Posts

Construction Risks - Complete Controller

Construction is one of the world’s largest industries that cater to the need of rapidly developing economies. This industry often has to respond to urgent needs in areas affected by natural disasters.

Considering the risks at different points of establishing a building is very important. These stages typically involve: Check out America's Best Bookkeepers

  • Idea
  • Plan
  • Finding the site
  • Project work
  • Design
  • Construction
  • Usage
  • Reconstruction

 Multiple values and risks characterize these steps.

Managing construction risks

Construction managers can manage various construction risks. In many cases, labor protection in construction cannot be neglected, and construction workers should not be exposed to unjustified risks during the consequences of the disaster and restoration work. Despite the machinery used in construction, manual labor is still required. Due to the changes in action at the construction site, working conditions in workplaces change very often, changing the occupational risks to which workers are exposed. There are many migrants from countries with lower wages, who are employed informally and in the short-term. For managing the data of these short term employees involved in construction work, the effective process of bookkeeping can be used.  Check out America's Best Bookkeepers

 

Moreover, people belonging to different fields and professions often come together in a construction process that includes contractors, designers, and architects. Construction work carries a lot of risks, but these people can manage them in the best way possible. Working under such conditions can be a source of stress that can also increase the probability of psychosocial problems being occurred. This could result in accidents due to neglecting or diverted attention. All these factors make it very important for all stakeholders to effectively discuss and work together to achieve and maintain high standards of safety and health in a real environment.

Facts and statistics

The number of accidents and morbidity in the construction industry is tough to measure, as, for many countries, there is no statistical information. However, for many countries, such data are available and can make some estimates. It is even more difficult to obtain statistical data on occupational morbidity. Partly because many of the human health risk factors, such as exposure to hazardous chemicals and other substances or high levels of noise and vibration that have long-term effects on workers and do not appear for several months or years after exposure. However, it becomes clear that the construction industry is much more dangerous than any other sector of the economy. Check out America's Best Bookkeepers

The main unfavorable factors affecting construction workers leading to a decrease in working capacity and loss of health are elevated levels of noise and vibration, dusty and gassing of the air in the work area, and unfavorable microclimatic conditions, chemical factor, and the severity and intensity of the work process.

Risks under construction

The risk assessment of the construction phase is included in the main stages of the business plan development. The price of incorrect accounting for this risk component is the underfunding of the investment project. The procedure for developing a business plan includes mandatory accounting for the risk of underfinancing, the likelihood of its occurrence, and the severity of its consequences.

 

Many financial and credit institutions request estimates for construction, specify the details of the construction. For some banks, the need for insurance is especially vital in development. The lack of the opportunity to complete the residential real estate objects is reflected not only in the initiator of the project but also on the buyers who decided to share participation.

At the financial modeling stage of the investment project, it is recommended that several scenarios be included in the model reflecting price fluctuations that affect the course and dynamics of construction. Scenario modeling allows you to calculate the possible actions of management and company management to minimize the risks of the construction phase.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers
construction company accounting - Complete Controller

Accounting is a significant aspect of administration and management in business. It is essential to have an accounting team accurately track the transfer of assets into and out of an organization that comprises numerous moving parts. This will ensure both profitability and transparency. When it comes to finances, contractors and firms related to the construction industry encounter distinctive challenges. This article will take a look at the challenges and determine what differentiates construction accounting from regular practices to help you manage your finances in a way that suits your business. Check out America's Best Bookkeepers

What is different about construction accounting?

It is necessary to realize that construction accounting is not the same as regular accounting. A usual business, such as a grocery store or restaurant, utilizes the ordinary principles of accounting. They work flawlessly for firms like these as it involves selling from a fixed position. The business recognizes the cost of every item sold, and any expenses/overhead are somewhat constant. However, when it comes to construction, the company is mobile and involves customized work in a different location daily.

For this reason, it is required for construction companies to monitor completely different cost categories: mobilization costs like equipment and packing tools, travel time, material delivery to the job location, and also removing any excess materials from the job site once the work is done. In a way, construction business does not have any fixed location, and it requires moving to wherever needed by the customer, including the materials essential for the job. The Percentage of Completion Method is also utilized by construction businesses, which considers revenue based on the contract’s estimated profit and the completed percentage of the project. Thus, it is even more critical for construction companies to make use of cost-accounting methods that would track expenses accurately to calculate profit and loss precisely. Check out America's Best Bookkeepers

