ConstructionMerranti

The Accounting Checklist Every Growing Construction Business Needs

A growing construction business needs more than basic bookkeeping.

As a building or trades business grows, the accounts usually become more complex. There may be more jobs running at once, more materials, more subcontractors, CIS deductions, VAT reverse charge issues, payroll, finance payments, retentions, deposits and tighter cash-flow timing.

The key point is this: the accounting system that worked when the business was small may not be enough once the business starts growing.

A growing construction business needs accounting records that show not only what has gone through the bank, but which jobs are profitable, what tax is due, which customers owe money, which suppliers need paying and whether cash flow can support the next stage of growth.

This checklist explains the accounting areas every growing construction business should review.

For construction and limited company accounting support, see Merranti’s Limited Company Accounting page.

1. Keep bookkeeping up to date every month

Monthly bookkeeping is the foundation of a reliable construction accounting system.

Construction businesses often have too many moving parts to leave bookkeeping until year-end. Materials, subcontractors, staged payments, CIS, VAT and payroll all need regular tracking.

Monthly bookkeeping should include:

  • sales invoices
  • supplier bills
  • bank transactions
  • credit card transactions
  • subcontractor invoices
  • CIS deductions
  • VAT records
  • payroll entries
  • material costs
  • plant and tool hire
  • vehicle costs
  • finance payments
  • director withdrawals
  • customer deposits
  • retentions

A construction business that only reviews records once a year may not spot cash-flow pressure, weak job margins or tax liabilities until too late.

Suggested future internal blog link once published: The Most Common Bookkeeping Mistakes Small Business Owners Make

2. Separate each job in the accounts

A growing construction business should know which jobs make money and which jobs drain cash.

Basic bookkeeping may show total sales and total costs, but that is not enough. Job costing helps show profit by project.

Each job should ideally track:

  • quoted price
  • agreed variations
  • labour costs
  • subcontractor costs
  • materials
  • plant hire
  • tool hire
  • waste disposal
  • fuel and travel
  • insurance allocation
  • overhead allocation
  • staged invoices
  • payments received
  • retentions
  • actual gross margin

Without job costing, a business may win plenty of work but still fail to improve profit.

For better job reporting and management information, see Merranti’s Financial & Management Accounts page.

Suggested future internal blog link once published: Why Builders Need Better Job Costing Before They Can Improve Profit

3. Track CIS correctly

The Construction Industry Scheme is one of the most important accounting areas for construction businesses.

GOV.UK explains that contractors must register for CIS if they pay subcontractors to do construction work. Contractors must verify subcontractors, make deductions where required, pay those deductions to HMRC, file monthly returns and keep records.

Useful outgoing links:

A construction business should track:

  • subcontractor verification details
  • CIS deduction rates
  • labour and materials split
  • deduction statements
  • monthly CIS returns
  • HMRC payments
  • CIS suffered, where the business is a subcontractor
  • CIS deducted, where the business is a contractor

CIS records should agree with the bookkeeping. If they do not, year-end accounts and tax reporting become harder.

Suggested future internal blog link once published: CIS Tax Explained for Subcontractors and Contractors

4. Review VAT and domestic reverse charge

VAT can become complicated quickly in construction.

A growing construction business should know whether it is approaching the VAT registration threshold, whether customers are VAT registered, whether the domestic reverse charge applies, and whether the accounting software is set up correctly.

GOV.UK explains that the VAT domestic reverse charge applies to many supplies of building and construction services between VAT-registered businesses where the services are reported within CIS.

Useful outgoing links:

Construction businesses should review:

  • VAT registration position
  • VAT rates on different work types
  • domestic reverse charge rules
  • VAT invoices received
  • VAT invoices issued
  • VAT on materials
  • VAT on subcontractor invoices
  • VAT return deadlines
  • VAT cash-flow impact
  • accounting software VAT codes

For VAT support, see Merranti’s VAT Services page.

Suggested future internal blog links once published:

  • VAT Registration: When It Becomes Compulsory and When It Might Be Worth Doing Early
  • Should I Register for VAT If I Am Below the Threshold? Pros and Cons

5. Keep payroll and subcontractors clearly separate

Construction businesses often use a mixture of employees and subcontractors.

This needs careful treatment. Employees are normally handled through payroll. Subcontractors may fall under CIS. The business should not simply choose the easiest route.

GOV.UK provides employment status guidance to help businesses check whether someone should be treated as employed or self-employed for tax.

