Construction accounting isn’t just regular bookkeeping with a hard hat. It’s a specialized discipline that deals with job costing, progress billing, retainage, and complex compliance requirements. If your controller doesn’t fully understand these nuances, your business could face inaccurate financials, cash flow issues, and even compliance risks.
So, how can you tell if your controller truly understands construction accounting—or if they’re applying generic accounting practices that don’t fit your business? Let’s break it down into five red flags (warning signs) and five green lights (positive indicators).
Why This Matters
Your controller is the financial backbone of your construction company. They oversee everything from job cost reports to WIP schedules and ensure your financial statements reflect reality. If they lack construction-specific knowledge, you could be making decisions based on flawed data. That’s a risk no contractor can afford.
5 Red Flags: Signs Your Controller Does NOT Understand Construction Accounting
1. They Treat All Revenue Like It’s Earned When Invoiced
In construction, revenue recognition is complex. Controllers who apply a simple “invoice equals revenue” approach ignore the percentage-of-completion method, which is standard in the industry.
Why It’s a Problem: This can lead to overstated income, inaccurate WIP reports, distorted financial statements, and trouble with bonding companies or lenders.
2. They Can’t Explain Over/Under Billing
Ask your controller to explain overbilling and underbilling. If they can’t clearly articulate what it means—or worse, they’ve never prepared a WIP schedule—that’s a major red flag.
Why It’s a Problem: Over/under billing impacts cash flow and financial reporting. Without accurate WIP schedules, you can’t see your true profitability.
3. Job Cost Reports Are Missing or Inaccurate
If your controller only provides a company-wide P&L and balance sheet, they’re missing the point. Construction accounting requires detailed job cost reports that break down labor, materials, equipment, and overhead by project.
Why It’s a Problem: Without job-level data, you can’t identify which projects are profitable and which are bleeding cash.
4. Retainage Isn’t Tracked Separately
Retainage is a standard practice in construction contracts, but generic accounting often ignores it. If your controller lumps retainage into accounts receivable without separate tracking, that’s a sign they don’t understand industry norms.
Why It’s a Problem: Improper retainage tracking can distort cash flow and misstate receivables.
5. They Rely on Spreadsheets for Everything
While spreadsheets can be useful, relying on them for WIP schedules, job costing, and committed cost tracking suggests your controller is compensating for a lack of system knowledge—or worse, using workarounds instead of leveraging your accounting software.
Why It’s a Problem: Manual processes increase the risk of errors and make real-time reporting nearly impossible.
5 Green Lights: Signs Your Controller Understands Construction Accounting
1. They Speak the Language of Construction
A knowledgeable controller uses terms like WIP, retainage, committed costs, and percentage-of-completion confidently and correctly. They understand how these concepts impact your financial health.
2. They Produce Accurate WIP Reports Regularly
A strong controller doesn’t just prepare WIP schedules at year-end—they generate them monthly or quarterly. They use these reports to help you manage cash flow and make informed decisions.
3. Job Costing Is Built Into Every Report
Your controller ensures every expense is assigned to a job and cost code. They provide job profitability reports that show actual vs. estimated costs, helping you spot issues early.
4. They Understand Compliance and Bonding Requirements
From certified payroll to lien waivers and bonding, construction accounting has unique compliance demands. A skilled controller knows these requirements and ensures your financials meet industry standards.
5. They Leverage Technology Effectively
Whether it’s QuickBooks with proper job costing setup or a construction-specific accounting system, your controller uses the tools available to streamline processes and reduce errors. They avoid unnecessary manual workarounds.
What to Do If You See Red Flags
If you recognize some of the red flags above, don’t panic—but don’t ignore them either. Here are a few steps you can take:
- Invest in Training: Many controllers can learn construction accounting with the right resources.
- Upgrade Your Software: If your system can’t handle construction-specific needs, consider switching to a construction-focused platform.
- Bring in an Expert: A construction CPA or consultant can review your processes and recommend improvements.
Final Thoughts
Your controller doesn’t just manage numbers—they manage the financial health of your construction business. Understanding construction accounting isn’t optional; it’s essential. By knowing what to look for, you can ensure your financial team is equipped to support your growth and profitability.