Accounting Basics for Contractors and Construction Businesses: 5 Top Tips

Bookkeeping for contractors and construction businesses presents unique challenges. With fluctuating wage rates, an unpredictable workforce, and multiple ongoing projects, financial management can become overwhelming. However, with the right strategies in place, bookkeeping can be streamlined for better efficiency and accuracy. Here are five essential tips to improve your construction business’s accounting process, along with practical examples for each.

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1. Keep Personal and Business Finances Separate

One of the fundamental rules of financial management is maintaining a clear distinction between personal and business finances. By having separate accounts, you avoid confusion, simplify tax filing, and maintain accurate records.

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Example: Suppose a contractor buys personal groceries using their business debit card. Later, when reviewing expenses, it becomes difficult to determine whether the money was used for business or personal needs. By keeping finances separate, this issue is avoided, and deductions can be accurately claimed.

How to do it: Approach a local bank and open a dedicated business bank account. Provide your driver’s license or passport along with your business registration documents to complete the process. Many banks offer accounts tailored to small businesses, making the transition easy.

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2. Open Several Bank Accounts for Different Purposes

Managing a construction business means dealing with multiple financial components, such as payroll, equipment costs, and client payments. Having dedicated bank accounts for different functions ensures better organisation and tracking.

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Example: A construction business sets up three separate accounts:

1. Payroll Account: Ensures employees are paid on time without mixing funds for other expenses.

2. Operating Expenses Account: Covers daily operational costs, such as fuel, material purchases, and maintenance.

3. Customer Payments Account: All incoming client payments go into this account, making it easier to track revenue.

Pro Tip: Many digital banks now offer ‘spaces’ or ‘pots’ within a single account, allowing you to segment funds for specific uses without needing multiple accounts.

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3. Do a Little Job Costing

Since construction businesses operate on a project-by-project basis, tracking costs per job is essential. Job costing involves categorising expenses and revenue for each project to determine its profitability.

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Example: A contractor working on a residential remodeling project needs to track expenses for:

Direct Labour: Wages paid to workers on-site.

Direct Materials: Lumber, concrete, and electrical supplies.

Applied Overhead: Equipment rental and administrative costs.

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How to do it: Use job costing software such as QuickBooks or Xero to assign costs to each project. Alternatively, work with a financial accountant to ensure accurate cost allocation.

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4. Hold on to the Minor Details

Small expenses can add up and have a significant impact on your finances. Keeping receipts and maintaining a digital record of every transaction helps ensure accuracy during audits and tax filings.

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Example: A contractor purchases safety gear for workers but forgets to record the expense. Without proper documentation, they cannot claim the cost as a business deduction during tax season.

Solution: Instead of storing paper receipts, use cloud accounting tools likor Expensify. Simply snap a picture of each receipt, and it will be stored digitally in your accounting system. Avoid cash payments when possible, as they are harder to track.

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5. Reconcile Your Bank and Supplier Statements

Regularly reconciling your bank statements ensures that recorded transactions match your actual expenses and income. This helps catch discrepancies and prevents financial errors.

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Example: A contractor receives an invoice from a supplier for $5,000 but later notices the bank transaction was for $5,500. Reconciling statements helps identify overcharges or missed deductions early on.

How to do it: Compare monthly bank statements with internal accounting records.

Match invoices with supplier payments to ensure accuracy. Use accounting software like Xero or FreshBooks to automate reconciliations.

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Final Thoughts

Effective bookkeeping is crucial for maintaining a healthy construction business. By keeping personal and business finances separate, setting up dedicated bank accounts, practicing job costing, maintaining accurate records, and reconciling statements, you can improve financial efficiency and ensure business success.

Need help setting up your accounting system? Our firm specialises in bookkeeping, payroll, and VAT returns, freeing up your time so you can focus on growing your business. Reach out to us today!

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Set Yourself up for Success    

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Did you know that we run the highest rated accountancy firm in Blackburn with Darwen?  

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Book your 30 minute discovery call  today— enjoy a relaxed, no-obligation chat with one of our qualified accounting advisors. We can assess your situation and determine how to best serve and add value to your business.    

Alternatively, you can send us a message  with any queries (big or small), and one of our team members will get back to you promptly.

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