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484 Month of Cleaned-up Books - Since August 2024
$1.12M Miscategorized Transactions Uncovered
What's Covered on This Page
- Why Construction Bookkeeping Diverges From Conventional Methods
- Costing by Project Is Central to Every Construction Effort
- The 3 Records Contractors Most Often Mishandle: Retainage, WIP, and Billing
- Subcontractor Payments and NJ Compliance Contractors Can’t Ignore
- What the Switch to Clean Construction Bookkeeping Looks Like
- Why can't I just use a regular bookkeeper for my Teaneck construction business?
- What does job costing actually tell me that my bank account doesn't?
- How do Teaneck contractors typically get retainage wrong in their books?
- What should I bring or prepare before handing off my books to a construction bookkeeper?
- How long does it take to get construction books properly set up for a Teaneck contractor?
- Does construction bookkeeping in Teaneck need to account for anything specific to local projects?
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Why Construction Bookkeeping Diverges From Conventional Methods
Most bookkeepers are fully capable of managing routine tasks like accounts payable and bank reconciliations. However, the construction industry is not a retail store, and it doesn't resemble a standard consulting practice either.
In a typical business, you invoice for products or services, you receive payment, and you close that transaction. In construction, projects last for months. You are purchasing materials in advance, daily labor charges may fluctuate, and one subcontractor is working on one job on the other side of Teaneck while your employees start a different job at the start of a new week. Your money will move around in strange ways. You need to be tracking every single project separately so that when you do look at it on a month-end basis, you're seeing actual numbers and not flying blind.
So this is the difference. Construction bookkeeping is all about the project costs. Every board, every hour, and every permit needs to be applied to the right place. Here are the ways construction bookkeeping is so different:
- Project revenues are recognized across the lifespan of a project, not only at completion
- Job materials constantly roll from one job to another
- Retainage is money tied up in jobs that you can recognize in accounts receivable
- Change orders affect budgets
- Preparation and filing for 1099s
We have seen this on a weekly basis. We've called contractors all over Teaneck in the Glenpointe vicinity and they are in a terrible position. All their QuickBooks income goes into a single bucket, and they have no idea which jobs are generating income and which are losing their business. This isn't a bookkeeping issue you can resolve with a solution.
Poor project costing is among the leading causes of contractors becoming financially unviable, according to the Construction Financial Management Association. Their companies aren't bad, they just can't see the data that would give them the facts.
That's why you can't employ a normal bookkeeper for a construction company. Regular bookkeeping is just that. Bookkeeping for the construction industry is about money per job per phase per kind of expense. And if your bookkeeper doesn't understand this fundamental distinction, your financial statements are going to be useless in helping your company's decision-making. Have any idea whether the recent Teaneck bathroom renovation you were involved in really made a profit? For you to know that, you'll need your books set up to reflect the reality of the construction business.
Costing by Project Is Central to Every Construction Effort
You just wrapped up a project. Your clients were happy and you were paid off in full. How much money actually did you make? That's a question the Teaneck area contractors in the home services sector the home service industries we serve have a hard time answering with much certainty. the home service industries we serve
Job costing is the fix.
Job costing is the practice of tracing the exact expenditure and receipt associated with each project. You need to be tracking the cash coming in as well as the cash going out. Materials, labor, subcontractor costs, equipment fees, and permit charges, all rolled up into a single job entry so you can calculate actual profit once the work wraps up. That's how construction accounting works because gut calls aren't going to cover the bills.
What We Track On Each Job
This is exactly what we assign to each job in your financial records:
- Materials you buy for that one particular job
- The labor and crew expenses that are specific to the job
- Subcontractor bills and their lien waivers
- Your equipment costs or rentals
- A share of your overhead tied to that job
We build all of this right into your QuickBooks, ensuring each expense ends up in the right account. No more guessing at the close of the quarter. Most contractors who hand us their books have been lumping every expense into one giant pile. Which leaves them not knowing what jobs earned money and what projects silently cost it.
Let's say you have a bathroom renovation just down near Teaneck's West Englewood and you bid $18,000. You blow through a little bit extra on materials. Your sub is slower than you anticipated. You made a couple more runs to fetch tile than you planned. Without job costing, you look at your bank account and say things look fine. But that job netted $900 after all of its expenses. Which changes how you bid the next one.
And that's the thing. Job costing isn't only looking at the past. It is informing your future. You start seeing trends. Framing jobs consistently running overtime on labor. Material costs on roofing projects running consistently under. Those lessons come straight from clean books.
