Staying on top of your bookkeeping tasks can be a challenge. Your days are already packed full with roofing jobs, estimates, and repairs, not to mention all of the other business-related activities you have to accomplish, like marketing and exploring ways of expanding your business.
However, bookkeeping is a vital task for your company. It gives you clear visibility on the financial health of your business and is essential for allowing you to make crucial decisions. Fortunately, we have seven important tips that will help improve your bookkeeping process and give you access to the financial information you need.
1. Separate your personal and business accounts
When you first started your roofing business, you may have invested your own savings into purchasing equipment, a work van, and inventory for the company.
Many roofers continue to use their personal bank accounts and credit cards for business purposes. If you are a sole proprietor, like many roofing contractors, you are not legally required to have a business bank account because you pay personal income tax to account for your business's income.
However, you should have a separate bank account for all of your business transactions because:
- It simplifies the bookkeeping process. You don't have to weed through numerous transactions and determine which are personal versus business-related.
- It legitimizes your business. When you are working with new suppliers, they will have more trust in your company when they see that the funds they are being paid with are coming from a business rather than an individual.
- It helps you maximize your business deductions. It will be easier to identify those expenses that are deductible.
- It leaves a clear audit trail if you get audited by the CRA.
- It provides cash flow visibility. You can quickly see how much cash you have in your business and manage it better.
- It is easier to demonstrate the financial position of your business. Bankers will need to see your books if your business requires a loan from the bank. The clearer your records are, the easier it will be to apply for funding.
2. Keep your records organized
Roofing contractors are constantly hopping from one roof to another. This means that you are always on the go and along the way, you’ll collect receipts for gassing up the van and invoices from suppliers for inventory purchases.
The CRA requires that you keep these supporting documents for up to six years from the end of the last tax year they relate to. Because of this, it is crucial for you to have a good document storage system in place. However, keeping track of all these documents while you're constantly on the go can be a challenge.
To make things much simpler, you can use an application like Dext Prepare to keep track of your invoices and receipts. Simply take a clear photo of the document and upload it to the Dext mobile app. The app will then extract the key information from the document, export the information to your accounting software and keep the image stored safely in the cloud. This allows you to stay well-organized without the need to physically store invoices and receipts.
3. Use a small business accounting software
Many business owners would rely on Excel spreadsheets to record their accounting transactions in the past. However, this bookkeeping method is prone to errors and can be highly inefficient. Using an accounting software program for your bookkeeping needs is much better.
For a roofing company, we usually recommend QuickBooks Online. This cloud-based accounting software can perform all of the usual accounting functions as well as many features that are extremely useful for construction companies, such as:
- Job costing - You can track each individual project's revenue and expenses, and keep track of invoices, time, estimates, and more.
- Invoicing - You can send out electronic invoices to clients and set automated payment reminders closer to the payment due date.
- Reporting - You can generate custom reports like job profitability, job estimates vs. actual, and profit and loss by job.
Using cloud-based accounting software also allows you to access your financials while you're on the go and easily collaborate with both your bookkeepers and accountants. Using cloud-based accounting software such as QuickBooks Online can improve the efficiency of your bookkeeping.
4. Use job costing
Job costing calculates the actual cost of working on an individual project, including labour, materials, and overhead costs. You need to be able to accurately estimate your job cost on a project to predict your margins and ensure you have sufficient cash to pay your workers and purchase your materials before you get the full payment for the project.
You should make it a habit to track each project individually to view all the revenue and expenses associated with each one, even if the project is small. QuickBooks Online can help you do this. Plus, by ensuring you have kept good job costing records in the past, you can use this historical data to create more accurate estimates for future projects.
5. Balance your books every month
Many businesses choose to balance their books at the end of every month because it's more manageable. It also makes it easy to spot mistakes in your bookkeeping records. To properly ensure that your books are balanced each month, you can use this equation:
Equity = Total Assets - Total Liabilities
If your business’s assets are greater than its liabilities at the end of every month, your business is operating from a place of financial stability.
The benefits of balancing your books each month include:
- Giving you a better understanding of the financial health of your business.
- Showing you opportunities for growth, such as whether you have sufficient capital available to purchase new supplies and equipment.
- Keeping your bookkeeping organized.
6. Track change orders
Change orders are a common occurrence for roofing businesses. Homeowners might approve a certain type of shingle during the consultation stage, change their minds, and want a different kind during installation.
You may not want to charge customers for these change orders out of goodwill, but it could eat up your profits in the long run. Therefore, you should track every change order made to each job and calculate its impact on your margins.
7. Review your key financial reports
Regularly reviewing your financial reports will give you insight into the health of your business. Take a look at the following reports each month:
- Profit and Loss by job - This report will show you every expense and overall profitability for each job.
- Profit and Loss - This report will show you the overall profitability of your business.
- Estimates vs. Actual - This will determine how much your expenses were compared to what you estimated them to be. It will also show what unexpected expenses occurred and what price increases happened. It will also allow you to make more accurate estimates in the future to avoid unnecessary expenses.
- Cash flow statement - This report will allow you to determine how much cash your business has and whether you have sufficient working capital for the short term.
Staying on top of your bookkeeping and following these helpful tips will give you good financial visibility and will help keep your roofing business organized and running smoothly.
At Enkel, we know what it takes to run a successful business, and we can help you stay on top of your bookkeeping to ensure you always have access to the data you need to make crucial decisions. Contact Enkel today for more information on how we can help your roofing business reach new levels of success.