In the construction world, many contractors focus on winning projects, managing teams, supervising job sites, and meeting deadlines. However, there’s a silent—and often neglected— area that can make the difference between a solid business and one running on autopilot: accounting.

Accounting for construction companies isn’t like general bookkeeping. It’s not just about keeping the books in order or saving receipts. It’s a vital tool that, when properly managed, helps you understand the actual performance of each project, make informed decisions, and avoid unpleasant surprises with the IRS.

1.  The Most Common Mistake: Not Doing Job Cost Accounting

Many contractors make the mistake of tracking their finances globally—recording income and expenses in a single account. The problem? They can’t accurately tell which project was profitable and which wasn’t.

In construction accounting, each job must be analyzed individually: revenue, materials, labor, subcontractors, indirect costs, and margins. This allows you to adjust budgets, negotiate better, and detect deviations early.

2.  Be Careful with Indirect Costs (They’re Always There)

Another common mistake is underestimating indirect costs: insurance, equipment depreciation, office administration, fuel, supervision time… Even if they aren’t tied to one specific job, they must be properly allocated. If ignored, profit margins will be overstated, leading to poor business decisions.

3.  Do You Know How to Recognize Revenue? The IRS Does

Not all income is recognized the same way. The IRS allows different accounting methods but demands consistency and compliance. For long-term contracts, you must consider:

• Percentage-of-completion method: Revenue is recognized as the project progresses.
• Completed contract method: Revenue is recognized at the end of the project.

Using the wrong method—or switching without justification—can lead to penalties. Source: IRS – Construction Industry Audit Guide

By Jose Jimenez, MACC