HVAC Bookkeeping Strategy Guide

Omar Visram
HVAC Bookkeeping Strategy Guide
Table of Contents

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HVAC Bookkeeping Strategy Guide

As an HVAC business owner, you are an expert in dealing with heating and cooling systems. Your HVAC bookkeeping knowledge may likely be more on the basic side since most of your time is spent on HVAC-related issues. 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 to 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 for inaccurate calculations.

2. Review your financial statements regularly

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 must 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 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 left over 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

Most HVAC companies rely on management software like Jobber or FieldEdge to handle bookings, scheduling, invoicing, and payments. 

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 HVAC 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 to 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 your books are always current. They will prepare your financial data for tax season and ensure you don't have to pay any late tax penalties. On top of bookkeeping, some bookkeepers can also help you manage your payroll and ensure that your business complies 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 full-time, 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 considerable money.

Automate Your HVAC Bookkeeping

It's essential for your HVAC company to keep your books up to date because:

● You need to keep track of your expenses and pay suppliers to ensure you get the materials you need.

● You need to be able to track your business's profitability.

● You have to be prepared for tax season and be able to submit your GST/HST remittances.

● You have to always be audit-ready.

● You should work towards managing your cash flow.

● You have to avoid missing out on potential tax deductions.

However, managing your books is time-consuming. There is no way to automate the entire bookkeeping process entirely. Still, many new accounting technologies on the market can help automate certain areas of your bookkeeping and help you speed up the whole process.

1. Use a cloud-based accounting software

Many businesses use old-school Excel spreadsheets and desktop accounting software to manage their books. Unfortunately, Excel is prone to errors, and desktop accounting software means you can't access your books while you are on the go. The best option for your HVAC business is to move to cloud-based accounting software like QuickBooks Online or Xero.

These programs have a wide range of bookkeeping features that your business requires. They can handle invoicing, billing, expense management, reporting, and sales tax tracking, to name a few. Moving to the cloud lets you access financial reports and send invoices to clients on the go or on a job site using your mobile device. You can also easily collaborate with other team members, and your financial data is always backed-up securely to the cloud.

Using cloud accounting software allows you to automate tasks like invoicing. For example, suppose you have recurring maintenance work with a specific client. In that case, you can send them recurring invoices using your accounting software instead of manually generating invoices and sending them out each time. 

You can also automate things like payment reminders. You can send automated emails from your accounting software to clients a few days before and a few days after an invoice is due to remind them about upcoming payments.

Plus, cloud-based accounting software can integrate with other third-party accounting apps, meaning that data from these tools can automatically be sent to your accounting software. This will reduce most of the manual data entry work you must do.

2. Capture your invoices and receipts using an expense management software

For HVAC contractors, you will have invoices from your suppliers, and your service technicians will have receipts for gassing up the work van while they are on the go. 

In the past, you would have to manually enter the data from these invoices and receipts into your accounting software to ensure every transaction was recorded correctly. Plus, if your technicians paid for the gas out of their own pockets, they would have to fill out an expense report before getting reimbursed.

You can use an expense management tool like Dext Prepare to simplify this process. It will help you capture invoices and receipts for your business. Dext Prepare allows you to take a photo of the invoice or receipt while you are on the go. Their Optical Character Recognition technology automatically extracts key data from your documents and exports your transaction to your accounting software.

Some of the most significant benefits to using Dext Prepare include:

  • Saving time on data entry
  • Safe storage of documents in the cloud
  • No need for physical paper document storage
  • Convenience of capturing receipts and invoices while on the go. 

Expensify is another excellent expense management tool for your HVAC business. This platform will help your employees manage their expenses. 

It can assist your service technicians by allowing them to take a photo of their expense receipts while they are on the road. The program's OCR technology will extract essential data from these receipts and automatically create an expense report. Your technician can then review the data and send the report to their manager for approval. The manager can then reimburse the technician using Expensify as well.

3. Pay your vendors using electronic payment

Timely payments are one of the key factors in building a good relationship with your suppliers. You can automate your accounts payable process using a cloud-based program called Plooto. 

Plooto is an all-in-one platform that enables businesses to automate their domestic and international accounts payable and accounts receivable functions by unifying payments, processes, control, and reporting.

Plooto provides smart, two-way sync with QuickBooks and Xero, automatically syncing bills, invoices, and payments and reconciling bookkeeping records while keeping a complete audit trail. It can also help you manage your cash flow, giving you greater oversight over when payments are made. It also eliminates the need for cheque payments and reduces the risk of late payments.

Cash Flow Considerations

Cash flow problems are one of the most common reasons contractors go out of business. As important as sales are, you must also manage your cash flow properly to collect the cash owed to you and pay the bills. 

Here are the six best ways that you can improve the cash flow for your HVAC business:

1. Collect a deposit

Collecting a deposit before starting a job is a great way to improve your cash flow. It can be especially helpful for HVAC Contractors who need to purchase supplies and equipment or if you are about to begin a large project. 

For example, if you need to replace a furnace for your client, it would be in your best interest to collect a deposit beforehand so you don't have to front the entire cost of the furnace yourself. However, a deposit might not be necessary if you provide regular maintenance service on an existing furnace.

2. Offer a wide range of payment options

You want to make it as easy as possible for your clients to pay you. If you charge them a deposit before the job is done, make sure your electronic invoice includes the various payment methods you accept or offers a direct link to each payment method. 

It is a good rule of thumb to try and stick to electronic payment methods, such as credit cards or pre-authorized debits. This way, you can easily save your customer's payment information and charge them again once the full service has been delivered.

Alternatively, you can use Square's point-of-sale reader for smaller payments and have your technicians bring the Square payment processing device with them to a job. This way, they can collect payments directly from clients on the spot after the service is done, eliminating the need for follow-up.

