6 Accounting Tips To Improve Profit on Every Job | Best Supply

Written by Admin | Jul 2, 2025 4:33:01 PM

For many construction businesses, the biggest financial problems don’t result from underbidding – they happen on jobs that should have been profitable.

Big construction businesses employ industry specialists in bookkeeping and accounting to manage finances all day/every day. They deploy enterprise software and sophisticated tools to collect data in real time, allowing issues that affect profitability to be identified and resolved quickly.

But the vast majority of contractors employ fewer than 20 people, according to U.S. labor data, and for them, managing the books is generally a part-time job. And yet, a project’s status can turn from good to bad just as quickly for a small firm as a big one.

If pushed to identify one thing construction businesses can do to improve financial performance, many construction accounting experts seem to agree that it’s spending more time updating, analyzing and responding to current financial data.

“It’s extremely important that a contractor understands all the unique aspects of construction accounting, because it has a big impact on their business,” says John Meibers, VP and general manager at Deltek ComputerEase, a provider of construction accounting software, in a construction-specific accounting guide from Deltek with ConstructionDive magazine.

But what, precisely, should owners and managers of construction firms focus on? Here are six data points that need constant care and attention.

But there are many other hazards as well, and all of them merit consideration. This article focuses on three safety concerns that are connected by the potential risk they present to the lungs: chemical exposure, biological hazards and respiratory hazards.

1. Chemical Exposure

Committed costs are expenses that have been contractually agreed to but may not yet have been incurred or billed, such as unposted payroll, open subcontractor agreements and purchase orders for materials.

“Many contractors still do not track committed costs, which can lead to double-billing and mistakes,” according to the Deltek guide. “Using job costing to monitor committed costs is important because it…enables you to determine, with certainty, the remaining budget you have available for additional costs.”

Achieving this level of visibility requires that all expenses should be recorded as soon as they’re committed, and committed costs should be one of the most frequently updated and viewed data points in your business, according to Rhumbix, a provider of field-management software.

2. Work in Progress (WIP)

Builders are periodically called upon by clients, banks and bonding agents to provide Work-in-Progress reports. They often respond with a report on the amount of budget that’s been spent.

But consuming half the budget doesn’t mean a job is 50% complete. Many construction tasks are front-loaded, and early spending can quickly outpace actual work completed.

WIP reports should account for physical work completed – not just on the amount of money spent or hours of labor used, writes Contractor’s Business Coach Ron Roberts in an article at For Construction Pros.

Further, if you only generate WIP reports when required by outside partners, problems can fester for weeks before being discovered, according to an article from the Construction Financial Management Association.

The better practice, Roberts and others agree, is to develop a habit of weekly WIP reports that include percent-complete estimates from the field. They’re a vital source of visibility that can identify imbalances between costs and actual progress when there is still time to do something about it.

Roberts notes that accounting software designed for the construction industry usually includes a WIP reporting feature. “If your accounting system has the feature, all you need to do is update the percent-complete entry on each project weekly,” he writes. “The system should take care of the calculations and will have a preformatted report you can run. If you don't have the WIP feature in your accounting system you should use Excel….”

3. Allocated equipment costs

Many contractors lump equipment expenses into overhead and fail to assign them to specific jobs. Or they allocate these expenses equally across all jobs.

These practices obscure the true cost of individual projects. And since overall profitability is achieved one project at a time, it takes away one lever of cost control while making it harder to bid smartly on future jobs.

To resolve this, construction crews should keep a simple daily log of construction equipment used on the job – making it possible to allocate equipment expenses precisely when and where they’re incurred.

The other aspect of this is to develop an accurate understanding of what each piece of equipment actually costs.

“While accounting for rented equipment is straightforward, many contractors find it challenging to correctly cost the equipment they own,” offers Bill Keyser, CPA, in the blog of Kittel, Branagan & Sargent accounting firm.

The main components of equipment costing are:

Acquisition costs: The purchase price
Ownership costs: Depreciation, insurance, storage costs and other costs that accrue even when the equipment isn’t in use.
Operating costs: Fuel, repairs, maintenance and other costs for using the equipment.

4. Labor expenses

Labor is typically the largest project cost, but if you only see these numbers after payroll is processed, your understanding of project expenses will be chronically behind by anywhere from a week to a month – depending on your payroll schedule.

Standard accounting systems may not offer the ability to track wages that have been earned but not yet paid – leaving project managers blind to how labor costs are trending.

To avoid this blind spot, track labor hours daily and use assigned pay rates to calculate labor costs as they accrue. According to the Deltek guide, this allows you to see the impact of employee hours on the budget without waiting for the next payroll.

Daily tracking allows for immediate adjustments if labor costs are getting out of line; such adjustments will be smaller than if the cost overruns go on for days or weeks before being discovered.

Of course, daily tracking of labor costs will also be inaccurate if timecards aren’t consistently filed on time. Experts agree: This is one of the most common reasons for lack of visibility into current labor costs.

From paper to spreadsheets to mobile apps, there are plenty of tools to collect labor data at the end of every day. “You want workers to turn in their time at the end of each day, not the next day, not a week later,” advises Deltek’s Meibers. “Tracking things as they happen…makes them more accurate.”

5. Overbillings

Overbilling – invoicing ahead of actual work completed – is a common practice to maintain positive cash flow. But contractors who treat overbillings like earned income often find themselves short on cash later, with unpaid work still remaining.

Track overbillings and underbillings carefully through WIP reports. Overbilled amounts should appear on the balance sheet as liabilities, not as earned profit. Internally, treat those funds as reserved to cover future work – not as money that’s available for other uses.

6: Material markup and margin

If you want to achieve a 20% profit margin on the materials you purchase, what percentage is your markup?

A. 16.67%
B. 20%
C. 25%

If you picked B, you’re probably in the majority – and you’re cheating yourself out of profitability with every purchase.

Here’s the formula to calculate profit margin:

(Profit/Revenue) x 100 = Percent Profit Margin

Let’s apply that to the hypothetical order of $25,000 in materials for a job. If you mark it up 20%, that’s an extra $5,000, so you’ll invoice the customer for $30,000 and make a profit of $5,000. But here’s your profit margin:

($5,000/$30,000) x 100 = 16.67%

You’ve just given away a chunk of the profit you had counted on from the material component of your bid.

The correct answer is C. If you mark up the $25,000 order by 25%, you’ll send the customer an invoice for $31,250 and make a profit of $6,250. Here’s the math:

($6,250/$31,250) x 100 = 20.00%

The reliable way to mark up materials is to use a formula that begins with the desired profit margin rather than the markup. Here’s the formula:

(%Profit Margin/(1 - %Profit Margin)) = %Markup

To put numbers to it, if you want to achieve a 20% profit margin:

(.20/(1 - .20)) = .25 or 25%

So where do you go from here? If your accounting software doesn’t help you track committed costs or produce timely WIP reports, consider upgrading to a system that does. And then use the tools to eliminate the question marks and help identify areas of concern before they become too big to handle.

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