Accounting and bookkeeping are tasks that many tradespeople push to the side. With every moment of your work time filled with jobs and other admin tasks, finding the time to sit down and get your financial data in order can be challenging. Bookkeeping strategies help you maintain visibility into your company's finances.
However, you need to have clear visibility into 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. Here are eight of the 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 travelling around in company work vehicles. With all of the invoices and receipts in this industry, it can be difficult to manage 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 a physical storage process. Tools like Dext Prepare or HubDoc help keep track of these documents. You can simply photograph 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, 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 you won't have to stress about catching up on your books during tax season.
3. Know your tax deadlines
Keeping your books current will also ensure you know exactly how much sales tax you should pay.
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, Excel will no longer work as your business grows 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. You can do so on your mobile device if you need to generate a report while at a job site.
- 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 accountants.
- Cloud-based software integrates with other 3rd party tools for a smooth flow of data.
Accounting software like QuickBooks Online and Xero are popular choices among plumbing businesses because they are user-friendly and easily accessible. These programs can help you:
- 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 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 onto 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 app will send you a notification, and the payment will be sent with your approval.
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 make a monthly profit, 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, you can consider settling debts or reinvesting in it.
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 determine whether you can 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 result from 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 to 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. Your work vans and equipment are fixed assets that must 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. Doing so 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 your business's financial health. Taking the time to manage your books properly and following some of the helpful tips listed here can go a long way toward giving you good financial visibility and making running the business side of your company much easier.
Cash Flow Strategies for Plumbing Contractors
For your plumbing business to stay in operation, you need cash on hand to pay your employees, purchase tools and equipment, and cover the other overhead costs. Focusing solely on sales is not enough. You need to dedicate some extra time to managing your cash flow to keep your business afloat.
Cash flow management is the process of tracking how much cash is entering and leaving your business within a particular period. If you are cash flow positive, it means you have more money flowing into your business than leaving it. A negative cash flow indicates that you have more cash leaving your business than entering. In this situation, you might not be able to afford your monthly bills and expenses – and in time, your business will not be able to operate.
Ideally, you should aim to be cash flow positive at all times. However, there might be seasonality in your plumbing business, or your cash collection process might not be optimal. Finding ways to boost your cash flow should always be a priority. Here are our top tips for boosting cash flow for your plumbing business.
1. Streamline your invoicing process
You can significantly improve your cash flow by making your invoicing process more efficient. The faster you invoice your clients, the quicker you will get paid.
You can enhance this process by generating your invoices immediately after a job is completed and sending them electronically to your customers so they receive them faster. You can invoice your clients using management software like Jobber or your accounting software like QuickBooks Online.
Ensure the invoice clearly states the services rendered, the payment amount, and the currency. The invoice should also include the due date and the required payment methods, such as credit card, pre-authorized debit, or cheque. You can further speed up the invoicing process by including payment links directly on the electronic invoice. This will allow clients to pay immediately.
2. Follow up regularly
Cash tied up in your accounts receivables is cash you could use to pay your employees and your expenses. You need to make sure that you follow up regularly on outstanding invoices so they get paid instead of becoming bad debt.
Following up on late payments can be awkward and time-consuming. However, you should still dedicate time each week to follow up with clients who are late on their payments. Making this a regular routine can help keep your cash flow healthy.
You can also use automated payment reminders. They are sent to clients a few days before their invoice is due and right afterward if payment hasn't been received.
3. Charge a deposit
If you are working on a long-term plumbing project, you can charge a deposit to your customers to help optimize your cash flow. If you need to purchase parts or tools for the project, charging a deposit upfront can help you offset these costs.
For example, suppose you are waiting for an electrician or general contractor to finish up their work to pass a plumbing rough-in inspection. In that case, this deposit will allow you to have some additional cash flowing into your business during the waiting period.
4. Create a cash flow projection
To have complete visibility of your plumbing business, you need to create a cash flow forecast of the estimated cash receipts (money entering your business) and cash expenditures (money leaving your business) that you expect during a specific time period. These forecasts can be made monthly, quarterly or yearly.
These forecasts will give you a good idea of when your business will be cash flow positive and negative. They will allow you to plan in advance for the months when your cash flow might be tight and make arrangements for these situations.
5. Cut down on operating expenses
Reducing expenses is one simple way to boost cash flow. Review automatic credit card payments, find less expensive substitutes for supplies, or find less expensive supplies to cut costs without compromising your plumbing business.
Reduce expenses through outsourcing
Outsourcing your non-core business tasks instead of hiring in-house can save you significant money. Tasks like payroll and bookkeeping can easily be outsourced to a third-party firm like Enkel. These outsourced teams can provide your plumbing business with the bookkeeping expertise you require at an affordable rate. You won't have to pay for benefits, deductions, and vacations.
