Construction Bookkeeping: 5 Tips for Better Cash Flow

In the building industry, "revenue is vanity, profit is sanity, but cash is king." Unlike standard retail businesses, construction bookkeeping requires managing long project timelines, variable costs, and complex payment structures. Without a solid system, a profitable project can easily become a cash flow nightmare.

Whether you are a solo sparky or managing a large building firm, these 5 tips will help you keep your accounts in the green.

1. Implement Job Costing Immediately

Generic bookkeeping tells you if your business is making money; specialized construction bookkeeping tells you which project is making money. Job costing involves tracking every dollar of labour, materials, and subcontractor fees against a specific job.

Why it matters: Without job costing, you might not realize a particular type of work (like renovations) is actually losing money compared to new builds until it’s too late.

2. Stay on Top of Progress Billings

Don't wait until the end of a job to invoice. In the construction industry, progress payments are essential for maintaining liquidity. Use your online bookkeeping services to set up automated reminders for milestone billing.

• Pro Tip: Ensure your invoices clearly list the original contract sum, the value of work completed to date, and any retention amounts held back by the client.

3. Account for Retention and Withholdings

Retention—where a client holds back a percentage of the contract (usually 5%) until the defects period ends—is a unique aspect of construction. Many bookkeepers forget to track this as a separate receivable.

Properly recording retention ensures that you don't overpay GST or income tax on money you haven't actually received yet. It also ensures you don't "forget" to claim that final 5% months down the track.

4. Reconcile Subcontractor Payments Regularly

Subcontractors are the lifeblood of construction, but they also represent your biggest risk for cash flow leaks. Ensure all subcontractor invoices are verified against completed work before payment. Always check for valid ABNs and Workers’ Compensation insurance to avoid unexpected ATO liabilities or legal issues.

5. Use Cloud-Based Software for Real-Time Data

Waiting until the end of the month to see your numbers is dangerous in a high-expense industry. By migrating to a digital system, you can snap photos of receipts on-site and have them instantly reflected in your cash flow statement.

Summary

Effective construction bookkeeping isn't just about compliance; it's a strategic tool for growth. By focusing on job costing and tight billing cycles, you can ensure your business has the cash it needs to take on the next big contract. If you need help setting up a trade-specific system, explore our software migration services today.