7 Bookkeeping Tips for Contractors
The more I talk to business owners in construction industry, the more I realize how much they are struggling with the financial records being scattered all over the place. And it’s mostly because they don’t have time and help. In construction industry, you have so many daily tasks to take care of and in that situation bookkeeping just has to become the smallest priority. Unfortunately, that can lead to missed profitability opportunities, overspending, problems with Uncle Sam and a lot of headache and frustration.
Here, I have gather a couple simple tips that you could consider and start today to help you with your bookkeeping.
1. Find the right software
The most helpful way to track your business finances, in my opinion, is having systems and automation processes in place. For that I highly recommend using the right accounting software. I am a little bias in choosing QuickBooks as I am QuickBooks Certified ProAdvisor. I find working in QuickBooks very simple and beneficial. For the best reporting, you could use QB Desktop for Contractors or you could just sign up for QuickBooks Online (they are constantly updating the software to add more useful features). On top of that there are many other apps and programs that are available for contractors that integrate with your main software. The ones that I personally recommend considering are Knowify and BuilderTrend.
2. Use the cloud
Cloud (online data center) is a secure way to keep your records organized and accessible from any location and device. No more paper stacks, lost receipts and cabinet files. You can snap a picture of your receipt and send it to your online storage system or integrate your Hubdoc (helps convert your paperwork into usable data) with QuickBooks for fast recording of a transaction. You can even hire a Cloud-Based Bookkeeping Professional that would help you with your business needs Remotely (a little advertisement right there). Another beauty of a cloud-based storage system is that the information is safe in the event of physical damage to the building or server.
3. Don’t Use Cash
By now you probably already have your business and personal finances separated. But please try not to use cash as well. It’s very hard to keep track of cash, lost receipts and lost track…It is safer to use a debit card or credit card.
4. Keep an eye on your Accounts Receivable
Contractors often than not have to deal with clients who are taking a long time to pay the bill. Don’t let the account go beyond 30 days. Old unpaid invoices will not help you pay your bills. To avoid cash flow problems, you have to constantly follow through with your unpaid receivables.
5. Recording job costs
One of the core parts that make construction bookkeeping complex is job cost tracking. If you are in construction business you have to track your expenses and earnings for each job separately. If you don’t, how would you know which job was profitable? It is way easier to compare your estimates to your actual costs and see what mistakes could be avoided in the future. By doing job costing you would know what specific projects the construction company should focus on and how to refine estimates to avoid under billing.
6. Track change orders diligently
There is a large percentage of projects that weren’t profitable because of missed or inaccurately used change orders. Change orders not only means increased revenue, but also cost recalculations and schedule adjustments. And all that done in the middle of dynamic project with several subcontractors involved. Needless to say, it can get messy fast! Communication, record keeping and good systems in place should solve this problem.
7. Review Key Construction Reports Regularly
Dynamic, constantly shifting projects require constant attention. Don’t wait until the project is almost done to pull up your financial statements. The best custom reports that you as an owner and your general managers and subcontractors can use are:
- Job Profitability Detail
- Job Estimate vs Actual Detail
- Profit and Loss by Job
- Item Estimate vs Actual
- Time by Job Detail
You have to stay in the loop about what is going on with your projects if you want to have meaningful results.
With messy financials, how can you confidently make decisions and ensure the profitability of your construction company? Let me know if you have any questions. More on each topic is coming in the next posts.