5 Critical Year-End Accounting Fixes That Will Maximize Your Construction Company’s Profitability

Is your construction company leaving money on the table because of disorganized accounting practices? Many contractors lose significant profit margins before they even break ground on a project, simply due to poor cost tracking and inadequate financial visibility.

During a recent Moore on Manufacturing webinar titled “Year End Closeout Job Costing Fixes for 2026,” Scott Withrow, Director at James Moore, and Mike Messano, CPA and Senior Manager, shared valuable insights on how construction companies can strengthen their financial foundation before the new year. This discussion highlighted the critical importance of syncing job costing with WIP (Work in Progress) forecasting to catch red flags earlier, improve forecasting accuracy and reduce the risk of profit fade across projects.

Fix #1: Organize Your Chart of Accounts for Better Financial Visibility

The foundation of effective construction accounting starts with a properly structured chart of accounts. Messano emphasized the importance of setting up accounts in an organized numerical format: “Setting up your chart of accounts in an organized format is really going to be key to help have your business succeed and have good financial reporting and data that you can utilize for financial decision making purposes.”

He recommended using a four-digit system where assets begin with 1000, liabilities with 2000, equity with 3000, and so forth. This structure allows you to quickly identify account classifications and run reports that provide usable data.

Key Considerations for Account Setup

When creating accounts in your accounting software, proper categorization is essential. For example, direct labor should be classified as “cost of goods sold” (account series 5000), while office personnel salaries belong in general and administrative expenses (account series 7000).

Messano also warned against creating unnecessary detail: “There is a cost-benefit, especially when it comes to things like G&A expenses, if your bookkeeper spending hours and hours identifying and tagging all the various G&A expense accounts and you’re not actually getting any value out of that detail.” He suggested consolidating accounts like utilities into a single line item if you’re not using that granular data for decision-making purposes.

Fix #2: Master Your WIP Schedule Reconciliation

One of the most powerful tools for construction companies is the Profit and Loss by Customer report (or Profit and Loss by Job in QuickBooks Desktop). This report becomes the bridge between your accounting system and your WIP schedule.

Messano stressed the importance of regular review: “The reason I mentioned reviewing this report on a regular basis and the reason for that being so important is not only is it going to give you the information on all of your billings and expenses that are coded to those individual jobs, it’s also going to generate this not specified column.”

The “Not Specified” Problem

The “not specified” column is where job-related expenses land when they haven’t been assigned to a specific project. This creates major problems when preparing your WIP schedule because you won’t know which jobs to include these costs in. Messano recommended reviewing this report at least monthly to ensure all expenses are properly coded to their respective jobs.

Fix #3: Identify Red Flags in Your WIP Schedule

Once your WIP schedule is properly reconciled, you need to understand what you’re looking at. Messano identified four critical columns that warrant close attention:

Percent Complete Analysis

Your percent complete calculation is based on actual costs as a proportion of estimated job costs. However, this number needs validation from the field. Messano explained: “You’re gonna wanna make sure you’re having conversations with your project manager and making sure that that percentage is in line with the actual real-world progress of that job.”

If a job shows 96% complete in your system but your project manager says it’s only 75% done due to delays, you need to adjust your estimated job costs accordingly.

Estimated Gross Profit Percentage

Messano recommended establishing a threshold for your typical gross profit percentage. For example, between 20% and 30%. Jobs falling outside this range need investigation. “You’re just identifying those jobs that are outliers and making sure that it makes sense from a real world standpoint,” he noted.

Under-Billings and Over-Billings

Under-billings greater than 10% of the total contract amount should raise questions. Messano explained the concern: “From a CPA perspective, the underbilling kind of operates as a control in the process with the customer kind of being the check in the situation. So if you have a job that’s significantly underbilled, it brings in a question why exactly you wouldn’t be billing the customer for the actual progress of that job.”

While over-billings present less risk, Messano cautioned: “The risk comes into play that perhaps you don’t have enough working capital to get those jobs all the way to the finish line.”

Fix #4: Build a Strategic Budget

Once your accounting foundation is solid, you can create meaningful budgets. Withrow outlined the essential questions: “How much revenue do I expect to generate next year? Is that revenue gonna come from different project mixes?”

Margin Improvement Strategies

Withrow encouraged setting stretch goals: “If you currently have, say, 25% margin, do you want to do a stretch goal and say, okay, for my next year’s budget, I want to move that to 30%.”

He emphasized the importance of understanding true overhead costs: “I don’t know how many times that we come across clients who are billing their overhead rate at 5% of sales, but when we go in and actually do an analysis of their actual overhead, they find out that their overhead’s like 9% of sales. So they’re losing 4% of margin at the bidding table before they even turn a wrench or start a project.”

Monthly Phasing

Rather than creating an annual budget and dividing by 12, Withrow recommended phasing revenue based on historical patterns. “In January, we normally generate 8% of my overall revenue. In February, we normally generate 12% of my overall revenue,” he explained, noting that this approach creates more accurate monthly forecasts.

Fix #5: Evaluate Your Accounting Software Needs

For construction companies under $40 million in annual revenue, QuickBooks Online often provides sufficient functionality. However, Withrow and Messano discussed several alternatives for growing firms.

QuickBooks vs. Construction-Specific Software

While QuickBooks is “easy, low cost, a familiar interface that a lot of people have used before,” Withrow noted it’s “not very construction specific, it’s hard to track job costs as accurate as some of the other systems.”

For companies already using QuickBooks but needing more robust job costing, Intuit Enterprise Suite (IES) offers multi-entity support, stronger job costing, and AI features like 13-week cash flow generation. For mid to larger firms approaching $100 million in revenue, platforms like Sage Intacct and Foundation provide comprehensive cost accounting capabilities.

Withrow cautioned about the trade-offs: “The software does come with a higher cost and there is implementation complexity. It’ll take time to get your office personnel up to speed on how to run the software.”

Take Action Before Year-End

The panelists emphasized that monthly WIP reviews provide far more value than waiting until year-end. Messano explained: “We certainly would not recommend waiting until year end when you’re having a review or an audit done and sort of putting it all together in December or January because you kind of lose out on all that information that can be used throughout the year for decision-making purposes.”

Withrow added the importance of regular communication: “I’m a huge proponent of getting finance and operations to communicate at least on a monthly basis, if not a weekly basis.”

By implementing these five year-end accounting fixes now, construction companies can enter the new year with clean data, accurate job costing, and the financial visibility needed to maximize profitability. As Withrow simply put it: “Know your costs, bid your costs.”

Ready to strengthen your construction accounting practices? Contact James Moore’s construction accounting team to discuss how we can help you implement these strategies and improve your bottom line before year-end.