As an HVAC business owner, you are well educated and trained in dealing with heating and cooling systems. You have spent years apprenticing to learn precisely how to install and repair all of the crucial HVAC equipment that homes and businesses rely upon to get them through the changing seasons.
Since most of your time is spent on HVAC-related issues, your bookkeeping knowledge may likely be lacking. Because of this, your books may get pushed to the side and may not always be up to date. This means that you won't have access to the financial data vital for your business's health and wellbeing of your business.
Following our six accounting tips to gain full visibility on your HVAC company’s financial health!
1. Keep your books up to date
Bookkeeping is an important task that often gets neglected until tax season rolls around. When this time comes, you may find yourself feeling anxious as you try to catch up on a year's worth of bookkeeping.
You must keep your books current throughout the year so that you always have visibility on your business's cash flow and overall financial performance. It is also essential to track all of your receipts and invoices in your accounting software, and if you have any billable expenses for clients, you need to make sure they are recorded on their invoices.
Having your books up to date will give you peace of mind when tax season comes because you won't have to stress about catching up on your bookkeeping. It will also provide you with insight into how much sales tax you need to pay when the deadline for sales taxes is due. This means you will avoid paying penalties on inaccurate calculations.
2. Review your financial statements regularly
You need to have some fundamental accounting knowledge and understanding of the various financial statements to get useful insights about your business. Learning how to read your income statement, balance sheet, and cash flow statement is critical to making sound financial decisions.
Your Profit and Loss statement tells you about how profitable your business is. It can also be beneficial to compare it to your P&L from previous months to identify trends and seasonality in your business.
Balance sheets are a great way to take a snapshot of your HVAC company's financial statements. You can see all of your assets, investments, equity, and debt from this. One of the most important items for you to note on your balance sheet is your cash. You need to ensure that your company has sufficient working capital to meet its short-term liabilities.
Another key statement to review is your cash flow statement. Even though your income statement might show that your business is making a profit, your cash flow statement will show whether your business is cash flow negative or positive. Ideally, you'd want to ensure that your company has sufficient cash flow to keep the lights on. Therefore, you should interpret your cash flow statements together with your P&L and balance sheet.
Monitoring your financial statements every month will give you an overview of your overall business performance and highlight potential issues that may arise in the future.
3. Create a cash flow projection
One way to ensure you have sufficient cash flow moving forward is to create a cash flow projection. With your HVAC business, you want to be able to predict what money is going to come in and go out and how much cash you will have leftover at the end of each period.
You include items like estimated accounts receivable, future inventory costs, overhead expenses, and payroll with cash flow projections. Keeping projections updated and comparing them with actual business data is important.
Understanding and predicting the flow of money in and out of your business can help entrepreneurs like yourself make smarter decisions, plan ahead and ultimately avoid an unnecessary cash flow crisis. After all, knowing whether the next month will see a financial feast or famine can help you make better decisions about spending, saving, and investing in your business today.
4. Digitize your operations
It is important that the field service management software you use allows you to sync the data directly to your accounting software. This will save you a significant amount of time from having to double enter information such as client data, products, services, invoices, payments, and timesheets and eliminate data entry errors.
As your business grows, it is essential to adapt the technology that you use along with it. This is why using cloud-based software is one of the best choices for your business. It allows you to access your financial data from any device, such as a computer, smartphone, or tablet, and your documents are safely stored in the cloud.
5. Keep track of equipment and appliances
HVAC businesses tend to require larger vehicles, such as vans, to hold all of your expensive equipment.
It is important to track all of these large purchase costs and depreciation for future audits and tax liability purposes. You want to ensure that you don't expense your vehicles and equipment upon purchasing them because that will grossly overstate your expenses for that particular period. It will also understate your depreciation expense for the rest of the equipment's useful life.
6. Leave your bookkeeping to the professionals
As your business grows and you take on more jobs and expand your client base, your books can become increasingly complex. Your business should hire a professional bookkeeper who can help you manage your books and generate the reports you need for better business decision-making.
A professional bookkeeper will work diligently throughout the year to ensure that your books are always current. They will get your financial data ready for tax season and ensure that you don't have to pay any late tax penalties. On top of bookkeeping, some bookkeepers are also able to help you manage your payroll and ensure that your business is compliant with the local payroll legislation.
When it comes to hiring a bookkeeper, you can either hire an in-house bookkeeper or outsource your bookkeeping to a third-party firm. Since bookkeeping isn’t usually a full-time task, hiring an in-house employee can be very costly. Not only do you need to pay staff wages, but you also have to pay sick time, CPP, EI, and vacation pay as well. An outsourced bookkeeping team doesn't come with these added expenses, allowing you to save a considerable amount of money.
By following these helpful accounting tips, your HVAC company should have accurate reliable financial information throughout the year. You can also save time on manual data entry while getting the financial visibility you need for growth.