We work with home service contractors in the markets we serve to incorporate this tracking into your monthly operations. You don't spend additional time on it. We gather receipts, cross-check invoices, and sort things by job. You review the results and move your business forward more intelligently.
The 3 Records Contractors Most Often Mishandle: Retainage, WIP, and Billing
We see it every week. We receive the books from a contractor in Teaneck, and three things are almost always botched. No retainage is being tracked. No work-in-progress report. And the billing isn't aligned with where the job stands. Those aren't just minor errors; they may cost you in the thousands.
Let's talk about each of those.
Retainage
On almost every commercial job, a client will withhold somewhere between five and ten percent of your payment until the end. That money is yours, and you are entitled to collect it. But you can't record retainage as cash-on-hand. Your profit figures are inaccurate if you do. You will be thinking you have more cash in hand than you actually do. And then when a tax bill hits you, there is a disconnect between the bill you receive and the amount you need to pay.
Work-in-Progress (WIP) Reporting
WIP provides an up-to-date snapshot of all your jobs. Not the jobs you worked on last quarter. Unless you’re sending that invoice out right this second, you’re flying blind. Without current data, you can’t possibly know if you’re overbilling or underbilling on a project. Overbilling looks fantastic in the moment, but it’s a disaster waiting to happen when you hit the end of a job with nothing left to collect. Underbilling is just as bad, you’re effectively financing your client’s project with your own cash. Any Glenpointe-area contractor juggling several jobs simultaneously has run headlong into this problem.
Progress Billing
Your invoices need to reflect the actual percentage of work completed. These should not be guesses, nor should they be conveniently rounded numbers; they must be tied to real progress and the specific terms of your contract. If your billing is off, then so too is your cash flow report.
Here is what the right way to book those three key pieces of data looks like in construction accounting:
- Retainage: It should be tracked in a separate, non-spending account to keep it from artificially inflating your available cash.
- WIP schedules: You should generate a schedule each month that shows the actual versus estimated costs on each ongoing job.
- Billing: Your charges must match the job completion percentages outlined in your contract.
Failing to get even one of these right can throw your job costing, tax returns, and ability to put together new estimates out of whack. But when you master all three, everything starts to make sense. Need help getting on track? Give us a call.
Need help with construction bookkeeping?
Book A Free Consultation. Capgro Bookkeeping Services LLC is ready to help.
Subcontractor Payments and NJ Compliance Contractors Can’t Ignore
Here’s the thing, we deal with this on a daily basis: Contractors in Teaneck hire three or four subs to do the work for a job and pay them in either cash or check and don’t keep any records at all. Come tax time it’s complete chaos.
New Jersey has a lot of rules when it comes to paying subcontractors. If a sub earns $600 or more from you during the course of the calendar year you are required to file a 1099. Missing out on 1099 preparation and filings can result in serious penalties both with the IRS and the NJ State. And yes, we do a lot of 1099 preparation and filings for contractors all the time, it’s one of the most common things we’re asked to clean up.
In addition to the 1099 requirement you also need to your subcontractors are classified correctly. NJ uses the ABC test to help determine who an independent contractor is versus who is an employee. Get this wrong and you may be required to pay back payroll tax liabilities and also fines. As the IRS states, worker misclassification is one of the number one compliance issues for construction companies.
What We Track for Every Sub Payment
- Obtain a completed W-9 from the sub prior to payment.
- Record each payment you make to a sub, with job name, date and amount paid in Quickbooks.
- your sub costs are tied to the right jobs. This is how you’ll track your job costing.
- Watch out for subs who are about to cross the $600 mark. We keep an eye on this for all subs that we pay.
- Prepare and file all 1099s before the January deadline.
Contractors in Teaneck routinely work five to six jobs simultaneously, often with different crews for each job, so not using job-costing software can lead to commingled payments. If that happens, it's very challenging to determine which jobs were profitable.
Also, many contractors overlook another key aspect of clean construction bookkeeping: when you are not capturing sub payments correctly, the profit number is wrong. What you think you earned in profit on a job based on the payment received from the owner may not be correct based on your actual sub billings. What you think you earned $15,000 in profit on a particular project may actually be closer to $8,000 in profit after sub costs are properly recognized.
Wondering if you are in good shape for your sub payments? Give us a call! We've been bookkeeping and accounting for contractors for over 20 years now and will be happy to catch these issues before they cost you big.
