Accounting and bookkeeping are tasks that many tradespeople push to the side. This is entirely understandable as your days are spent on the road traveling to different jobs, managing new contracts, and often dealing with last-minute emergencies. With every moment of your time filled with jobs and other admin tasks, it can be challenging to find the time to sit down and get your financial data in order.
However, you need to have clear visibility on your finances for your business to succeed. Staying up to date on your bookkeeping can help you do this and allow you to make the crucial financial decisions that will help grow your business. We’ve gathered eight of the most essential accounting tips that will provide you with the financial visibility you need and keep your books in line.
1. Keep your documents organized.
Many plumbers spend their days traveling around in company work vehicles. With all of the invoices and receipts that are a part of this industry, it can be difficult to manage them and keep them organized. It is essential that all of these crucial documents are recorded correctly on your accounting software and stored safely for future reference.
A cloud-based storage platform will allow you to manage your receipts and invoices and is much more efficient than having a physical storage process. Tools like Dext Prepare or HubDoc help keep track of these documents. You can simply take a photo of the document and the key information will be extracted and exported to your accounting software. A copy of the image will also be stored in the cloud, leaving a clear audit trail and eliminating the need for physical storage.
2. Stay up to date on your bookkeeping every month
As the owner of a plumbing business, you're often juggling several tasks at a time; between scheduling jobs and managing employees and dealing with customer service and marketing, it's no wonder that bookkeeping can fall to the bottom of your priority list.
Bookkeeping is a part of most businesses that often gets neglected until tax season rolls around. However, it's essential to keep your bookkeeping up to date through the year to have visibility on your cash flow and clearly see how your company is performing. It also means that you won't have to stress about catching up on your books when tax season comes.
3. Know your tax deadlines
Keeping your books up to date will also ensure that you know exactly how much sales tax you should be paying.
This will allow you to set aside funds ahead of time to pay your sales tax when it comes due. You should also know when your taxes need to be paid and make sure that you always pay them on time to avoid any late payment penalties.
4. Invest in an accounting software
When you first start up your plumbing business, you may be able to get away with using an excel spreadsheet to maintain your invoices and expenses. However, as your business grows, excel will no longer work and shouldn't be relied upon.
Instead, it is much better to use a cloud-based accounting software to reap the following benefits:
- You can easily access financial data while you're on the go. If you need to generate a report while at a job site, you can do so on your mobile device.
- A cloud-based program will automatically back up your essential financial data to the cloud.
- You can easily collaborate with other team members, bookkeepers, or your accountants.
- Cloud-based software integrates with other 3rd party tools for a smooth flow of data.
- Track your expenses and manage your payables.
- Generate and send invoices and payment reminders.
- Manage bank and credit card reconciliations.
- Track sales tax liabilities.
- Perform job costing and track job profitability.
5. Integrate your tools
Many plumbing companies rely on management software like Jobber to handle their bookings, scheduling, invoicing, and payments. Integrating your operations management software with your accounting software will ensure that clients, products, services, invoices, payments, and timesheet data sync directly, saving you time on manual data entry.
Other tools you can integrate with your accounting software include:
- Dext Prepare - This expense management software helps you manage all of your expenses by keeping them organized and in one place. Simply snap a photo of all your receipts and invoices, and Dext Prepare will extract the key information and export it to your accounting software. This creates a clear audit trail and eliminates the need for you to hold on to the hard copies.
- Plooto - Plooto is an account payable automation platform. It allows you to manage all of your accounts payables with your vendors and automates the entire process. With Plooto, you never have to worry about making a late payment again. You can easily set up the system to pay your bills for you on specific dates or predetermined intervals. The program will send you a notification, and with your approval, the payment will be sent.
6. Monitor your cash flow regularly
You need to have cash on hand to pay your employees, buy supplies, and keep your plumbing business running smoothly. Just because your business is making a profit doesn't mean you are cash flow positive.
For example, your plumbing business might be making a profit every month, but most of your money is tied up in receivables. This means that you won't have enough cash to pay your employees.
You need to monitor your cash flow regularly to determine if your business has sufficient cash to meet its obligations ahead of time. If you anticipate a cash flow problem, you may want to follow up more promptly on your receivables or reduce your expenses.
If your plumbing business has a positive cash flow, then you can think about settling debts or reinvesting in your business.
7. Review your financial statements
There are three key financial statements that require regular review:
- Income statement - Your income statement reports on your company's revenues, expenses, and profit. It can give you a better understanding of how profitable you are over a specific period and show you areas of improvement for your business.
- Balance sheet - As a business owner, you can use your balance sheet to review and manage the relationship between the money inside your company and the money you owe other people. For example, your balance sheet can help you figure out whether you can afford to invest in inventory, equipment, or a new team member. It can also help you ward off financial problems by highlighting when it may be time to reduce long-term debt or convert certain assets into cash.
- Cash flow statement - Most cash flow problems are the result of not being able to pay your debts when they are due. Therefore, it's not uncommon for small businesses to owe more than they earn from time to time. Fortunately, using cash flow statements to track the movement of money in and out of your business can help prevent many problems before they occur.
It is essential that you review your financial statements regularly so you can foresee financial problems before they happen, spot opportunities for growth, and identify areas for improvement in your business. While your financial statements tell the story of your company's past financial performance, the same data can be used to generate projections of how your business will perform in the future.
8. Keep track of your equipment and depreciation
You will have work vans and equipment like snake machines, drain inspection cameras, and hydro jetting machines to operate your plumbing business.
Your work vans and equipment are fixed assets that need to be depreciated over their estimated life every year. Fixed assets are equipment that helps you make money and should be accounted for and maintained properly. It is crucial to track their purchase costs and depreciation for audit and tax liability purposes.
Ensure that you don’t expense the cost of your equipment upon purchase because that will overstate your expenses for the current period and understate your expenses for future periods.
You should also avoid needlessly ordering duplicate equipment, which is expensive and can be a waste. Always have a good idea of your equipment inventory and where everything is being kept to ensure that you only have what you need on hand at all times.
While bookkeeping may not be your strong suit, it is necessary for the financial health of your business. Taking the time to manage your books properly and following some of the helpful tips that have been listed here can go a long way towards giving you good financial visibility and making running the business side of your company much easier.