Significant Differences between Construction and Regular Accounting 

  • Sales: Typical accounting involves taking sales into account, and the services and products offered by regular accounting can be classified into one to five categories. Whereas, a wide range of service categories are provided by construction businesses such as consulting, service work, labor, engineering, physical products, design, and materials.
  • Cost of Goods Sold: Regular accounting involves simply recording the cost of the sold product. However, in the construction business, it is not that simple. Every job involves direct and indirect costs that are further divided into various categories.
  • Expenses/Overhead: Expenses and Cost of Goods Sold are distinguishable when it comes to regular business accounting. However, this is not the same when it comes to construction. A lot of items that would be considered “Overhead” when accounting, for instance, a grocery store, maybe categorized as “Cost of Goods Sold,” but when it comes to construction accounting, they may be connected to the client’s project director.
  • Break-Even: It is easier to calculate break-even points in regular business accounting due to the direct relationship between expenses and income. However, when it comes to construction, it can get difficult to determine the break-even on a project as there is a wide range of item categories. Moreover, the majority of the projects are exclusive customized jobs, with specific detailed requirements and a variety of costs associated with them. Check out America's Best Bookkeepers

Accounting for a construction business is significantly more complicated as compared to other regular businesses. It is essential to be able to track, record, and classify costs and expenses in construction business accounting to understand bidding on projects, determine profitable projects for the business, bill clients fairly and accurately, and make most of your firm’s resources.

Improving the accounting of your construction business begins with understanding the various costs you can face on a specific project. After that, it is essential to effectively categorize these costs, taking into account the nuances between the cost of goods sold and expenses.

One of the best ways to make sure the accounting is accurate is by implementing a software solution that enables your employees to effortlessly provide data related to cost from a platform integrated with the software you use for accounting.

This can not only save a significant amount of time but will also ensure that your relevant data never gets lost, which will, in turn, make your business more profitable.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers

Architect concept, Architects team working with blueprints
Numerous industry reports and surveys estimate constant growth in the construction industry. However, the growth now shows a small 4.8% increase as compared to the double digit growth seen in earlier years. Irrespective of that, a sense of optimism still prevails. With a positive outlook and continuous growth in the industry, what could possibly be the issues faced by the construction industry?

Top 5 Issues in 2019

Unpaid Work

Finances are one of the main problems facing the industry. Construction executives have a responsibility and duty to provide livelihood to the people who work for them and their families. For this reason, it is significant that their company has a positive cash flow. Unluckily, in a lot of instances, subcontractors end up not receiving the payment for work they have completed. Subcontractors have filed claims against many owners and general contractors in charge of various major projects because of this reason.

In the majority cases, the costs for the project is front-loaded by subcontractors and their employees and suppliers get paid. However, they have to wait for payments from the owners or general contractor who often dispute the payment even though the work is done.

The problem is that simply getting billed for the work does not act as proof that the work was completed. It is important for subcontractors to develop practices that can ensure that they do not end up in a hopeless scenario. The best way to provide irrefutable proof for any payments on claims is to visually document any job site issues through notes and photos, document any hours, disruptions, and delays and have documentation such as change orders, submittals with signed approvals, etc.

Retirement of Baby Boomers

All over the nation, there is a large number of baby boomers going into retirement on a daily basis. This statistic is troubling, considering that as much as 54% of construction managers belong to the boomer generation. So, when they retire, with them departs all of the experience and necessary knowledge they acquired through their entire career. It is important for construction executives to find a way to familiarize the young generation of hires with this knowledge as it can prove to be helpful during a time when there is a shortage of labor. A lot of construction companies are actively reaching out to improve recruitment into the trades. Some companies are also working on a mentorship program to help dissolve the gap between the boomers and younger workers.

Wide Ranges of technology used by General Contractors

Every time a general contractor makes use of new technology, it is expected that the subcontractors utilize the same technology to collaborate. The problem is that subcontractors deal with numerous general contractors, all utilizing a different software. It can get overwhelming for subcontractors to learn so many solutions just to meet their general contractor’s requirements. This arrangement is only beneficial to the general contractors. Using the general contractor’s solutions for project management can be a drawback for subcontractors. This is because the system and its files are owned by the GC. So, if there is a claim or dispute, it is possible for the general contractor to revoke the subcontractor’s access and alter information according to their needs.

Unfavorable Terms in Contracts

There is a lot of inherent financial risk when it comes to construction projects. A huge risk is shifted towards the subcontractor by disjointed interests. More and more subcontractors are receiving contracts that have unfavorable terms such as warranty coverage, consequential impacts, and liquidated damages. Any deadlines missed can directly impact their wallet. However, a lot of the delays experienced by subcontractors are due to unforeseen circumstances and it is often not their fault. For this reason, it is important to document any schedule changes, lost hours, disruption, or delays to ensure you are protected against liquidated damages.

Safety

Working at a construction site is inherently a risky job which makes workers compensation and insurance a costly outflow. The safety of workers is jeopardized due to unsafe practices. It is important that contractors make sure that appropriate safety procedures are followed by their team to diminish any risks.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.