Useful outgoing link:

A growing construction business should review:

  • employees on payroll
  • subcontractors under CIS
  • apprentices
  • agency labour
  • pension duties
  • holiday pay
  • employment contracts
  • payslips
  • PAYE submissions
  • CIS verification
  • subcontractor invoices
  • insurance position

For payroll support, see Merranti’s Payroll page.

6. Monitor cash flow weekly or monthly

Construction businesses can run short of cash even when they are profitable.

Cash-flow pressure often comes from:

  • materials bought before payment
  • subcontractors paid before customers pay
  • retentions
  • delayed stage payments
  • VAT
  • CIS
  • payroll
  • vehicle finance
  • tool and plant purchases
  • director withdrawals
  • slow customer payment

A growing construction business should use a rolling cash-flow forecast, ideally covering at least the next 13 weeks.

The forecast should include:

  • opening bank balance
  • customer receipts expected
  • stage payments due
  • retentions due
  • supplier payments
  • subcontractor payments
  • payroll
  • VAT
  • CIS
  • PAYE
  • finance payments
  • tax reserves
  • expected closing cash

For cash-flow forecasting and management reporting, see Merranti’s Financial & Management Accounts page.

Suggested future internal blog links once published:

  • How Construction Businesses Can Improve Cash Flow Without Just Chasing More Work
  • Why Your Profit Is Not the Same as Your Cash in the Bank

7. Record retentions separately

Retentions can distort both profit and cash flow.

If a customer or main contractor withholds part of the payment until completion or after a defects period, the business needs a clear record of what is owed and when it should be released.

A retention tracker should show:

  • job name
  • customer or contractor
  • invoice number
  • retention amount
  • percentage retained
  • date withheld
  • expected release date
  • defects period
  • amount received
  • balance outstanding
  • dispute status

Without a retention tracker, money can be forgotten or left uncollected.

Retentions should be reviewed as part of monthly management accounts, not only during year-end accounts.

8. Keep supplier accounts under control

Supplier credit can help construction businesses grow, but it can also hide cash-flow pressure.

A business should regularly review supplier statements and reconcile them to the accounts.

Check:

  • unpaid supplier invoices
  • overdue supplier balances
  • disputed charges
  • credit notes
  • material purchases by job
  • plant and tool hire invoices
  • payment terms
  • supplier credit limits
  • direct debits and finance payments

If supplier bills are not entered until paid, profit may look stronger than it really is and cash-flow forecasts may be inaccurate.

9. Track tools, vans, plant and equipment

Construction businesses often buy or finance significant assets.

These may include:

  • vans
  • tools
  • machinery
  • scaffolding
  • plant
  • computers
  • trailers
  • storage units
  • safety equipment

The accounting treatment depends on whether items are bought outright, financed, leased or hired.

The business should keep:

  • purchase invoices
  • finance agreements
  • lease documents
  • asset registers
  • insurance records
  • maintenance records
  • disposal records
  • private-use details, where relevant

For year-end accounts and tax treatment of assets, see Merranti’s Annual Accounts page.

Suggested future internal blog link once published: What Business Owners Should Know Before Buying a Company Car

10. Review director withdrawals

Limited company directors should not treat the company bank account as personal money.

Money taken out of the company needs to be recorded correctly as:

  • salary
  • dividends
  • expense reimbursement
  • repayment of money lent to the company
  • pension contribution
  • director’s loan account movement

This is especially important where the construction company has uneven cash flow. Taking too much money out during a strong month can create pressure when VAT, payroll, CIS or supplier bills fall due.

Suggested future internal blog links once published:

  • How to Pay Yourself from a Limited Company Without Creating Cash Flow Problems
  • How Directors’ Loan Accounts Work — and Why They Can Cause Tax Problems
  • Salary vs Dividends: What Limited Company Directors Should Consider Before Taking Money Out

11. Estimate Corporation Tax before year-end

A growing construction company should not wait until annual accounts are prepared to think about Corporation Tax.

The company should estimate tax during the year based on profit, allowable expenses, capital allowances, losses and drawings.

For many small companies, Corporation Tax is payable before the Company Tax Return filing deadline. Waiting until the accounts are finished can leave the business short of cash.

Useful outgoing link:

Suggested future internal blog link once published: Corporation Tax for Small Limited Companies: What Directors Need to Know

12. Keep records ready for year-end accounts

Year-end accounts are much easier when records are organised during the year.

A growing construction business should keep:

  • bank statements
  • sales invoices
  • supplier invoices
  • subcontractor invoices
  • CIS records
  • VAT returns
  • payroll reports
  • finance agreements
  • asset invoices
  • stock and material records
  • retention records
  • director’s loan account records
  • dividend paperwork
  • insurance documents
  • contracts and project records

For annual accounts support, see Merranti’s Annual Accounts page.

