Why is bookkeeping important for contractors?
Bookkeeping is important in any business, but tracking profitability is the most important factor for contractors. With multiple man hours and numerous materials and expenses going into every job, it is easy to lose track of how much money you are making on a project if you’re not careful.
We have worked with many contractors who did not realize that they were losing money or breaking even on most or all of their jobs. They always had money in the bank as long as a new job was starting, but they were not accumulating the profit and savings needed to grow their business or retire.
Contractors with poor record keeping often also forget to invoice for parts of their work. If they are not tracking change orders or small jobs, they can end up doing work for free.
Despite the importance of bookkeeping, we see many contractors struggle with this aspect of their business.
The most common problems they face include:
Lack of Trained Staff
Many contractors simply do not have trained bookkeepers on their staff. They end up trying to do the work themselves or get a spouse or family member to help. This is a recipe for frustration and an accounting nightmare. We recommend either hiring an in-house bookkeeper or working with a company like BlueSpark.
High Accounts Receivable (Money owed to the company)
We see a lot of contractors with high accounts receivable (AR) or money owed to them by clients. The best way to get in front of this is by clear, consistent, and quick invoicing. The faster you can get an accurate invoice in front of a customer, the faster they can pay you.
No Expense Tracking
Due to the many complexities involved in contracting, expense tracking can fall through the cracks. This is a problem because expense tracking can reduce tax liabilities and it is also crucial to understanding your overall profitability. We recommend using mobile apps like QuickBooks Online to scan and track receipts from your phone.
One easy way that contractors can improve their profitability is by keeping track of their time. Time-tracking can help you invoice effectively or see where you are spending too much time. Time-tracking apps like T-Sheets are easy to implement and integrate seamlessly into QuickBooks Online.
As mentioned, tracking profitability is the biggest challenge for most contractors, and the best way to do this is through job costing. When you job cost, you allocate all expenses and income related to a project to a specific job or folder in your accounting system. That way, you can review reports on just that job to see how much money you have made or lost. In QuickBooks Online Plus and above, you can do this though the Projects feature.
Accept Credit Cards
One final, easy-to-implement, tip for contractors seeking to improve their financial operations is to accept credit cards. Accepting credit cards has never been easier, and it is the preferred method of payment by most consumers. Programs like QuickBooks Online allow you to accept credit cards right on your invoices. Providing additional payment methods improves customer experience and makes it easier for you to get paid.
Although the tips in this article will apply to many contracting businesses, every company is unique and has their own needs. If you would like to discuss your unique business needs with a certified bookkeeper, schedule a free online consultation today.