Dec 20, 2019
1. Mixing business and personal
All too often, contractors adapt a "buy now, sort later" approach to expenses, using the same credit card for personal and professional purchases. At the end of the month, they're left poring over statements, trying to sort things out. Mixing business and personal expenses cost extra hours of bookkeeping each month and muddles your overall financial picture.
Avoid this pitfall by using a separate credit card and bank account for business, and being disciplined about separating expenditures.
2. Neglecting to track reimbursable expenses
Receipt-tracking is a necessary part of business ownership. You need to keep track of receipts to understand spending patterns and effectively manage your company's finances. And if you want to claim deductions at tax time, you'll need to submit receipts along with your tax return.
But far too many business owners take a haphazard approach to collecting and organizing receipts—especially while on-the-go, where a whopping 50% of their expenses are generated. Get the deductions you deserve and simplify tax prep by using an expense-tracking app.
We have a directory of additional resources of apps and software for contractors that can record mileage, billable hours, and other expenditures, as well as generate expense reports. Plus, many of these apps sync seamlessly with your business bank account and accounting software.
3. Not taking advantage of technology
Are you still relying on manual accounting methods? While basic spreadsheet tools can get the job done, they leave the door wide open for human error. Mortgage loan giant, Fannie Mae, once uncovered a $1.1 billion error on their Excel spreadsheet, citing "honest mistake" as the cause.
What's more, manual methods can't match the technological benefits offered by software like QuickBooks or Xero. These systems track invoicing, link with your credit card and business account, organize expenses, and generate insightful financial reports.
4. Not keeping accounts up to date
Let's be frank. Most construction business owners don't look forward to that weekly appointment with "the books." Many entrepreneurs cite bookkeeping as their most dreaded responsibility and will find a host of reasons to avoid it.
5. Doing it all yourself
It is entirely understandable for budget-conscious entrepreneurs to try to cut costs by handling bookkeeping on their own. However, taking advantage of professional help—even on a part-time basis—can generate substantial savings of time and money over the long term.
"Outsource your weaknesses." So says start-up guru, Sujan Patel, when advising small business owners to get outside help for tasks like payroll and bookkeeping. And when you consider that 70% of businesses fail due to poor in-house financial management, Patel's advice seems spot on.
Unfortunately, many small business owners seek to keep costs low by doing everything themselves— unwittingly sabotaging the financial stability of their own company. If numbers aren't your strength and you would instead focus on building your business, it's time to hire a bookkeeper.
Here are four ways to ensure that you find the right fit.
The nuances of bookkeeping vary from one corner of the market to another. When assessing candidates, it's important to look not only at total years of experience but also at the relevance of that experience. As an example, your business is in construction and home service repair and maintenance, a bookkeeper who has primarily worked in the retail industry won't have the insights into your industry that can add value to your work together.
In addition to a degree or diploma from a recognized institution, your bookkeeping candidate should belong to a professional bookkeeper association. Most associations test applicants to verify their technical skills and theoretical knowledge to protect and further industry standards.
Many associations require members to earn a credential, prove a high standard of proficiency, and continue to improve their skills through ongoing professional development.
Construction business owners must have open, effective communication with their bookkeeper. You will need to sit together each month to review key financial reports, such as the profit and loss statement, balance sheet, and cash flow statement. A competent bookkeeper should be adept at explaining and breaking down complex accounting concepts in accessible ways, so you always have a clear understanding of your financial position.
During the initial process, ask them to explain a few key concepts, like gross and net profit, job costing, or deferral transactions. Strong communicators can make the abstract easily digestible –precisely what you need in a prospective bookkeeper.
When you hire someone to look after your books, you place a considerable amount of trust in their integrity and trustworthiness. But how does one evaluate these character traits during a consultation?
The best approach is to ask open-ended questions that get them talking about the ethical challenges they've faced in the workplace, such as:
The bottom line is that outsourcing a bookkeeper is about much more than finding an able number-cruncher. The person (or company) you choose will be an integral part of your business success. Having the right bookkeeper for your Construction Company is the key to saving time, money, and energy that is better spent on more valuable opportunities. Look holistically at their technical skills and character to find your ideal match, and you'll gain a valuable professional ally for years to come.
About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or email@example.com