On the accounting episode of the Rocket Roof Show, Andy Near’s guest Donna Febus of Integrity Business Advisors focuses on business profitability and so much more. Donna helps her clients in an advisory role by providing clarity to numbers and strategy. Her effort is to help businesses reach their goals, create the roadmap for getting where they want to be, and plan marketing and sales strategies for success.
Throughout their conversation, it is focused on the fact that Andy, like many other contractors, knows how to make money, but not necessarily how to do the back end and manage it properly. As a business owner, you have to look at your business as a whole. While you should know about your products and services, you should also have a firm grasp on accounting, payroll, and taxes. If you don’t have someone you can trust or are lacking when it comes to accounting, it’s time to invest in these tools to create success.
Some newer contractors, and even more established ones, are notorious for not billing their clients regularly. This creates a predictable problem — the customer was never invoiced but payroll is due. You can likely see where this is going. It leads to unnecessary credit card debt, instead of what should be steady cash flow. It will also lead to problems when it comes time to pay taxes. The first step in doing your accounting is getting paid! Stay current and if you don’t have time, find someone to help.
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Other vital accounting tips
Job Costing:
Did your job make money? Without proper job costing, you’ll never know. You will want to capture all costs, including materials, travel expenses, payroll, and the like to ensure that your job is profitable. If not, you can adjust your bids moving forward, but proper job costing can save you money in the long run. Be sure to job cost each project individually. Keeping structure is vital.
Should you outsource?
Find help and support through hiring an outsourced accountant. While you will pay a higher price for expertise, it saves you with their efficiency and expertise. Plus, they have their own office space, equipment, and insurance, so you won’t have to worry about additional overhead.
If you’re considering hiring someone to be in your office you’ll get the benefit of exclusivity. They won’t be working for you and a handful of other companies, but they’ll expect a regular salary. However, an on-site accountant will not carry Errors and Omissions insurance themselves but would be covered under your company insurance.
Experience and inexperience:
Do you know the difference between a bookkeeper and an accountant?
Having an internal bookkeeper doesn’t provide your business with a full range of experience or education as an accountant or CPA. Your business is required to file the appropriate taxes, and you’ll want to review trusted financial reports, if you hire someone without complete knowledge you could have a huge problem with the IRS in the near future.
A good accountant won’t just manage numbers but will help you understand your reports. You want to make sure whoever you hire is transparent, trustworthy, and you have checked references and samples of accurate work. And don’t be afraid to do a background check!
Regardless of who you hired, whether internally or externally, bookkeeper or accountant, you’ll want to have your eyes on your reports on a regular basis. Hold them responsible for their work, check-up to make sure that everything is accurate. After all, if you don’t know how much is in the bank, you can’t pay your bills.
Be proactive to avoid getting taken advantage of.
Regular insurance audits
As we all know in the construction industry, your insurance company will regularly audit your company to ensure you not only have the right coverage. Protect yourself and your business by keeping controls in place. When the time comes for an audit, you’ll want to ensure that you have easy access of all your financial statements. This includes everything from subcontractor pay to payroll, sales to accounts payable. Whoever you hire should be able to easily prepare these financial statements and make insurance audits a breeze.
Cash forecasting:
Our guest Donna likes clients to have a 12-week outlook and back it up in 2-week increments when looking at the operating cash. She suggests setting a day on the calendar at least once a month to look over financial reporting. Since no one can predict when an economic downturn might happen, it’s always best to be prepared, and over prepared.
Look at your company revenue not as a paycheck, but as the backbone of your business. If you continue to spend all your profit on fancy trucks, equipment, and unneeded purchases, you might find yourself struggling to keep your doors open.
When you’re looking for ways to increase profits, there are only two key factors to help guide you: 1. Raise sales/revenue 2. Cut expenses.
You can work lean and don’t have unnecessary expenses. Explore options to keep as much cash in your accounts as possible and put a percentage into savings. Set safeguards like counting inventory at the end of each week that can help prevent tools from “walking away” or being lost. While an initial small loss might not seem like much, multiple small losses add up to potentially thousands of dollars by the end of the year.
In conclusion
Don’t be overwhelmed. There are many software options available that can help you. But no matter what, you should be looking at profit/loss statements and other financial reports at least once a month. This will help you make informed decisions about your business.
Additionally, make sure you are the first person to get paid. You are not in business to work for free. If you’re in a situation where you aren’t making money, look at your financial reports and determine why. Keep adequate capital, do not run up the debt by charging on credit cards, and never run personal and business checking accounts together.
Finally, hiring a professional accountant is a good investment for your business. They’ll help you put safeguards in place to keep your business operational.
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