by their employees. The premiums are based on factors such as the company's industry classification, payroll, and claims history.
Other Taxes and Levies: Depending on the specific circumstances of the construction company and the jurisdictions in which it operates, there may be other taxes and levies to consider, such as property taxes, fuel taxes, and municipal business taxes. Companies should familiarize themselves with the tax requirements in each jurisdiction where they conduct business to ensure compliance.
Compliance and Reporting: In addition to paying taxes, construction companies are responsible for complying with various reporting requirements imposed by tax authorities. This includes filing tax returns, remittance forms, and other documentation accurately and on time. Non-compliance can result in penalties, interest, and other consequences.
Tax Planning: Construction companies can benefit from engaging in tax planning strategies to minimize their tax liabilities and optimize their financial position. This may involve structuring transactions, utilizing tax incentives and credits, and seeking professional advice to ensure compliance with tax laws while maximizing tax efficiency.
If you are trying to tackle staying in compliance with all these and run a construction company at the same time, you might be in need of a bookkeeping service!
6. Invest in Professional Support:
As your construction business grows, consider engaging the services of professional accountants or bookkeepers with expertise in the construction industry. Their specialized knowledge can provide invaluable guidance on tax optimization, financial planning, and risk management tailored to the unique challenges and opportunities within Calgary's construction sector. Outsourcing non-core bookkeeping tasks can also free up internal resources to focus on core business activities.
Canadian construction companies may choose to outsource their bookkeeping for several reasons:
Expertise: Outsourcing bookkeeping allows construction companies to access the expertise of professional bookkeepers who specialize in accounting for the construction industry. These professionals are familiar with the unique accounting challenges and requirements specific to construction businesses, such as job costing, progress billing, and compliance with industry regulations.
Time Savings: Managing bookkeeping in-house can be time-consuming, especially for small and medium-sized construction companies with limited resources. Outsourcing allows businesses to free up valuable time and focus on core activities such as project management, client relations, and business development.
Cost Efficiency: Outsourcing bookkeeping can be cost-effective for construction companies, particularly compared to hiring full-time accounting staff or investing in accounting software and training. Outsourced bookkeeping services often offer flexible pricing structures tailored to the company's needs, allowing businesses to control costs and avoid overhead expenses.
Scalability: As construction companies grow and take on more projects, their accounting needs become more complex. Outsourcing bookkeeping provides scalability, allowing businesses to easily adjust the level of service based on their changing requirements without the need to hire additional staff or invest in infrastructure.
Access to Technology: Outsourced bookkeeping services often utilize advanced accounting software and technology platforms that provide real-time access to financial data, reporting, and analytics. This technology enables construction companies to make more informed decisions, streamline processes, and improve overall efficiency.
Compliance and Accuracy: Professional bookkeepers are trained to ensure compliance with tax laws, industry regulations, and accounting standards. By outsourcing bookkeeping, construction companies can reduce the risk of errors, omissions, and regulatory non-compliance, minimizing the potential for financial penalties and legal issues.
Focus on Core Competencies: Outsourcing bookkeeping allows construction companies to focus on what they do best—building and managing construction projects. By delegating non-core functions such as bookkeeping to external experts, businesses can enhance their productivity, competitiveness, and profitability.
We work with construction companies and have years of vast experience in Southern Alberta, Calgary, and Lethbridge.
Conclusion:
In Calgary's booming construction sector, scaling up requires a strategic approach to bookkeeping that supports growth while maintaining financial integrity. By embracing digital solutions, implementing segmented cost tracking, prioritizing robust financial reporting, integrating job costing systems, staying compliant, and investing in professional support, construction companies can navigate the complexities of expansion with confidence. With sound bookkeeping practices in place, Calgary's construction businesses are poised to thrive in an era of unprecedented growth.
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