With everything contractors like you need to do every day, including weekends and holidays, it's too easy to let crisp, timely Financial Reports go unread, and in some cases, you may not fully understand what they are telling you when you do read them.
Protect your construction business and reduce stress by avoiding these costly bookkeeping errors:
Mixing personal and professional finances
From day one, business owners should have a separate bank account to deposit their income and pay their business expenses.
It's also crucial to designate a business-only credit card. Come tax time; separate statements will make submitting claimable expenses quick and easy while reducing painful audit risk.
Letting accounts receivable slide
It's frighteningly easy to lose track of which customers have paid you and which clients are late. Implement a strict policy and schedule for tracking accounts receivable and pursuing unpaid invoices.
- Ask customers to pay at the point of purchase or no more than 30 days later;
- Contact clients to confirm they have received your invoice and to agree on a payment date;
- Follow up immediately when payment dates are missed; and
- Keep accurate, up-to-date records of each client's payment history.
Investing in a cloud-based accounting solution can make AR a breeze by automating your monthly invoicing – and contacting late payers with a reminder email.
Not tracking direct construction job for each job or project
If you want to know where you are making and losing money, you need to implement a system of Job Costing.
Not allocating overhead to jobs
For your Job Costing and Job Profitability Reports to be useful, you need a way to allocate overhead among jobs. Overhead generally refers to costs that benefit all jobs.
For Example:
- Office And Shop Rent
- Office Supplies
- Admin Staff Salary
- Officer Owner Salary
- Marketing And Advertising
- Consulting, Legal, And Accounting
- Other Overhead Costs
Not using tech to track your expenses
Tired of chasing down missing receipts and struggling to justify claims come tax time? There's an app for that! Our outsourced bookkeeping clients have mobile apps specific to their company needs that integrate seamlessly with QuickBooks or Xero.
Neglecting to strategize for long-term growth
Practical accounting means managing day-to-day finances while making provisions for future growth. Software and cloud-based solutions offer easy ways to track your financials, but they also generate reports and provide analytic tools construction business owners can use for future forecasting.
Familiarize yourself with the reports your software can generate to track long-term trends, identify and mitigate risk, and discover new ways to increase profitability. Talk to your accountant about which reports and metrics are most important for your particular business and how to utilize them.
Final thoughts
You don't have to go through it alone.
Construction business owners like you are rarely trained accountants. Don't try to manage your company's finances all by yourself.
Collaborate with a trusted professional, invest in quality IT solutions, and spend some time familiarizing yourself with relevant tools and trends.
You'll feel empowered, which is step one to forging a more love-filled relationship with small business accounting. If you need help avoiding these mistakes, fill out the form on the right and I'll be in touch with you.
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 sharie@fasteasyaccounting.com
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