Bookkeeping for the construction industry can be complex. With long-term projects, fluctuating costs, and unique payment structures, keeping accurate financial records is critical. We’ve been working with businesses in the construction industry for a good few years now and we’ve seen some common bookkeeping mistakes. These mistakes can be costly, leading to cash flow problems, inaccurate financial reports, and incorrectly reported tax. 

Here’s the five most frequent bookkeeping errors made by construction businesses that we’ve come across and the solutions to avoid them.

Inaccurate tracking of jobs

One of the biggest challenges in construction is determining the true cost of each project. Many businesses fail to track job costs properly, which means they don’t have an accurate picture of project profitability. Without separating materials, labour, and overhead costs for each job, it’s nearly impossible to see where your money is being spent. This also prevents you from being able to track project costs accurately resulting in you being unable to estimate costs of future jobs which are similar. 

How can this be avoided?

Implement a job costing system to track every aspect of a project, from materials and labour to overheads. By categorising your expenses, you’ll have a clearer understanding of your actual costs and be able to make informed decisions about pricing, budgeting, and future jobs.

Overlooking Retentions and Progress Billing

Retentions and progress billing are unique to the construction industry, and ignoring them can throw your books off balance. Retentions refer to the portion of payment held back until a project is complete, while progress billing is the practice of invoicing based on stages of project completion. 

How can this be avoided?

Make sure that both retentions and progress billing are recorded correctly in your accounting software. This helps you stay on top of cash flow and ensures you’re not chasing down final payments or losing track of what’s owed at each project milestone. Don’t worry you don’t have to do this alone, we can help you implement new processing to ensure costs do not get missed. 

Mixing Personal and Business Finances

Smaller construction business owners often make the big mistake of mixing personal and business finances, especially in the early days. This makes it difficult to track expenses accurately, manage cash flow, and see the true financial health of the business. 

How can this be avoided?

This goes for all business owners, not just those in the construction industry. Keep a separate business bank account and only use it for business transactions. This not only helps you keep your bookkeeping clean but also makes it easier when filing your tax return/accounts. It prevents you from sifting through personal expenses to find deductible business costs. It also means that if you’re hiring a bookkeeper it will be cheaper for you if you keep everything separate as it’s less work for them and for you!

Scope Creep

In construction, quite often things don’t always go to plan. This can mean that the scope of the work can change. When it does it’s important to review the budget and adjust accordingly. When you don't account for additional work, costs can spiral out of control, and you may end up underbilling for the project, which is the last thing you want to do. 

How can this be avoided?

Always document every change which has been agreed and ensure pricing is adjusted and agreed by your client. Make sure these changes are reflected in both your project budgets and invoices. By tracking these changes, you can ensure that your financial records match the actual work completed and the additional costs incurred.

Neglecting Construction-Specific Tax Obligations

The construction industry has several unique tax obligations, including VAT rules and the Construction Industry Scheme (CIS). Not staying on top of these can lead to tax liabilities, penalties, and cash flow issues. 

How can this be avoided?

Work with a bookkeeper, like us who understands construction accounting and the specific tax obligations that come with it. Whether it’s staying compliant with VAT or managing CIS deductions, having expert support can save you from costly mistakes. That’s why it’s critical when looking for a bookkeeper who understands the construction industry and has experience of working with businesses like yours.

Avoiding these common mistakes can help you to improve your financial processes and boost profitability. At Bluebells Bookkeeping, we specialise in supporting construction companies with accurate bookkeeping, job costing, and ensuring tax compliance. If you need help staying on top of your finances, contact us today to see how we can assist you.