Updated for 2023
It’s that time of year again! As we near the end of 2022, it’s time to focus on year-end closing preparations. In the fourth quarter of the year, your team will be compiling, reviewing, and reconciling, so start early and plan ahead.
What is year-end preparation for construction companies?
Year-end preparation involves taking the necessary steps to ready your business to close the books on the year. Year-end closing is the process of reviewing, reconciling, and verifying your accounting to make certain your finances are complete and accurate.
Preparation can include the development of a closing schedule, collecting financial statements, and following up with unpaid invoices.
Year-end prep should be done at the end of your business’ fiscal year. Fiscal years often run January to December, but can also start from the day the business was registered. Make sure you know when the end of your business’ fiscal year is to prep for your year-end at the appropriate time.
Why is year-end preparation important for construction companies?
Preparing for year-end closing ensures you have the documents, asset information, and strategy to complete your closing process. Completing accurate financial statements is imperative for a number of reasons. You want a clear picture of how your business performed over the course of the year so you can identify any place you may need to either change strategy or focus more resources. Accurate financial reporting gives the sureties and bonding agents a clear picture of jobs in-progress, backlog, and overall profitability, which is a critical step in ensuring your bonding requirements are satisfied. Additionally, in the case of an external audit, these records will be extremely valuable. Finally, all of this preparation will help make filing taxes next year a much smoother process.
How can I make year-end preparation more efficient?
Utilizing an appropriate preparation method makes the process of closing your books significantly easier and can improve your accounting team’s efficiency. Your goal should be to have all necessary documents readily available and all payments squared away to allow for a simple closing process.
Here’s a checklist to help get your construction team get started:
- Ensure all expenses are entered and make sense in their context
- Cross reference credit card and bank statements with information in your records to account for missing or duplicate entries
- Consider hiring a bookkeeper or accountant to aid in analyzing transactions
- Prepare your balance sheet, income statement, and cash flow statement
- Review accounts payable and accounts receivable to check for outstanding collections and debts
- Assess your tax situation and consider consulting with a tax professional to strategize and save money before the end of the year
- Evaluate budgets and goals for the past year and how your company performed
- Make adjustments to budgets and goals for the upcoming year
- If you maintain a WIP schedule, make sure your schedule reflects accurate contract prices and estimates, and includes current job-to-date billings and costs. Work with project managers as well as your CPA to ensure accuracy, if needed.
Special Considerations for Construction Companies
There are a few items construction companies should pay special attention to:
- Conduct tool and equipment inventory counts. In the construction industry, projects usually slow in the winter months which makes it a great time to count, maintain, and repair vehicles and tools. Compare tool and tool inventory list to account for discrepancies and remove any tools that are no longer in good shape. Maintaining accurate tool inventories is essential for insurance and Personal Property taxes.
- Renew any expiring licenses and insurance policies. As a contracting business, you need to make sure your licenses and those of your employees are up to date. Many licenses expire at year-end so ensure your company is fully licensed before continuing operations.
- Review mileage records to accurately document miles driven. The IRS requires written proof of date, start location, starting and ending miles, ending location, and the purpose of the trip for claiming of expenses or deductions. It is also important to document when employees are reimbursed for mileage.
- Keep account receivables current and review invoices. Any outstanding invoices should be reconciled. You can write off the account, resolve the problem if there happens to be a quality issue, or as a last resort take legal action.
- Update labor and material costs. A lot can change in a year and your rates need to account for changes in costs. In order to make a profit, your company needs to account and plan for these increased costs.
- Check in on the progress of large projects rolling into the next year. Many of your large projects will be rolling over into the next year and this is a great time to ensure you are on track to complete these projects in a timely manner, and to update your contracts for any change orders and estimates for additional costs anticipated.
- Make sure you’ve properly implemented the new lease accounting standards. The Financial Accounting Standards Board updated lease accounting standards are now in effect. Now is a good time to review the new standards and make sure you’re compliant. Read more about the update lease accounting standards here.
- Thank clients for their business and collect feedback. Construction companies can use the end of the year to reconnect with clients about their satisfaction and thank them for being a customer. You may be able to discuss future construction needs they may have and schedule more projects for your team.
Corrigan Krause Can Help
The Corrigan Krause Construction Group is here to help you navigate your company’s year-end preparations. Email firstname.lastname@example.org for more information and sign up for our Construction Services newsletter here.