Suggested future internal blog links once published:

  • What Records Should a Limited Company Keep? A Simple Compliance Checklist
  • How to Prepare Your Business for Year-End Accounts

13. Use accounting software properly

Accounting software can help a growing construction business, but only if it is set up correctly.

The software should support:

  • bank feeds
  • receipt capture
  • VAT returns
  • CIS tracking
  • payroll integration
  • job codes or project tracking
  • supplier bills
  • aged debtors
  • aged creditors
  • management reports
  • cash-flow forecasting

Poor software setup can create repeated errors. VAT codes, CIS settings and job tracking need particular attention.

For software support, see Merranti’s Accounting Software and Cloud Accounting pages.

14. Create a monthly reporting pack

As the business grows, the owner should not rely only on the bank balance.

A monthly reporting pack for a construction business may include:

  • profit and loss report
  • balance sheet
  • cash-flow forecast
  • job profitability report
  • aged debtor report
  • aged creditor report
  • VAT estimate
  • CIS position
  • PAYE and payroll liabilities
  • retention tracker
  • director’s loan account summary
  • tax reserve estimate

This gives the director better visibility before decisions are made.

For regular financial reporting, see Merranti’s Financial & Management Accounts page.

15. Review pricing before taking on more work

Growth can be dangerous if pricing is wrong.

Before taking on more projects, a construction business should review:

  • gross margins by job
  • labour rates
  • material inflation
  • subcontractor costs
  • overhead recovery
  • vehicle and tool costs
  • profit target
  • payment terms
  • variation process
  • customer payment history
  • tax and finance costs

More work is only useful if it produces enough profit and does not damage cash flow.

Suggested future internal blog link once published: Why Builders Need Better Job Costing Before They Can Improve Profit

Useful further reading and links

Useful outgoing GOV.UK links:

Suggested Merranti service links:

Suggested internal blog links once published:

  • Construction Accounting: Common Tax and Cash Flow Issues Builders Face
  • CIS Tax Explained for Subcontractors and Contractors
  • How Construction Businesses Can Improve Cash Flow Without Just Chasing More Work
  • Why Builders Need Better Job Costing Before They Can Improve Profit
  • VAT Registration: When It Becomes Compulsory and When It Might Be Worth Doing Early
  • Should I Register for VAT If I Am Below the Threshold? Pros and Cons
  • Why Your Profit Is Not the Same as Your Cash in the Bank
  • The Most Common Bookkeeping Mistakes Small Business Owners Make
  • What Records Should a Limited Company Keep? A Simple Compliance Checklist
  • How to Prepare Your Business for Year-End Accounts
  • Corporation Tax for Small Limited Companies: What Directors Need to Know

How Merranti can help

A growing construction business needs accounting systems that can handle more than year-end compliance. CIS, VAT, payroll, job costing, retentions, cash flow and director withdrawals all need to be tracked properly.

Merranti Accounting can help construction businesses improve bookkeeping, set up accounting software, manage CIS and VAT, prepare annual accounts, run payroll, produce management accounts and forecast cash flow.

If your construction business is growing and the accounts are becoming harder to manage, visit Merranti’s Financial & Management Accounts page, see Limited Company Accounting, or contact Merranti to discuss your business.

FAQ

Why does a growing construction business need better accounting?

As a construction business grows, it usually has more jobs, materials, subcontractors, CIS, VAT, payroll and cash-flow pressure. Basic bookkeeping may not show job profitability or future tax liabilities clearly enough.

What should construction bookkeeping include?

Construction bookkeeping should include sales, supplier bills, subcontractor invoices, CIS deductions, VAT records, payroll, materials, retentions, job costs, finance payments and director withdrawals.

Why is job costing important for builders?

Job costing helps builders understand whether each project is profitable after labour, materials, subcontractors, plant, travel, waste and overheads are considered.

How does CIS affect construction accounts?

CIS affects payments to subcontractors, monthly returns, deduction statements, HMRC payments and subcontractor cash flow. CIS records should agree with the bookkeeping.

How often should a construction business review cash flow?

A growing construction business should usually review cash flow monthly, and weekly if cash is tight. A 13-week cash-flow forecast can help identify pressure early.

Can Merranti help construction businesses with accounting systems?

Yes. Merranti can help construction businesses with bookkeeping, CIS, VAT, payroll, annual accounts, management accounts, job costing and cash-flow forecasting.

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