Accounting Challenges Unique to Kenyan Construction Companies
Construction businesses in Kenya operate in a financial environment unlike any other industry. Projects span months or years, costs are spread across materials, labour, equipment and subcontractors, and revenue recognition depends on project milestones rather than simple sales. Generic accounting software struggles to handle these complexities.
Add to this the regulatory requirements around withholding tax on subcontractors, statutory deductions for a mixed workforce and KRA compliance, and it becomes clear why so many Kenyan construction firms face cash flow problems despite having full order books.
Project-Based Costing and Budgeting
Every construction project is essentially its own profit centre. Accurate job costing requires tracking every expense, from cement and steel to transport and equipment hire, against the original budget. Without this level of tracking, profitable projects can quietly absorb the losses from underperforming ones.
A project costing module should let you set budgets at the line-item level, track actual expenditure in real time and flag overruns before they become critical. For Kenyan contractors handling multiple projects simultaneously, this visibility is the difference between profitability and insolvency.
| Cost Category | Typical Budget Share | Key Tracking Need |
|---|---|---|
| Materials (cement, steel, timber) | 40-50% | Purchase orders, delivery verification, wastage |
| Labour (permanent and casual) | 20-30% | Attendance, overtime, statutory deductions |
| Subcontractors | 15-25% | Contract terms, milestone payments, WHT |
| Equipment and plant | 5-10% | Hire charges, fuel, maintenance costs |
| Overheads | 5-10% | Site supervision, insurance, permits |
Subcontractor Payments and Withholding Tax
Kenyan construction companies frequently engage subcontractors for specialized work such as electrical installations, plumbing and finishing. The KRA requires that you withhold tax at the prescribed rate on payments to resident subcontractors and remit it by the 20th of the following month. Failing to deduct or remit withholding tax creates personal liability for company directors.
Your accounting system should automatically calculate withholding tax when you process subcontractor invoices, generate the necessary withholding tax certificates and produce the reports needed for KRA filing. This eliminates the risk of missed deductions and the manual effort of preparing certificates for each subcontractor at year end.
Construction companies must issue withholding tax certificates to subcontractors for every payment. Late remittance to KRA attracts a penalty of 10 percent of the tax amount plus interest at the prevailing CBK rate.
Managing NSSF and SHA for Casual Workers
The construction industry in Kenya relies heavily on casual workers, especially for earthworks, masonry and general labouring. Under Kenyan law, casual workers engaged for more than a day are entitled to NSSF and SHA coverage. Many construction firms struggle with this requirement because their casual workforce changes frequently.
A proper payroll system tracks each casual worker's engagement period, calculates the correct NSSF Tier I and Tier II contributions and determines SHA deductions based on gross earnings. It should also handle the transition when a casual worker has been engaged continuously for a period that triggers permanent employment rights.
Revenue Recognition for Long-Term Projects
Construction projects in Kenya often span multiple financial years, making revenue recognition a significant accounting challenge. The percentage-of-completion method, which recognizes revenue based on the proportion of work completed, is the standard approach. This requires accurate tracking of both costs incurred and total estimated costs to complete.
For KRA purposes, the timing of revenue recognition affects your income tax liability. Getting this wrong can result in either overpaying tax in early project stages or facing unexpected tax bills when projects are completed. Software that tracks project progress and automatically applies the correct revenue recognition method protects you from these issues.
Cash Flow Management for Construction Firms
Cash flow is the lifeblood of any construction business, and Kenyan firms face particular pressure from delayed payments by clients, especially on government contracts. A cash flow forecasting tool that maps your expected receipts against committed expenditure helps you avoid the trap of starting new projects with money earmarked for ongoing ones.
Retention money, which is typically 5-10 percent of each certified payment, further complicates cash flow planning. Your system should track retention amounts per project and forecast when they become due for release. This visibility helps you plan material purchases and subcontractor payments without resorting to expensive short-term financing.
Equipment and Plant Cost Tracking
Construction equipment represents a major investment, whether owned or hired. Tracking the true cost of equipment per project requires accounting for depreciation, maintenance, fuel and transport costs. For hired equipment, you need to match hire charges to specific projects and verify that charges align with actual usage.
An asset management module linked to your project accounts gives you an accurate picture of equipment costs. This data is essential for bidding on future projects, as underestimating equipment costs is one of the most common reasons Kenyan contractors lose money on contracts they thought were profitable.
Building a Compliant Construction Accounting System
Setting up a robust accounting system for a Kenyan construction company requires attention to both operational efficiency and regulatory compliance. The goal is to have a single source of truth that covers project costing, payroll, tax compliance and financial reporting without requiring manual data transfers between disconnected systems.
- 1Configure your chart of accounts with project-level cost centres for each active contract
- 2Set up subcontractor profiles with withholding tax rates and certificate generation
- 3Implement a payroll module that handles both permanent staff and casual worker deductions
- 4Enable NSSF, SHA and Housing Levy auto-calculation for all worker categories
- 5Connect payment processing to track M-Pesa, bank transfer and cheque disbursements
- 6Activate project budget tracking with automated variance alerts
- 7Generate monthly KRA, NSSF and SHA returns directly from the system