What the Switch to Clean Construction Bookkeeping Looks Like
Many of the contractors in Teaneck we work with are in this situation: They either tracked all of their income and expenses in a spreadsheet or in a shoebox. Maybe they set up QuickBooks Online themselves, but didn't really know how to utilize it the correct way, and now they are in a mess.
I'm not saying this is bad!
Just the fact of the matter is you are a contractor; you wanted to work in the construction business because you wanted to do building projects, not because you wanted to reconcile bank statements. That is fine for a while, but at some point you have to stop doing something differently because the job cost accounting you are utilizing is broken (i.e., you don't know if certain jobs were profitable, your tax preparer can't answer questions for you, you don't know how the cash is flowing through your business or if something in there is off).
You know, I get this question every single week from contractors from Teaneck and all over the area! So, I figured it was time to share a bit more info with you. Here is a bit more info on what it looks like when you are switching from an inadequate job cost system to a clean bookkeeping setup like ours:
- We start with a free bookkeeping consultation with the intent of understanding where you are at this point.
- We then do a full QuickBooks clean up to get all old transactions entered correctly and properly categorized, set up a proper chart of accounts to accommodate construction accounting needs, etc.
- We build out your job cost set-up so every transaction you record can be allocated to a particular project/job cost.
- We set up your ongoing monthly bookkeeping process so you never fall behind again.
- We review your monthly financials with you and point out anything you might not be aware of so it can be addressed immediately.
The entire set-up process may take a couple of weeks to clean up the old mess, so it depends on how old the problem is to determine how many transactions may have to be manually entered. But, once you are in a clean set-up, you can generate clear financial statements to run your job costing every month.
We've found that the contractors in Teaneck who take this approach say their lives change for the better. They don't dread tax season anymore; they have a clear understanding of whether each crew and each job is profitable, so they feel like they are running a business instead of just a business they make up as they go along.
With over 20 years of bookkeeping and accounting experience and focusing on the home services field, we have seen it all and have helped fix just about every imaginable mess. It turns out that getting your clean bookkeeping system in place is much simpler than you would think. Want to know where your bookkeeping stands now? Give us a call!
Frequently Asked Questions
Common questions about construction bookkeeping services in Teaneck
Why can't I just use a regular bookkeeper for my Teaneck construction business?
A regular bookkeeper will keep your accounts tidy, but they won't track costs by job, phase, or expense type. Construction money moves differently. You have materials rolling between jobs, retainage held back, and subcontractors billing across multiple projects at once. Without someone who understands those specifics, your financial reports won't reflect what's actually happening on your jobs. We've seen Teaneck contractors with clean-looking bank accounts who were quietly losing money on every project.
What does job costing actually tell me that my bank account doesn't?
Job costing shows you the real profit on each individual project, not just your overall balance. Your bank account might look fine, but a single bathroom renovation could have netted you $900 after all expenses. Without tracking materials, labor, subcontractor bills, and equipment costs per job, you can't see that. Job costing also reveals patterns, like which types of jobs consistently run over on labor, so you can bid smarter next time.
How do Teaneck contractors typically get retainage wrong in their books?
The most common mistake is recording retainage as cash you already have. On most commercial jobs in Teaneck, clients hold back five to ten percent until the project wraps up. That money is yours, but it isn't in your hands yet. Booking it as current income inflates your profit numbers and makes your cash position look stronger than it is. Retainage needs to sit in its own account until you actually collect it.
What should I bring or prepare before handing off my books to a construction bookkeeper?
Gather your receipts, subcontractor invoices, and any existing QuickBooks or accounting files you have. If you've been lumping all expenses into one account, that's okay — sorting it out is part of the process. It also helps to have a list of active jobs and their contract amounts. The more detail you can share upfront, the faster your books can be restructured to reflect actual job-by-job performance.
How long does it take to get construction books properly set up for a Teaneck contractor?
Most contractors see a clean, job-costed setup within the first two to four weeks, depending on how far back the records go. If your books have been running without job costing for a year or more, expect a short catch-up period to separate past expenses by project. After that, monthly maintenance is straightforward. You review the numbers; we handle the sorting, receipt matching, and invoice cross-checking on an ongoing basis.
Does construction bookkeeping in Teaneck need to account for anything specific to local projects?
Yes. Teaneck projects often involve commercial work where retainage clauses and lien waiver requirements are standard. Change orders are also common on local renovation and remodeling jobs, and each one needs to be reflected in your budget tracking right away. If a change order isn't recorded, your job cost report becomes inaccurate and you lose visibility into whether the project is still profitable before it's finished.
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Book A Free Consultation. Call 973-453-5052 today.