Restoration bookkeeping: claims, carriers and deductibles

A restoration company does the work for the homeowner and gets paid, mostly, by someone else. The carrier approves the scope, the adjuster argues the line items, the mortgage company co-signs the check, and the homeowner owes a deductible that nobody enjoys collecting.

That makes restoration books different from almost any other trade’s. The question is not just “which jobs made money” but “how much of what we are owed is actually coming, from whom, and when.” Books that record a claim as one invoice to one customer cannot answer it.

Split mitigation from reconstruction

Most restoration companies run two businesses under one name.

Mitigation — extraction, drying, demolition of wet material, mold and fire cleanup — is emergency work, heavy on equipment and labor, billed quickly and usually approved with less argument.

Reconstruction — putting the house back — is construction: longer jobs, subcontractors, materials, change orders, and the same margin risks any remodeler carries.

They earn differently and collect differently. Separate income accounts or classes for each, with costs following the same split, is the minimum. Without it you cannot tell whether the rebuild side is profitable or whether mitigation margin is quietly carrying it.

Receivables by claim, and by payer

A single claim often has several people who owe you money:

• The carrier, for the approved scope
• The homeowner, for the deductible and any upgrades beyond the approved scope
• Sometimes a second carrier, or a supplement approved later

Recorded as one receivable, those blur together, and the homeowner’s share is the one that goes uncollected — because everyone assumes it is coming with the insurance money. It is not. Track receivables per claim, split by who owes each part, and chase the deductible at the start of the job rather than at the end.

Depreciation holdback

On many replacement-cost policies, the carrier first pays the actual cash value and holds back the depreciation until the work is done and documented. That holdback is real money you have earned, released only when the final paperwork is submitted.

It behaves like retainage, and it gets lost the same way: nobody tracks it, the job is closed, the certificate of completion never gets sent, and the money sits with the carrier. Record recoverable depreciation as its own receivable per claim, with the condition for release. See retainage explained — the discipline is identical.

Checks with three names on them

Insurance payments often arrive as checks made out jointly to the homeowner, the mortgage company and you. Endorsement can take weeks, particularly where the lender has its own release process for large claims.

The books should show payments received but not yet endorsed or released separately from money in the bank. Otherwise the receivable looks collected, the bank balance says otherwise, and cash flow planning is working from the wrong number. Put the expected release dates in your cash flow forecast.

Equipment is the mitigation business

Air movers, dehumidifiers, air scrubbers, extraction units, moisture meters, trucks. Mitigation margin depends heavily on how much of that equipment is working on billable jobs at any given time.

Two things are worth tracking beyond depreciation, which is your CPA’s job:

• Equipment days billed against equipment days owned — a utilization figure that tells you whether to buy more or stop buying
• Consumables per job — antimicrobials, containment materials, disposal — coded to the claim rather than to general supplies, because they are billable and frequently forgotten on the invoice

Program work and referral fees

Preferred vendor programs and third-party administrators send volume, and they take a fee for it or impose pricing. Record the full revenue of the job and the program fee as an expense, not a smaller net amount. Recorded net, program work looks as profitable as direct work and you lose sight of what the program actually costs you.

Rebuild: run it like construction

The reconstruction side needs everything any contractor’s project work needs: job costing, subs with W-9s and insurance certificates, lien waivers where they apply, change orders — here usually supplements — tracked from submission to approval, and a WIP schedule once jobs run longer than a month.

Supplements deserve particular attention. A supplement that was submitted but not yet approved is not revenue. Keep a list of pending supplements by claim and chase it weekly, because a large share of restoration margin lives in them.

Where assignment of benefits and state rules come in

Some restoration companies work under an assignment of benefits or a direction to pay, which changes who collects from the carrier. Several states have restricted or regulated these arrangements in recent years, and the rules differ considerably. If yours is affected, get current local advice — and make sure the books reflect who the receivable is actually owed by.

Related

• Construction bookkeeping, step by step
• Insurance vs retail work in roofing
• When a customer will not pay
• Demolition bookkeeping: disposal, scrap and equipment

General information, not legal or tax advice. Insurance payment practices and state rules on assignment of benefits vary.