Staying on top of your bookkeeping tasks can be a challenge. Your days are packed full with roofing jobs, estimates, and repairs, not to mention your other business-related activities, 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.
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 to determine which are personal and which are business-related.
- It legitimizes your business. New suppliers will have more trust in your company when they see that their payments come 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.
- Demonstrating your business's financial position is easier. Bankers will need to see your books if your business requires a bank loan. The clearer your records are, the easier it will be to apply for funding.
2. Keep your records organized
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 simplify things, 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 physically storing invoices and receipts.
3. Use a small business accounting software
Many business owners rely on Excel spreadsheets to record their accounting transactions. However, this bookkeeping method is error-prone and can be highly inefficient. It is much better to use an accounting software program for your bookkeeping needs.
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 invoices, time, estimates, and more.
- Invoicing: You can send clients electronic invoices and set automated payment reminders closer to the payment due date.
- Reporting: You can generate custom reports on 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 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 is essential for the entire construction industry, including roofers.
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, it 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. 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 help keep your roofing business organized and running smoothly.
Automate Your Bookkeeping
Far too often, bookkeeping falls to the bottom of the priority list because it is time-consuming. However, your business needs up-to-date financial records to have visibility into your financial health and a good understanding of your profitability.
With advancements in technology, many accounting software and tools in the market can help automate some of your bookkeeping tasks, saving you time and money.
1. Digitize your invoicing process
Streamlining your invoicing process is an excellent way to ensure you are getting paid on time, and automating this process can save you a lot of hassle.
Instead of printing out an invoice and mailing it to a customer, you should create digital invoices and email them. The faster you can get your invoices to your customers, the quicker you will get paid.
There are two main ways to generate a digital invoice: you can use your field management software or your accounting software. Either of these methods will let you set up automatic payment reminders a few days before the due date and again after the due date if payment hasn't been received.
2. Integrate your management software with your accounting software
Many roofing contractors utilize field service management software like Jobber to organize their workflow. This software helps them send quotes, schedule bookings, dispatch team members, generate invoices, and get paid. It collects essential accounting data regarding clients, payments, invoice statuses, and timesheet hours.
However, you still need your accounting software like QuickBooks Online to track expenses and sales tax, reconcile your bank accounts, and perform project costing. Instead of re-entering the information on your field service management software into your accounting software, you can integrate both tools to allow your data to sync automatically.
For example, Jobber and QuickBooks Online have a direct sync feature that syncs clients, products and services, invoices, and payment data. This will save you real time on manual data entry and help reduce errors.
3. Manage your expenses using Dext Prepare
Part of the bookkeeping process is recording expenses and storing invoices and receipts for auditing purposes. As a roofing contractor, storing loose documents safely while you're on the road can be challenging. Manually recording these transactions can also be time-consuming and quite dull.
Thankfully, Dext Prepare can help. Dext Prepare lets you take a snapshot of your invoices and recipes with your smartphone and automatically extracts the key data from these documents. Once the data is extracted, it creates a transaction you can export to your accounting software.
This means that you no longer have to store the original hard copies of the documents because a version of it is stored safely in the cloud. This creates an audit trail and eliminates the need for manual data entry.
4. Streamline your payables process with Plooto
To provide your customers with the best service possible, you need to carry enough inventory to meet their needs. This means that you will have orders to place and suppliers to pay. Ensuring that your suppliers are paid accurately and on time will keep you in good standing with them and will also give you the added bonus of taking advantage of early payment discounts.
Plooto can help you take care of all this and more. This program allows you to set up automatic payments that can be approved with just the click of your mouse. It also allows for easy electronic payments worldwide, eliminating the need for cheques and the delays that often come with writing them.
Finding ways to automate your business means you don't have to spend as much time or money on bookkeeping, so you can focus on prospecting new customers and growing your business.
KPIs to Grow Your Roofing Business
Key Performance Indicators (KPIs) measure how your business is doing in achieving its objectives. KPIs will include profitability, healthy cash flow, cost efficiency, and timely payment.
You can choose which KPIs to track based on what is most important to your company. These valuable metrics can help you determine whether the improvements and changes you have made to your business are producing the results you want.
