Tips From a Construction Accountant on Job Costing, Project Tracking and Financial Controls

The construction sector has been bucking national trends, outperforming other industries, contributing significantly to GDP and combating rising unemployment levels elsewhere. Still, it’s also a segment that requires diligent and specific cost management, something business owners and investors need to be keenly aware of.

Unlike many other sectors, construction businesses need to manage fluctuating real-time outgoings, maintain consistent oversight while developments remain in progress, and factor variables into every forecast. This is why we often recommend working with an experienced construction accountant with excellent sector-specific knowledge.

Today we’ve shared some insights into how construction accountancy differs and the constant moving parts business owners, project managers, and investors need to understand, as a series of tips useful to anyone new to the industry or who is currently trading as a construction professional and thinking about scaling their business.

Understanding Job Costing Principles in the UK Construction Industry

We’ll start with job costing, because it’s an accountancy technique unique to construction and other contractor-based businesses. The concept is that construction firms can’t function on ‘top line’ figures or estimates, since they need to keep every individual project or job under continuous management.

In short, that means keeping track of the finances associated with each development, having a way to identify when those figures change, and using real-time information to make quick decisions to protect the profitability of each project.

Key Aspects of Construction Job Costing

Particularly relevant to larger construction firms that might be handling multiple simultaneous projects, job costing involves:

• Accurate cost coding, creating itemised codes that can be used to categorise each expense, from outgoings like materials purchases to the major overheads linked with a project, such as deploying high-value equipment and budgeting for labour.
• Ongoing monitoring, ensuring managers know immediately when the costs of subcontractors and personnel, admin expenses, insurance coverage and even the depreciation of allocated equipment rise or fall – especially when these might impact contractual third-party agreements.
• Differentiating between committed and potential costs, and ensuring that any invoicing or stage-related payments are backed by a system that is efficient, reliable, and tracks actual spending and income against the original forecasts.

Well-established construction companies often use accounting software to help with job costings and reduce manual errors, but it remains essential to have a way to create accurate, up-to-date reporting, to ensure changing outgoings are never overlooked.

Why Project Tracking is Fundamental to Success for Construction Businesses

Our next accounting task for construction teams is to consider how they track projects, not just in terms of costs, but also in ensuring there is no ambiguity about when each job is expected to start and end.

In most cases, contractors and developers are paid when they reach a pre-determined milestone, and there can be costly penalties if a project doesn’t hit a specific stage or reach completion by a date detailed within contractual agreements.

While monitoring timings might seem like a separate focus from job costing, they are one and the same thing. That’s because if larger-scope projects haven’t been broken into manageable sections that are individually monitored, there isn’t the oversight needed to make timely interventions to prevent a missed deadline.

As with job costing, construction businesses can look into digital solutions to track the time spent on each site, avoiding any overspending on payroll costs, or linking actions, tasks and back-office functions to the job costing system of each project.

The Financial Controls Every Construction Company Needs to Deploy

Finally, financial controls are a non-negotiable necessity and become even more vital for construction companies that want to scale and expand. Controls act as a failsafe way to manage and report on the financial resources needed for every project, from initial quotation through to final delivery.

Construction budgets are often seen as flexible, but it’s commercially more sustainable to start with comprehensive budgeting that outlines every expected cost, including contingencies, and to split those cost expectations against the project phases.

Although budgets can and will change, it’s never worth using rough estimates or generalised costings, since this can make it impossible to issue billing based on progress, or to ensure admin tasks like invoicing are efficient if there isn’t a clear, structured system to record and report against.

We mentioned contingencies, and these are also essential, ensuring every construction project has a built-in allocation of either cost, margin or resources that companies can draw on if they encounter delays, potential issues, conflicts or increases in unavoidable expenses.

Most businesses are more than familiar with management accounts, and in construction, these can be created alongside work-in-progress reports as a tried and tested way to identify discrepancies before they become major issues and ensure construction teams aren’t simply hoping that, when a project ends, it will prove profitable.

Expert Accountancy Assistance From the Seasoned Construction Accountants

Construction, as its core, is a simple business format, but the reality is that construction professionals need to focus on effective financial management just as much as workforce training, job acquisition and retaining skilled workforces.

The sector is seen as a lucrative investment opportunity, with the scope for companies to make significant steps forward in terms of scalability, but financial management is the basis on which smooth project deliveries and sustained improvements in profitability are built.

Even simple steps such as periodic financial audits make a huge difference and ensure there is the assurance that all the financial policies and processes in place are being followed, with options to use construction accounting services to assist with budgeting, cost tracking, agile forecasting and accurate reporting.

We work with a broad range of construction clients, from contractors and subcontractors to large groups and companies. We encourage anyone working in the sector with doubts about the dependability of their reports, or who has found their latest financial returns fell below expectations, to get in touch with James Todd & Co, we’ll be happy to discuss all of these aspects in greater detail, and ensure your business has the right measures in place.