Bookkeeping for custom home builders represents a unique task compared to how it works for many other businesses. A professional bookkeeper will tell a business to pay close attention to these 6 areas of unusual concern.
Offering customers the chance to customize their homes is a great selling point. However, it also tends to add to the number of oddities going into the expense report. As critical as it is for you to collect receipts for everything on any build, it's more critical when you're dealing with one-of-a-kind items. If an item or collection of items is costly, you may also want to take pictures as documentary evidence in case of an audit down the road.
Even with a heavy focus on customization, most home builders will try to minimize costs through bulk purchases. This creates a situation where you have to assign materials from the bulk pile to specific projects. If you can't confirm the assignment of materials, you may have trouble reconciling your books at a later time.
Moving Through Phases of Jobs
Every project moves through phases. It's an important aspect when assessing the success of your business to focus on completed contracts. This allows you to make a more accurate comparison of each project's performance.
At the same time, you have to be aware of the current contracts you have. If expenses on this front start outpacing inflows from completed and paid work, you can start running a ruinous deficit. In terms of bookkeeping for home builders, this is a tight balancing act. It's wise to have a professional keep an eye on the books so you don't accidentally end up in an adverse situation.
Allowances and Changes
Most contracts make allowances for customers changing specific aspects of the job. If changes happen, though, you need to be quick to book them. Even if the change doesn't materially affect the finances of the project, you'll want to book them to avoid potential confusion.
Custom home builders need to be responsive to circumstances. If you need extra money to fix a construction mistake, for example, you don't want to spend months sorting it out purely for bookkeeping reasons. However, this means you need to be diligent in detailing every bank draw.
Realization of Profits
The vast majority of businesses use accrual accounting practices. This means profits go on the book in the year of their associated contracts. You have to be careful to book profits and losses accordingly, or it can create tax trouble later.