You’re a Construction business owner and you want to do your own bookkeeping, however, you don’t have the foggiest idea how to do it. Consider this your bookkeeping 101 course. Here at Working Numbers, we’ve done the books for many construction, home services and other small contractors and we have it down to a science for this industry. Bookkeeping can be the difference between thinking you’ve made a profit and actually making a profit, so doing it right is very important! Aside from making more money, bookkeeping can help you accomplish important things like getting loans, taking on investments, and generally growing your business. Plus, when your business grows to the point of needing a professional bookkeeper, it will be very simple to hand over the reins when you have well managed books.
Top Reasons Bookkeeping is Important to your Construction Business
Possibly the biggest reason bookkeeping matters to your business is the tax deduction. You’ll catch more tax deductions when you record and categorize every transaction. You’ll be able to see which expenses are tax deductible, so that nothing falls through the cracks; think the car rental for your out-of-town builder’s conference or the table rental you added on at a trade show, even a quick cup of coffee with your client. All those potential deductions, big and small, add up. With bookkeeping, you can track them all.
When you want to expand your business, sometimes it’s necessary to take out a loan or even a line of credit. The banks are going to want more than your last bank statement- they are going to want to see your expenses and revenue. This is called your income statement and it will be easy to generate when you have good bookkeeping in place.
Bookkeeping can help you see where your money is going. If you want to plug up any holes – like subscriptions or services that you don’t use, you’ll spot them right away with bookkeeping so you can address them. You’ll also be able to see, historically, when you take in more income or less. This helps you to plan and budget for low seasons as well.
Lastly, if the IRS comes knocking, keeping good books is a protection against a protracted legal procedure. You won’t have to wrack your brain trying to remember what you did three years ago – you’ll simply refer to your books and the answer will be there. You’ll have also developed the habit of keeping receipts and documenting all your deductions so you can more easily justify your tax returns.
First Steps in good Bookkeeping
Before you do almost anything, you need to separate your personal money from your business money. Things get very complicated when you are paying business expenses from your family account and vise versa. Even things like lunches and gasoline should all be paid from your business account when it is business related – and only business related. Don’t try to write off your well-deserved caribbean vacation as a business expense.
Double entry accounting is the gold standard if your construction business is not a one man show. Single entry accounting just takes into account everything you paid and everything you brought in. It doesn’t work well when you have employees, loans, depreciating assets and all those complicated matters you would hire a bookkeeper to figure out for you. Instead of the simplistic expenses and payments – you’ll be using credits and debits in double entry accounting. It may give you a double headache. If that’s the case – get a free consultation with Working Numbers. We can help you understand what you should be doing and you can determine if you want to do it yourself.
How are you going to keep your books? Are you going to use the 19th century paper register and shoebox – quaint! Or are you going to up your game and use Excel and your smartphone scanner? Either way, you are responsible for manually inserting all your income and expenses, by hand, every time. This is pretty labor intensive – especially if you have a lot of transactions. If you have a very small construction or home services business, that does under 20 transactions (income and expenses both) per month, it’s logical not to pay for software, like Quickbooks, to do the heavy lifting for you. If you are a larger sized company, have many transactions or employees – you’ll want to invest in software to help manage and organize your bookkeeping plus wrangle all the receipts. If you want Working Numbers to quickly set up Quickbooks for you – contact us. We’re happy to help you get off on the right foot and learn how to use the software to its maximum benefit.
The most important step in bookkeeping for your construction business is consistency. Bookkeeping doesn’t work if you don’t stick with it. You can use tools, like Quickbooks, to make sticking to it a whole lot easier or buckle down and keep each receipt and log every transaction in paper or digital books. Whatever bookkeeping system works for your business, do it and do it every time. Gaps in your bookkeeping don’t just make your books a mess, they can impact your ability to get a loan, fight the IRS, or just bring home more money – period. It does take some time, but basic bookkeeping is a key part in operating a successful business that’s profitable. If your construction or home services business needs help – let the experts at Working Numbers get your books organized.