Starting a business of any variety takes careful strategizing, planning, and, perhaps most important, dedication to seeing all this planning through until your business is ready for launch.
One particularly trying area that may test your patience — particularly when working your ways towards becoming a construction contractor — is your bookkeeping.
Unless you have extensive experience in accounting, bookkeeping can seem like a confusing process and it’s hard to even know where to start.
And it’s essential that you understand best practices for bookkeeping, as failing to make sure that your books are accurate will not only make running your business difficult, but it will also come around to bite you come tax time. That’s because if you run into an audit and your bookkeeping is fuzzy, you may be looking at extensive fines, which can be detrimental to your business’s growth.
So, to make sure that you are feeling comfortable about your bookkeeping, here are some helpful accounting tips and tricks.
But first, let’s discuss what makes bookkeeping for construction tough.
Why Construction Bookkeeping Can Be Tricky
To illustrate just how tricky bookkeeping can be for contractors, let’s compare a typical construction job vs. services provided by a conventional business — like a clothing store.
With a clothing store, quarterly expenses will be the same for the most part. You’ll have your workforce, which may change occasionally based on seasonality or how your business is doing. Other operational expenses, like your utility bills for the store, will also be similar from quarter to quarter.
However, for a contractor, each quarter, each week, and each job itself can vary wildly in terms of operational costs and how much you’re getting paid for the service.
One job may require you to hire multiple subcontractors — for example, if you’re taking on a large remodel. While other jobs you can do on your own.
In other words, from job to job, your expenses and revenue are much more fluid.
So, to help you keep your ever-changing job costs from getting in the way of keeping your books nice and tidy, follow these helpful tips.
Construction Bookkeeping Tips For Contractors
Work With Someone Who Understands the Rules and Regulations
The most important thing to remember when it comes to your bookkeeping is that you don’t have to go it alone.
Instead of trying to get everything set up and kick this off on your own, consider working with an accounting expert or even bringing one on full-time.
An accountant can help you with structuring your business and advise you on how to most effectively manage your money.
You can also look to work with a bookkeeper — and many contractors do just that by outsourcing. There are some great third-party bookkeepers who can help you manage your books to ensure that they are correct and up to date.
Let’s talk about some of the benefits of outsourcing your bookkeeping.
Outsourcing — Why You Should Consider It
The important part about outsourcing your bookkeeping as a contractor is that third-party bookkeepers will still make sure that you’re involved in the process and are aware of what’s going on.
Here at 24hr Bookkeeper, we are always transparent with our construction partners because it’s essential that you understand what your books look like at all times.
We also understand that no two businesses are alike. Because of this, we’ll take the time to get to know your company, your goals, and find the right solutions to ensure that we streamline, automate, and simplify your financial processes.
Especially for businesses that don’t have the resources to conduct their accounting internally, outsourcing your financials will allow you to compete with your bigger competitors.
Starting Off Right: Follow These Steps When Starting Your Business to Get Your Accounting on Track
Incorporate Your Business or Form an LLC
One of the first things you should be doing early on in your business is deciding whether or not you want to incorporate your business or become an LLC. In fact, this should be done before you even start your first job.
For more information on the old LLC vs. Inc. debate, take a look at this helpful resource to see which is right for your business.
The good news is that no matter which one you with, you’ll be given liability protection.
Liability protection ensures that professional and personal assets remain separate. In other words, if something were to happen with a client — perhaps a contract dispute or an injury on the job and you are found in the wrong — they couldn’t go after your personal finances.
So, incorporating your business or forming it as an LLC won’t necessarily save you from losing money from your business, but it will save your funds, which is crucial.
Sometimes errors and accidents happen, and you don’t want to be caught without liability protection if that does happen to you.
Buy the Right Insurance
For the same reasons that you would want to incorporate your business, you should also make sure that you acquire the right insurance for your business.
Being a contractor can be a dangerous job. Not just in terms of the physical risks of working on a home, but from a legal perspective, as previously mentioned.
Take a look at this helpful list form Next Insurance to find out which insurance you should purchase to make sure all your bases are covered.
It’s important you acquire your insurance early, not only because it will help you avoid a nightmare situation if you’re caught without it in the event of an accident, but you’ll also be able to take into account the monthly or yearly cost of your insurance into your bookkeeping.
Organize Your Receipts
The earlier you start to carefully and consciously organize your receipts, the earlier you’ll get in the habit of continuing to do this throughout the year.
You may be asking, why do I need to hang on to my business receipts? All they do is take up space.
But business receipts are a very important part of your accounting — as they can give you valuable insight into where some of your money is going and what are some areas you maybe should try and limit your spending.
Also, if you’re ever audited by the IRS, receipts will serve as very valuable documentation of sales transactions and business expenses.
For example, if you’re looking for a tax deduction due to travel expenses, like gas, you’ll need to validate your claims with receipts if you are audited.
There are many different ways you can organize your receipts, but going paperless might be the most efficient and effective way.
To learn more about going paperless with your receipt cataloging, take a look at our 5 Foolproof Ways to Organize Your Receipts (Construction Accounting) blog.
Contact 24hr Bookkeeper Today to Optimize Your Construction Accounting
Interested in working with an experienced and knowledgeable accounting partner for your construction business?
Then give us a call today at 218-885-3100 to get started!
Here at 24hr, we offer the following services to help you improve your accounting:
Learn to use, understand and confidently navigate QuickBooks Online with one-on-one or group training.
We manage your financials in both QuickBooks and your construction software. We’ll handle accounts payable and receivable, payroll, reconciliations and review for real-time financials and job costing.
We bring your financials up-to-date, reflecting accurate and verified financial data. You’ll be able to produce all financial reports confidently.
Construction Software Integration
We integrate QuickBooks and construction software together for a streamlined workflow from estimating to project management to bookkeeping.
Workflow Advisory Services
We produce customized step-by-step financial manuals that identify financial management and workflows, including staff responsibilities and utilization of QuickBooks and construction management software.