Accounting is a crucial facet in every industry because it allows you to keep track of your profit and expenses. With this, you ensure that you have more money coming in rather than going out, which will prevent your business from failing.
The process is relatively straightforward for retailers that sell products because they have fixed overhead and product costs. It’s different for contractors, though, since you have to consider how much to charge for labor along with the supplies that you source.
Here are some accounting tips for contractors in high-demand industries to help you manage your business better:
1. Invest in Accounting Software
The first thing you should do upon starting your venture into construction is to find accounting software that has all the features and functions you’ll need for your company. This app or program should allow you to create invoices and quotes with ease.
Moreover, Quickbooks for contractors, one of the top software in the industry, has additional features like payroll and tax management as well as budgets and forecasts. These functions streamline your accounting process to keep your operations more efficient.
These are the features that you should look for in a contractor accounting program:
- Job Hours Tracking – Some projects take thousands of hours to complete. The software you purchase should allow you to track the time that has been billed along with the hours that haven’t been paid yet. This way, you don’t miss compensation for you and your workers’ labor.
- Advanced Filters – Working with large companies entails waiting for their departments to approve payment for your services. Your accounting program must enable you to sort through the unpaid bills by project so that you can send a follow-up to clients accurately and timely.
- Rate Customization – Another main difference with construction accounting from retail is that you have to consider the project’s difficulty and employee’s skills when compensating them. With this, you should be able to assign different billing rates to workers on your accounting software.
While accounting can be done manually by your staff, doing so not only takes more time and effort from your workers, but the tedious task can drain them mentally and emotionally. By investing in the appropriate software, you empower them to focus on processes that utilize their mental capabilities to the fullest.
2. Set Up Different Bank Accounts
As a contractor, you’ll be handling funds for receivables, payroll, and expenses. You should have separate bank accounts for each category. This way, you can accurately monitor the amount of money that comes in and out.
The primary bank account is where you deposit all of your clients’ payments. Then, you should transfer funds from that account to the one for your paying your employees. Don’t attach credit or debit cards to the second account to prevent payroll fraud.
The last bank account is for petty cash. You can link a debit card that your workers can use to purchase necessary items on the field.
Having a separate account for your petty cash allows you to put a limit on how much your employees can spend per project. Also, don’t give out the PIN for the cards.
3. Monitor Your Expenses Religiously
Record how much you’re spending on supplies and labor for each project as timely as possible. Keep track of receipts and input the details on your accounting software so that you have a running list of the expenses that you’ve accumulated for a single client.
4. Categorize Costs Accurately
Construction accounting entails monitoring the expenditures for each project. Typical costs include service work, labor, designing, engineering, consulting, and the price of physical materials.
Moreover, each category, aside from incurring direct job costs, also have indirect charges. These factors must be considered and charged accordingly.
5. Create Backups of Your Files
Always scan your receipts and keep digital copies of your paper documents so that you still have a way to view your records, even in the unfortunate case of a fire or break-in.
On top of that, you should also have backups of your computer files on the cloud to combat hacking or cyber-theft.
Accounting for contractors is more complicated than that of retail businesses. That’s why you should invest in software that can help you streamline your process as well as track your receivables and expenses by allowing you to categorize costs accurately.
Set up separate bank accounts for your profit, payroll, and expenditures. Moreover, don’t forget to create backups of your files both in physical and digital forms so that you still have access to your records even in unfortunate events.