3. Follow up regularly on collections

Selling doesn't pay the bills, but collecting does. 

You want to keep your receivables listing up to date to know which payments are still outstanding. Your accounting software can send automated payment reminder emails a few days before each invoice is due and a few days afterward. 

Even so, you should still have someone follow up on outstanding invoices. If your clients don't respond to the email reminders, you want to ensure that someone calls them to follow up and ensure that you will receive your payment.

4. Lease, don’t buy

To run an HVAC business, you need work vans to hold your expensive equipment, such as thermal image cameras, leak detectors, temperature gauges, and all the basic tools required to do the job. 

Work vans can be expensive to purchase and take up a chunk of your cash. To improve your cash flow, lease or finance the purchase of your work vans and expensive equipment so you don't have to spend all your cash upfront.

5. Keep stock of your inventory

With numerous styles and brands of HVAC systems available for residential and commercial installations, HVAC companies must maintain the correct number of new systems and the parts required to repair older systems. If you don't have the stock to meet your customer's needs, they may seek a faster solution elsewhere.

On the other hand, you don't want to have too much cash tied up in your inventory. You don't want to carry too much inventory that doesn't turn over quickly enough.

You should have a system to help you track your inventory. Use inventory management software that tracks all of your inventory (including spare parts) and prompts you to reorder when they hit a certain level. Managing your stock in this way will ensure you are never running low on parts and are also not wasting cash on inventory you don't need. This helps guarantee you won't have to delay appointments due to inventory shortages.

Over time, your inventory management software should also be able to produce reports that you can utilize to spot usage trends and build forecasts to inform you when you will need to order more of a particular part. For example, you will require more air conditioners in the summer months and more heating parts during the fall and winter months. These reports will also allow you to make use of bulk purchase discounts.

6. Create a cash flow forecast

Cash flow forecasts are a tool that helps estimate the flow of cash going in and out of your business over a specific period of time. These forecasts consider your estimated income and expenses so you know how much cash you will have left over at the end of each month. Contractors should forecast monthly cash flow requirements and take steps to set aside extra cash and restrain spending during tight periods.

HVAC Bookkeeping Software and Tools

1. Jobber

Jobber is field service software perfect for home service businesses like HVAC companies. This software can help you organize your entire operation. It can assist with managing requests, creating quotes, scheduling and dispatching, CRM, routing, accepting payments, and invoicing clients.

Using Jobber lets you easily manage your jobs and send invoices to clients. It can also automatically charge your customer's credit cards and send them receipts for their records. They’ll also automate invoice follow-ups, saving you time and effort in your collection process. 

Furthermore, Jobber's time-tracking features can help you manage your payroll. This software program will help keep your HVAC bookkeeping organized and improve your cash flow.

2. QuickBooks Online

While your operations management software can help you with tasks such as scheduling and dispatching, CRM, routing, and accepting payments and invoicing, you still need to have accounting software to manage your expenses, sales tax obligations, and reporting. QuickBooks Online is cloud-based accounting software that ensures your bookkeeping needs are covered.

QuickBooks Online gives HVAC business owners and operations managers a seamless and straightforward way to collaborate with staff, clients, and vendors for all of your accounting and bookkeeping needs. It easily integrates with most HVAC management software like Jobber and ServiceTitan and can sync your invoicing data from these programs to reduce the need for additional data entry.

You can generate Quickbooks' financial reports, such as the income statement, balance sheet, and cash flow statement, to understand how your business is performing. 

3. Dext Prepare

Dext Prepare is an expense management software that can help your business streamline its expense process. HVAC contractors have to work with suppliers to get the machines and materials needed to service your customers. You will also have receipts from gassing up the work van, coffee runs, and team lunches. 

You need a process to manage these receipts and invoices so that you can track when payments are due and to whom. Dext Prepare can help you streamline your expense management process. 

This program lets you snap a photo of all your receipts and invoices. The necessary information from these documents is extracted, saved to the cloud, and exported to your accounting software. This eliminates the need for manual data entry, creates a clear audit trail, and allows you to easily manage all of your expenses from one platform. Plus, you don't have to worry about saving receipts or losing invoices again.

4. Expensify

Expensify is an excellent employee expense management tool. It allows your employees to take a photo of all of their expense receipts, use it to create an expense report on Expensify, and submit the report for your approval. Upon approval, they can get reimbursed directly through the app. 

For example, if a technician pays for gas out of their pocket or uses their vehicle to get to a job site, you can manage their reimbursement using this tool. It also has the capability to track employee mileage using a mobile GPS feature.

5. Plooto

Plooto is a program that helps you streamline your payment process. You must pay your suppliers on time if you want your inventory and supplies delivered when you need them. 

Plooto can help you automate your accounts payable process by pulling invoices from your accounting software and allowing you to schedule payments for each invoice. Once payment is made, Plooto will reconcile it with your accounting software and mark the invoice as paid.

6. Payworks

Accurate and timely payroll is key to keeping your employees satisfied. Payworks is a cloud-based payroll software that is extremely easy to use. 

It allows you to easily upload timesheet data for each employee and pay them via direct deposit. Payworks will automatically calculate and remit federal, provincial, and WCB deductions for you, keeping your company compliant with payroll legislation.

Having the right tools to do the job correctly is essential, especially when it comes to your company's finances. Our team at Enkel understands this, and we can help you pick the appropriate software for your business and manage your HVAC bookkeeping on an ongoing basis. 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. 

If you want to find out more ways to improve your HVAC bookkeeping, or if you are interested in getting all the details on outsourcing, contact our team at Enkel today.

Looking for bookkeeping support?

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