1. Accounts Receivable Turnover
This KPI shows how often your customers pay your invoices in full in a period. It is used to establish and improve the efficiency of your company's revenue collection process over a given time period. Tracking accounts receivable turnover is important because you need to ensure that your business is getting paid in a timely manner. That way, you’ll have sufficient working capital to keep operating and invest in growth.
Ideally, you want a higher AR turnover ratio. The higher the AR turnover ratio, the more efficient your collections process.
Recommended reading: 9 Tips to Improve Your Accounts Receivable Turnover
2. Days Sales Outstanding
Like construction businesses, it can take a while to get paid. This is especially true with commercial contracts. Due to this fact, your cash flow could take a hit in the early stages of your project. Days sales outstanding track the average length of time it takes your business to collect payments after a sale has been made. It is calculated by dividing accounts receivable by net credit sales and multiplying by the number of days. Here are the parts of the formula explained in detail:
- Average Accounts Receivable: Average of the accounts receivable at the beginning and the end of the period being analyzed. It can also be calculated as a monthly or quarterly average.
- Total Credit Sales: This is the total amount of sales made on credit (not paid for immediately in cash) during the period. This does not include sales that are paid for immediately in cash.
- Number of Days: This refers to the number of days in the period of analysis (usually 30, 90, or 365 days).
You need to monitor your DSO because it reflects how fast or slow your business is getting paid. A low DSO means your business collects your receivables quickly, and a high DSO means the opposite. The faster your business collects cash, the faster it can reinvest that cash back into the business to generate more sales.
If your cash flow is tight and you want to improve your collections, you can track your DSO to see whether the changes to your collections process have positively impacted your receivables.
3. Gross Profit Margin
Gross profit margin is an important KPI to track. It shows how much money your business makes after equipment, labour, and materials (COGs) are deducted from total sales without including administrative or overhead expenses. Gross profit margin measures the proportion of money left over from revenues after accounting for the cost of goods sold (COGS).
This KPI is expressed as a percentage, calculated by subtracting COGS (equipment, labour, and materials) from total revenues and dividing that by total revenues.
A high gross profit margin means you make more money on your projects. A higher margin indicates that the business effectively manages its production or procurement costs relative to its sales, suggesting better financial health and operational efficiency. If your estimates are accurate, you should be able to boost your gross profit margin with greater confidence.
4. Cost Variance
Cost variance is the difference between the actual cost incurred and the budgeted cost of a project. Put another way, cost variance measures the difference between the expected cost of a job and its actual cost after the job is completed.
This KPI helps businesses understand how well they control costs and manage their budgets. A positive cost variance indicates that a project is running under budget, which can be favourable unless it impacts the quality of work completed. A negative cost variance suggests that costs exceed budget expectations, which could signal inefficiencies or unexpected challenges. Your business needs to track this KPI because you want to be able to create accurate budgets and estimates. If your actual costs exceed your budget, you should identify which items went over and why. Then, you can use this as a learning opportunity to improve your next estimation.
5. Average Revenue per Hour Worked
You can increase your company’s overall productivity and profitability by effectively managing your staff's time. Tracking average revenue per hour worked can highlight which types of projects are most profitable for your company.
Without this information, you may spend your time focusing on jobs that appear most profitable but actually aren't
6. Planned vs. Actual Hours
Labour is a significant cost for your roofing business, and you want to be able to accurately estimate the number of labour hours a project will require.
Knowing this allows you to improve your work allocation and staffing. The best time to perform this calculation is after a project is completed. Once you have determined your planned vs. actual hours, you can determine if they are too high.
If so, your labour costs are eating into your profits. This will allow you to determine where this excess of labour hours is coming from, correct it for future projects, and be more competitive in your bidding when trying to obtain new jobs.
If you are looking for more ways to automate your bookkeeping workflow and operate more efficiently, Enkel can help. Our team of trained professionals can assist you by helping you manage your bookkeeping, payroll and more. That way, you’ll always have access to accurate, timely financial data and make better decisions. Contact us today for more information on how we can lend your roofing business a hand.
