7 Ways to Manage Finance in a Construction Company

7 Ways to Manage Finance in a Construction Company

A key to a successful construction company is to keep it running in a financially healthy way while looking for ways to save money and increase profit margins. Good financial management is required for these companies to have a great future with positive cash flow.

Managing finances can be a real problem for any business owner, especially construction company owners. If you have minimal knowledge in this area, it could possibly harm your business. For this reason, owners of a construction business must educate themselves about managing finances.

Here are seven ways to effectively manage the finances of a construction company.

Separate Your Personal And Business Finances

Before you can delve into managing the finances of your business, you should separate your personal finances from your business finances. This step is essential for tax and organizational reasons.

Separating these finances will help you organize things in keeping tabs on your requirements and bookkeeping when it comes to business taxes. More importantly, separating these finances has legal implications.

Once you separate them, if ever you face legal problems in your business, your personal finances are protected. Here’s how to separate these finances:

Open A Business Bank Account

It may seem reasonable to keep your business finances in your personal account as a short-term solution. Still, it’s ideal if you separate your personal transactions from your business ventures. You can keep your business finances in your business bank account as a long-term solution.

Make sure to choose the right bank account for your construction company, as it’s vital to ensure that you can manage your finances effectively. There are many factors to consider when choosing a business bank account, such as:

  • Mobile and online banking capabilities
  • ATM access
  • Cash deposit limits
  • Business savings account versus a Business checking account
  • Wiring allowances
  • Monthly service fee

You will want a business bank account that can help you manage the daily finances of your business and securely retain your funds. Other than a business bank account, you should also get a business credit card.

With a business credit card, you can make purchases for your construction company. What’s more, you can build up your business credit and simplify bookkeeping. You may want to explore other options or get a business credit card from the same issuer as your company bank account.

Know the Basics Of Business Accounting In Construction

Construction accounting is not the same as regular accounting. Unlike businesses like restaurants wherein they sell services and products from a fixed area, construction companies are mobile and work in different locations.

That said, a construction business needs to examine different categories of expenses:

  • Tools and equipment
  • Construction materials
  • Delivery of construction materials
  • Licenses and permits
  • Labor
  • Miscellaneous

Understanding the basics of business accounting will help you manage your business finances successfully. Even though it might look like a difficult task, particularly if you have never been enrolled in an accounting class, you can first learn the basic terms.

A solid understanding of these terms can help you better manage your business finances and how good accounting can impact your business. Here are some of the basic accounting terms you need to know:

  • Cash Flow. Aside from profitability, having sufficient cash on hand can, for the most part, make or break the success of your construction business. Even if your company is lucrative, you may face some issues in the long run if you do not have cash in your account to pay your bills. Money comes in from the sale of the assets, purchase of assets, investments, and more.
  • Gross Revenue. This term is also known as total revenue. It is the total money you have gained from your consumers in exchange for your service or product, before deducting any expenses.
  • Break-Even Point. During the COVID-19 pandemic, many businesses will run at a loss. By that, we mean, their expenses are more significant than their gross revenue. The accounting term “break-even point” means the production level at which total expenses is equal to gross revenues.
  • Net Profit. Often called the net earnings, net income, or bottom line, net profit is primarily the difference between your total revenue and expenses. If your net profit is positive, then your business is profitable, and your income is larger than your expenses.
  • Sales. Construction companies offer different services, such as labor, engineering, consulting, materials, and more.

Pay Taxes Specific to the Construction Industry

Once you’ve successfully separated your personal and business finances and prepared your books, paying business taxes will be the next step. Even though taxes are sometimes the most confusing and cumbersome in business finances, the repercussion for failing to file your federal and state business taxes are relentless.

What’s worse is that you may face criminal charges and lose your business. For this reason, it’s essential to know all the important things about paying business taxes.

Sales Tax

Owners of a construction business need to pay sales tax when they buy materials or gears used in construction. It means that any supplies you buy are subject to tax at the time of purchase.

In many states, construction companies are required to pay sales tax when they buy materials for construction projects. Depending on what type of project, it can be a good thing, because the markup cost you charge to your customer will not be subjected to sales tax anymore.

Federal Tax Identification Number

This number is used by the International Revenue Service to track your business. Think of your Federal Tax Identification Number (also known as employer identification number) as your business’s social security number.

Moreover, even though not all companies are required to get this number, there are a few cases wherein you might need to file for a Federal Tax Identification Number, particularly if your construction company is deemed as a partnership or corporation.

Federal Business Taxes

There are four types of taxes imposed by the federal government, and the kind of business you operate dictates which taxes you need to pay when payments and forms are due, and how you will file these taxes.

  • Excise Taxes
  • Employment Taxes
  • Estimated Taxes
  • Self-employment Tax

Boost Your Credit Scores

Throughout the life of your business, you will undoubtedly need access to credit. Your capability to be eligible for any type of business financing will rely on your business and personal credit rating.

Also, note that your personal and business credit scores are intrinsically tied to how poorly or well you are managing your business.

You can boost your personal credit score and business credit score in many ways, such as:

  • Minimum spending on all your store and credit cards
  • Timely payments of your loan bills
  • Avoiding FICO demerits
  • Regularly monitoring your credit reports
  • Correcting any errors on your credit report
  • Building positive credit accounts with suppliers
  • Using Loans

Having personal cash loans online or with a bank without an excellent payment solution and good planning will make it hard for your company to steer towards success. That said, it’s essential to do your research and plan before borrowing money from the bank or any lender.

Have A Contract Management System

A Contract Management System (CMS) manages the contracts and production of a business. Contracts are essential to any construction company’s procurement activities because they set out the terms and supplier relationship, service levels, and prices.

Moreover, a CMS not only implements these details but controls the risk of a vendor not functioning properly in a company. And to monitor these details easily, you can opt to use a CMS software.

By doing so, you can monitor the budget, handle the project contract, and control the costs to be incurred with ease. Use a CMS software that’s built-in each work unit to reduce unnecessary operational costs.

Practice Good Financial Habits

Setting up internal financial guidelines, even if it is as simple as updating and reviewing financial data, can help secure your construction company’s financial health. Knowing and understanding your finances can also help you steer clear of any risks or fraud.

Often, construction businesses are strapped for money, time, and have minimal technological capability, which prevents them from deploying some kind of internal control. Weak controls can lead to employee theft or fraud, which can lead your business into trouble in the long run.


Managing the finances of your construction company can be extremely challenging. If these tips are not of great help to you, consider working with a mentor to learn the ins and outs of managing business finance personally. Ultimately, remember that managing business finance is a step by step process. It cannot be learned overnight. You will likely learn throughout your business’s life.

This is a guest post from CreditNinja, a fintech company whose mission is to provide hardworking Americans with financial solutions when unexpected expenses arise.

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