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5 key tips to successful bookkeeping

TRUSS Successful Bookkeeping
March 24, 2024 at 6:00 a.m.

By Kristen Frisa, TRUSS. 

Construction expense management can be a beast, but these tips will help you tame it by implementing an effective bookkeeping system. 

Running out of money partially through a project is every contractor’s nightmare as it leads to unsatisfied clients, extended schedules and an overall higher monetary cost. Finding the balance between the costs of doing business, earning an adequate income and creating an amazing final product can be very difficult. However, there are things that contractors can start doing to make it easier to manage their bookkeeping and avoid that nightmare. 

In the industry, it is standard for the expected revenue to be established from the beginning. This means that much of the work must be done in expense management to make sure the project’s cash flow stays within the bounds of the budget and the business makes a profit at the end of the day. This is where construction expense management comes into play. This is the process of planning, monitoring and analysis that ensures spending stays on track from the beginning to the end of the project.  

Here at TRUSS, we want to help you figure out a system that works for your business, starting with these 5 key takeaways about construction expense management.  

1 - Estimation and budgeting 

Thorough estimation goes a long way to a successful project. Efforts in the pre-construction phase could identify hidden aspects of the project and thereby save money, time and strife later on down the line.  

Thorough estimates consider  

  • Site characteristics 
  • Owner’s ideas and preferences (as much detail as possible) 
  • Local labor patterns 
  • Any other information that could impact the construction schedule or project costs 

Accurate estimates grounded in analysis of previous projects, combined with research on the proposal at hand, pave the way for successful budgets. 

The project budget should account for every known contractor cost throughout the project, including: 

  • Labor 
  • Permits 
  • Subcontractors 
  • Materials 
  • Fuel 
  • Insurance 
  • Equipment rentals 

General contractors should leave room in the budget for unknown business expenses, too. 

Accurate expense tracking 

To assess the current financial standing of a construction project, its managers must regularly compare current expenses to the overall budget they’ve established. The complexity of each project makes tracking difficult. Employees continually order and purchase new materials but struggle to keep paper receipts. Meanwhile, ongoing equipment and vehicle costs accrue, and subcontractors add their own business expenses into the mix. 

Contractors must set up an expense management system for tracking all costs as they come up so they can continually monitor progress and ensure the project is staying within budget. Expense tracking software provides a systematic approach to integrate expense reports and record-keeping into office and job site workflows. 

Tracking is a team effort – processes that build expense tracking into the daily workflow help employees get on board to maintain spending records and expense reports to communicate new expenses as they arise.  

‍Truss builds expense tracking into the spending routine.  

Any user who makes a purchase with a Truss card receives a text message reminding them to take a photo of the receipt and upload it into the expense tracker. 

The tracking system should include all the varied expenses that come up on a construction project, including: 

  • Labor: hourly tracking for all employees in the field and office 
  • Materials: all raw products that go into building, including light fixtures, lumber products, steel rebar and more. 
  • Overhead: including office rent, utilities, fuel, permits, vehicle and equipment costs, insurance etc. 

The ultimate goal for expense management tools is the ability to create regular reports so managers have an accurate and ongoing picture of the project’s progress for better construction cost management. 

2 - Software and automation 

Spreadsheets are a standard tool for tracking daily project expenses, but they may create as many problems as they solve. When each team has its own separate expense tracking sheet, the data is often inaccessible to other teams. Information doesn’t integrate between teams to create a big picture. If all the data is to be reconciled, administrative staff must manually input numbers into a common system, creating delays and opening up the whole system to input errors. Accounting software minimizes manual input and data silos. 

Automated expense management software offers a solution to share the wealth of knowledge between teams, integrate it seamlessly to educate project decisions and put an end to data re-entry. Expense reporting software can create daily reports so construction managers can keep tabs on spending consistently to educate next steps. 

Cloud-based solutions offer the further benefit of ensuring the most recent information is accessible to all team members, from anywhere and at any time, with minimal manual processes involved. Truss offers cloud-based payment solutions that make ingoing and outgoing payments visible in real time to team members with appropriate permissions, so managers can make informed spending decisions and protect cash flow. 

3 - Monitor cash flow 

Expense tracking helps keep tabs on where the project sits compared with its budget goals at any given time. There is one further metric that’s essential to construction expense management: a healthy cash flow

Cash flow is the movement of money into and out of a project. At any given time, adequate funds must be available to cover upcoming expenses. Without a healthy cash flow, contractors can’t pay their bills and a project may stall until more money comes in. 

Cash flow problems can arise when too little money comes in or too much money goes out. Unexpected or sudden expenses may impact a project’s cash flow on one hand, or on a late payment on the other. In either case, keeping close tabs on cash flow can help managers identify shortages before they occur and actively avoid bigger problems. 

Maintain a cash flow document that tracks current and upcoming expenses, along with expected payments and dates. Keep the cash flow tracker current to track trouble spots early. Have a cash flow backup plan to help the project through tight financial spots. 

Finally, establish good billing techniques to protect cash flow. Invoice promptly and properly and consider revamping your accepted methods of payment. Digital payments through Truss can speed up the payment process by avoiding administrative delays, check mailing time and bank holds, helping to protect cash flow. 

4 - Benefit from project management tools 

Construction project management software can help keep tabs on each task throughout a project. By using Gantt charts and other scheduling tools available through the software, project managers can monitor project progress, manage budget and schedule adherence and implement cost control measures to spot coming conflicts in time to avoid them. 

Further, project management tools offer a central location to store construction drawings, documents, RFIs, photos, change orders and communications so that any team member can access them anytime via mobile technology. This wealth of knowledge can help to avoid costly errors and delays. 

Project management tools offer advantages that extend past the current project – they allow for systematic collection and organization of information on how the work gets done. This data can be used to improve performance over time and educate future project bids. 

The key to making the most of project management tools is using them to their fullest. Each team member must be responsible for inputting information into the program so that the information there is complete and current. 

5 - A systematic approach to construction expense management 

Expense management is critical to the success of construction projects. Contractor success depends on solid financial management, including accurate estimating and budgeting and careful protection of profit margins. Project teams must work together to track expenses throughout a project to make sure to stick to the budget. 

Automating systems for more consistent cost tracking and faster invoicing helps to eliminate errors and protect consistent cash flows. Digital invoicing and payments through Truss makes payment quick and simple, so that contractors can access their funds and keep projects on track. Finally, project management tools help improve overall efficiency through communication and planning. 

Original article source: TRUSS

Learn more about Truss in their Coffee Shop Directory or visit www.trusspayments.com.

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