The construction industry is a crucial supporting industry to many others. In the construction business, teams face a number of challenges—from regulatory compliance all the way to job costing and site safety. Beyond construction sites, accounting is a particularly important task and one that can present a wide range of challenges for organizations and construction managers. While construction accounting falls under the umbrella of general business accounting, it’s important to note that accounting teams can face certain challenges that are unique or more common to the construction industry.
Each industry’s accounting challenges can vary, and for construction, many of the challenges that teams face are related to the nature of the industry. For example—while some businesses may offer set pricing and regular services, construction projects are very often unique contracts that outline a unique scope of service.

Further, accounting teams may need to account for services beyond simply construction; these may include such services as consulting, engineering, architecture, and real estate development. Construction projects can also require changes after service has started, which can necessitate pricing and contract changes—and crews may face unexpected costs.

To better understand the unique and dynamic nature of accounting in construction, it can be helpful to explore some of the common construction accounting challenges, as well as some mistakes to avoid. We’ll also discuss some of the ways construction firms approach these challenges and the importance of systems that support accounting teams’ efforts.

Project Accounting  

One of the challenging aspects of construction accounting is the nature of projects and contracts. For some businesses, it may be as simple as developing a line of goods or a service procedure and establishing a price for those goods or services. This is rarely so simple in construction. As such, project accounting can be a complex task.

The primary reason for this is that construction projects are often inherently unique. Whether a client is requesting architectural services, engineering services, consulting services, or to carry out architectural or engineering plans, construction companies are often creating a unique service tailored to the needs of their clients. As such, these teams may need to contend with unique contracts for each account. These can be quite complex, and the costs of everything from raw materials to labor costs can be important to have accurate documentation for. However, without accurate job costs, accounting teams can be essentially operating in the dark.

Construction accounting teams need to communicate effectively with other teams and need access to the necessary documentation. This way, they can properly account for factors such as project costs, accurately estimated costs, agreed-upon scope of service, and revenue. Without the right tools or communication, it can lead to inaccurate reporting, client disputes, and interruption of operations.

Regulatory and Legal Compliance  

Another challenge—and an important charge for construction accounting teams—is legal and regulatory compliance. Firstly, accounting teams must be aware of and keep up to date with the complex and ever-changing tax laws that affect the construction industry. Additionally, construction firms must ensure that they abide by applicable labor laws and ensure that contractors and employees are paid in a legally compliant manner.

Failure to ensure regulatory and legal compliance can result in serious financial woes—stemming from fines, back taxes, and the indirect costs associated with them.

Efficiency and Accuracy  

Another challenge that construction accounting teams can face is that of ensuring efficient and accurate accounting. Manual processes can be particularly inefficient, as well as risky. Manual tracking can be conducive to human error, time-consuming, and costly in terms of labor. It can require extensive manual data entry—which can create numerous opportunities for errors and take up a large amount of time that the accounting team could otherwise devote to other important tasks.

Construction projects can be highly complex. As such, manual accounting can be even less viable than it may be in other industries.

Additional Challenges  

While these are some of the most common and widespread challenges that construction accounting teams may face, there are a number of additional challenges that they may face as well. For example, accounting teams often need to manage:

  • Cash flow to ensure that operations can continue
  • Risk to ensure that the organization doesn’t take on more than it can weather
  • Disputes, which can arise over payment.

Failure to manage cash flow, risk, and disputes can lead to further problems—such as loss of reputation, interruption of operations, loss of revenue, and even the failure of the business.

How Construction Accounting Teams Meet These Challenges and Avoid These Mistakes  

Fortunately, construction accounting teams are often able to meet all of these challenges—and more—through diligence, systematic planning, and careful attention to detail. So, how do these teams approach these challenges? Additionally, are there ways in which construction organizations can improve their current accounting practices? Let’s explore.

Adhering to Best Practices  

Importantly, simply adhering to best practices can help accounting teams avoid many of these mistakes. Understanding how to do construction accounting effectively can be important. Some best practices include:

  • Job costing: It can be important to track costs and revenue based on the jobs from which they stemmed. This can help teams make more informed decisions.
  • Leveraging technology efficiently: There are numerous tools available with which construction accounting teams can optimize their practices to be more efficient, cost-effective, and even accurate. Among these are communications tools, accounting tools, and project management tools.
  • Automation whenever feasible and practical: Automation isn’t just a matter of reducing the need for human labor. It also represents a way to mitigate the risk of human error in tasks such as data entry.


Leveraging Technology  

Importantly, many construction accounting teams rely on effective tools in order to meet the needs of their organizations. Many of these tools are technology tools—such as communications platforms or project management software. Additionally, cloud-based solutions, such as cloud-based construction accounting software, have become popular and highly effective options for managing the numerous complex challenges that teams face.

Sage Intacct Construction is a cloud-based software solution that simplifies project financials. Sage Intacct offers robust tools and features—including an open API for integrations, accessibility, data consolidation features, real-time tracking and reporting tools, and more. As a cloud-based solution, it isn’t only flexible but also highly scalable and quickly deployable.

The Bottom Line  

In accounting, teams face a number of challenges—some of which are unique to the construction industry. Among these, some of the most notable challenges include facilitating effective communication, both within the organization and with clients, ensuring accuracy and visibility, and managing cash flow and risk.

Fortunately, there are ways that accounting teams can address these challenges. Some important steps to take include adhering to best practices such as job costing, the efficient use of technology, and automation. In today’s digital age, there are modern software solutions that can help teams adhere to these best practices—such as Sage Intacct Construction, a powerful, cloud-based accounting software solution.

If you’re interested in learning how Sage Intacct can help your organization tackle these important challenges in construction accounting, don’t hesitate to reach out today.