565: DIY Construction Accounting Errors And Ways To Improve Your Practices

Contractor Success Map with Randal DeHart | Contractor Bookkeeping And Accounting Services

This Podcast Is Episode 565, And It's About DIY Construction Accounting Errors And Ways To Improve Your Practices

Many small construction business owners tend to handle their accounting and bookkeeping, especially when they've just started. However, keeping track of the finance side of the business– everything from income to expenses to tax compliance– can be overwhelming.

Mistakes can happen quite quickly and can have costly consequences for your business. Below are five of the most common Do-It-Yourself accounting errors you should avoid.

1. Unorganized Records

It takes excellent organizational skills to do your bookkeeping and accounting right. You must record every transaction, keep receipts or digitize them for future reference, calculate taxes accurately, and more. If your records are not kept organized and updated, you'll likely miss something, which could get you into trouble during the tax season.

2. No Accounting Schedule

As a construction business owner, there are many other things you need to attend to, and accounting can easily be pushed to the bottom of your seemingly endless To-Do list. Yet, setting an accounting schedule to add your recent income and expenses into your records is extremely important. If daily updating is not possible, at least dedicate some time once a week to do your accounting.

3. Unreconciled Accounts

Regularly check if your bank account reflects the same balance as you record your cash flow and other financial data in your books. If you find a gap, there is likely a mistake somewhere that you need to find or even a fraudulent transaction. Taking immediate action will help you prevent worse problems further down the line.

4. Failing to Take Into Account Small Transactions

It can be easy to forget about minor transactions, such as the office supplies you picked up on your way to the office or the freebie you sent a loyal customer. However, no matter how small you think the transaction is, keeping a record and getting a receipt is essential. In case of a tax audit, you will need to be able to present records of ALL business expenses, even these small ones.

5. Not Backing Up Data and Using Accounting Software

Imagine if the laptop where you store all your financial data was stolen, lost, or broken beyond repair, and you don't have a backup. You need to redo everything from scratch, which could be a massive waste of time.

If you're still using a spreadsheet or paper ledger to keep track of your business finances, you might consider upgrading to a cloud-based accounting software such as Xero or QuickBooks. By migrating to the cloud, you can easily back up your accounting data and access them wherever and whenever necessary.

These cloud-based accounting systems integrate well with your bank account and other valuable construction business apps. The results are streamlined processes, less manual work, enhanced efficiencies, and better overall business performance.

Spend Less Time on Your Books and More Time on Your Business

While being aware of these common accounting mistakes could help you avoid them, the most convenient and efficient way to stay on top of your business finances is to entrust your accounting to the experts. Our team of experienced accountants can integrate the most suitable cloud accounting software for your business and even train your in-house staff on its proper implementation.

I admit that small business owners - like myself have learned to make the most of our resources. As an entrepreneur, I tend to take on the challenge of wearing multiple hats, managing your business, answering phone calls, responding to emails, and scheduling appointments. However, I am reminding you now that being a construction company owner and doing your accounting and bookkeeping requires a different skill set from being a construction expert in your field.

When it comes to your financials, it would be wise to take a step back and let someone specializing in bookkeeping do it for you. Ensure that they are not just accountants or bookkeepers; they are construction bookkeeping and accounting professionals.

Still contemplating whether to outsource or do it yourself? Here are the questions to determine which one is right for you:

Do I have experience in bookkeeping and accounting?

Outsource: Working with a knowledgeable and experienced bookkeeper specializing in your industry will save you time setting up your system and processes, making it easier to get started.

DIY: You may have a bit of a learning curve. Start by familiarizing yourself with construction bookkeeping and accounting processes. Create a system and an everyday routine for managing your paperwork.

What kind of software and applications should I use?

Outsource: Your construction bookkeeper will be able to help you determine which accounting software will work best for your business, provide you with extensive training and support, and share tips and tricks on optimizing it.

Fast Easy Accounting supports several different software and applications. In particular, QuickBooks or Xero for construction depends on how you get paid, the work your company does, and if you need Job Costing.

DIY: This is where it gets tricky. As I have mentioned, using a particular software depends on your contracting business, what you need out of it, and how much time you are willing to devote to learning and using it. Remember that using more popular and in-demand software and applications has a significant advantage in case of issues. Tech support should be readily available; if not, a quick Google search can lead to video tutorials and community answers.

How do I generate Financial Reports?

Outsource: Contractor Financial Reports such as Profit and Loss, Balance Sheet, Cash, Receivables, Payables, Job Costing Reports, and Job Profitability Reports all depend on proper bookkeeping set up from Day 1. It's easy to pull a report based on the entries and use it whether you want to understand when and where you are making money or you need to present your financials to the bank or CPA.

DIY: It is easily accessed and generated from your accounting software. The real question here is, how reliable are your reports? For instance, a generic chart of accounts with your QuickBooks software is not customized to your construction business needs; thus, transactions are often assigned to improper categories, resulting in inaccurate reports.

Final thoughts

We offer construction bookkeeping and accounting solutions at our online store. We have QuickBooks and Xero setup templates for those who would like to do their own bookkeeping; we have packages available to choose from when you need to outsource it to us or opt to have an in-depth review of your current bookkeeping setup.

Let us take charge of your books while you focus on growing your business. We help a little or a lot, depending on your needs. I look forward to being able to assist you with any option that best fits your construction company.

PS

We offer free resources to help you save time and money that you can download and print now.

About The Author:

Sharie DeHart, QPA, co-founded 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 managing 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 [e-mail]