Maximize your tax deductions
You can also hire an accountant to prepare your taxes during tax season. If your books have been kept accurate and up-to-date, your accountant can easily identify tax deductions for your business, allowing you to save money by paying less income tax.
Migrate to subscription-based software
Switching from desktop software to a cloud-based program can also help you minimize expenses. Use cloud-based accounting software instead of desktop accounting software.
Cloud-based programs usually charge a nominal monthly fee, while desktop programs require a significant upfront investment. This means you have to invest much more money upfront instead of paying for what you use each month.
6. Negotiate longer payment terms
Delaying payments to your suppliers can help improve your cash flow, but you need to find the balance between paying as late as possible and not incurring expensive interest charges. This requires you to stay on top of your payables and invoice due dates.
You can use a platform like Plooto to schedule electronic payments to your suppliers. This will allow you to hold back payments as late as possible without them being overdue, keeping your cash flow and vendor relationships healthy.
Bookkeeping Software for Plumbing Contractors
Some of the best accounting software and tools for your plumbing business include the following:
1. QuickBooks Online
When you first start your plumbing business, you may be able to get away with using Excel to manage your expenses, sales data, and payment records. However, as your business grows, Excel can be cumbersome and may not provide the accuracy your business needs.
Utilizing a cloud-based accounting software like QuickBooks Online makes managing your business' financials easier.
Plumbing contractors involved in residential and commercial new construction have QuickBooks reporting needs that may include work-in-process, job deposits, change orders, progress billing, payment applications, and retention tracking. Plumbing contractors involved in residential remodelling and light commercial tenant improvement have one set of reporting needs while those in service and repair have a completely different set of reporting needs.
Fortunately, QuickBooks Online allows for complete customization of reporting depending on the type of plumbing business you are running. The top QuickBooks Online features that are great for plumbing contractors include:
- Projects: This program can keep all job-related information, such as invoices, expenses, estimates, payments, timesheets, bills, and reports all in one place. It can also easily track your profitability on individual projects.
- Invoicing: You can send customers invoices and set up automatic payment reminders when invoices are almost due.
- Reporting: With QuickBooks Online, you can quickly generate profit and loss statements, balance sheets, receivables listings, payables listings, and cash flow statements.
- Third-party integrations: This program integrates with some of the most popular plumbing apps like Jobber, Service Titan, HouseCall Pro, and more.
2. Jobber
Jobber is a great end-to-end solution for managing all of your jobs in one place. This program can do everything from managing online bookings to creating quotes, assigning and scheduling jobs, invoicing customers, and accepting payments.
Its invoicing tool is beneficial for your plumbing business, and it can:
- Automatically send out invoices to customers via email after a job is done. This means faster payments and an improved cash flow.
- Collate paper invoices for customers that prefer snail mail and generate envelope labels for you to print.
- Easily track invoice statuses to see which are sent or outstanding and which still need to be sent.
- Integrate with QuickBooks Online, so you don't have to enter invoices into your system twice manually.
3. Dext Prepare
Much of your time is likely spent working on job sites as a plumbing contractor. You may have to purchase last-minute supplies for a job, gas up the work van, or buy coffee to fuel up your team. All of these receipts and invoices are expense documents that need to be recorded on your accounting software and stored safely for audit purposes. Unfortunately, it can be hard to organize all this paperwork when you're on the road. Small receipts can easily get lost or misplaced.
A good way to manage your expense documents is to use Dext Prepare. Dext Prepare is a valuable program that allows you to take a photo of your receipts or invoices when you get them, upload the image to the mobile app, and all of the pertinent information will be extracted from the image. You can then review the information, code the transaction, and export it to your accounting software.
The image of the document will also be saved to the transaction, leaving a clear audit trail, so you don't have to worry about losing them or having to file them away in a filing cabinet.
4. Plooto
Plooto is a program that can help you streamline your payables process. You don't want to miss a payment deadline because timely payment is vital for maintaining a good relationship with your vendors. You also need to always make sure that you pay on time to get the supplies and materials you need.
Plooto automates your accounts payables process by allowing you to set up recurring payments to pay regularly and authorize all payments with the click of a button. This ensures you never have a late payment again and simplifies your accounts payables process.
Using the right tools will help get the job done faster and more accurately. By utilizing this technology and streamlining all of your processes, you can ensure your plumbing business is set up for success. Enkel can help your plumbing business. We provide outsourced bookkeeping services to help you keep your finances and cash flow in check, saving you both time and money. Contact us today for more information on what we can do for you and your plumbing business.
