Accounting for Trades in Construction

Phase accounting is a great tool to use to account for the trades in new construction. Found out which trades are tracked, how they are tracked, and the value of a good contract.  There are some differences from traditional accounting when accounting for trades in construction.

Roofer – Business Dynamics

Roofer

Roofers depend heavily on labor to accomplish their task.  They are also highly susceptible to weather conditions and dangerous situations.  There are a multitude of issues they face.  If properly managed, an owner of a roofing company can make a good living and profit.  Experience is absolutely the best ally for the roofer.

What is a Reasonable Profit in Construction?

Reasonable Profit in Construction

For any company, profit is based on the risk reward concept.  With construction, what should be the profit (reward) given the risk?  What is a reasonable expectation given the industry and the particular business? 

There is no single correct answer.  The construction industry is divided into several significant branches.  This article is focused on the residential contractor. 

From the new home builder to the re-modeler, a reasonable profit given the risk should be no less than 9%  AND this is net after a reasonable salary to the owner for his management role.  This is the take home or actual bottom line profit; the amount after taxes.  How do you derive such a figure?  How do you determine the markup on the construction project to end up with this profit? 

Construction Draw Schedule

Construction Draw Schedule

A construction draw schedule is a financial tool used by contractors in identifying percentage of completion points in the project for the bank to advance proceeds to the contractor. The construction draw schedule is instrumental in keeping the project moving along. 

Use Phase Accounting in Construction – Part II (Trades)

This section covers the three traditional trades that require a license from their respective state. This is your HVAC installer, the electrician and the plumber.  In some contractor may wish to include the septic tank and water well installer.  However, I prefer these two be included in the site development phase as they do impact the site and there is only one connection to the main builder for these two particular trades. 

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