In this episode of the Leveled Up Contractor show I cover how to have rock solid bookkeeping for contractors! Setting up a great bookkeeping system for your construction business is one of the most important things you can do. Without good numbers you can’t make good decisions.
Inside you will learn:
- Why a bookkeeper or accountant is one of the most important roles in your company
- How to setup a Month-end close process for contractors.
- How to find and hire the right bookkeeper
- How to setup systems and procedures for your bookkeeper
Bookkeeping For Contractors
Welcome to the Level Up Contract Show. In this episode of the show, we’re talking about how to have rock solid bookkeeping for contractors and guys this is a big one for you.
A good bookkeeper is not that person that you contact on December 1st or December 15th or after December to make sure that they can quickly run through your QuickBooks account and put everything together and make sure you pay the right amount on your tax bill. Right? That is not what we’re talking about in this video.
What we’re talking about this video is a key role that you can have in your company. A bookkeeper in your company guys is so, so important. If you want to grow or make a good profit. Because a good bookkeeper will provide you with the data and the reports that you need to make good decisions.
So one of the things we work with with our clients is setting up a budget and a plan so that you can forecast your year before it happens. Um, look guys, if you just create that plan and don’t think about it until the end of the year and you look back and you go, wow, we didn’t hit our plan.
We said we were going to sell 5 million and we sold 3.5. What the heck happened or, Hey, we set our goal for 5 million man, and we sold 6 million, but shoot, what happened? We didn’t hit our profit goal. What happened? Well, that’s what happens when you don’t have a good bookkeeper and you don’t have your numbers and you’re not reviewing. If you want to run you business by the numbers you have to have good bookkeeping in place.
On a frequent basis to make sure that you hit the plan that you’re after. So I think having a great bookkeeper or good accounting department in your company is one of the best ways that you can make sure that you stay on track for a budget and grow your company. And guys, one of the big parts of a good bookkeeper’s job is to have a good month end close process.
Now, if you’re not from the accounting world a month, end close process may sound foreign to you. But all I’m talking about here is a month end process to make sure that the numbers are. And then make sure that you have the reports and the data that you need to make good decisions as a business owner.
Now there’s a lot of metrics that you’re going to be reviewing on a daily, weekly bi-weekly monthly basis. That aren’t the financials but what we’re talking about here is the accounting reports and financials that you need, like the profit and loss statement, that cashflow statement, the job costing reports, all that kind of stuff is what we’re talking about and the way you accomplish that.
Contractor Bookkeeping Month-End Process
As a bookkeeper and the way you want your bookkeeper to accomplish that is to have a good month in process. And what does that look like? Well, it’s them doing reconciliations of all the bank accounts, credit cards, chartered accounts, all that kind of stuff . To make sure that all your credit cards fit.
All your charges are your bank account, all your payroll, all that stuff is in your profit and loss statement. And it’s current and up-to-date for you to review. So when you get to the end of the month, you can say, okay, our goal for this month was. Here’s where we came in on payroll. Here’s where we came in and revenue.
Here’s where we came in and gross profit. Here’s where we came in and net profit in all your individual accounts. One of the other things that they do that is huge. That is part of the. Is reviewing the reports, right? So there’s hundreds of transactions flowing through your business on a weekly or monthly basis, hundreds of them.
Right. And it’s very easy for some of those to get miscategorized. But if you have a bunch of transactions that are in your marketing budget that were supposed to hit your software budget, or any combination of, or you had some material expense, didn’t get coated to cost of goods sold. It got put down
below the line in your overhead expenses, you got big problems. Cause now you don’t know what your true material expense is. Now. You don’t know what your true gross profit expenses. So this is important stuff. So after your bookkeeper goes through and make sure that everything is there and they’ve reconciled everything before they give you the reports that reviewing it and saying, Hmm, something’s off here.
Right? Our material expense should be between 20 and 22%. We’re at 1300. Something looks off here and maybe, maybe you set something up, Hey, maybe you got something good going home with your pricing, but they’re doing a review of every single account and making sure everything is categorized right. So that when they give you the report, you have good data to make decisions.
Now the other pieces that fall into that is, you know, they’re making the different month in journal entries that they gotta make their moving, uh, your payroll expenses into the right buckets. If you have inventory and they’re doing some adjustments and things, there, all that kind of stuff, then an accountant or bookkeeper needs to do to make sure you have good reporting.
And at the end of it, their ultimate goal is to provide you the reports, your profit and loss, all that kind of stuff for you to be on, to make decisions.
How To Hire A Construction Bookkeeper
So you’re, you’re looking at this. You’re like, okay, great, William, I need a good bookkeeper, but how the heck do I hire a good bookkeeper? How do I find a good bookkeeper?
Can it just be somebody? I know that’s a little tech savvy, that’s kind of analytical that I can throw behind the computer and say, learn quick books. Do job costing, do our accounting, right. It doesn’t work that way, guys. It may get you to a certain point, but at some point you need a professional. You need somebody that’s good at this.
And the way you need to go after this guys, first of all, construction, accounting is complex. If you’re roofing, siding, gutters, you know, HVAC, whatever you’re trading. Construction accounting is pretty complex. We want a job cost things down to a specific job level . Your average bookkeeper isn’t used to that unless they have some type of trades or, you know, construction experience.
Anytime that we’re hiring for a bookkeeping role. We’re looking for someone that has experience. Now, if you are an owner or a manager that’s really analytical, you really understand the numbers and you have some type of accounting background. Now you may be able to bring someone in with accounting experience and teach them the construction piece of it.
If you know it well enough yourself. Now, if you don’t, I recommend bringing in somebody with experience. Once you have that figured out guys, you know, if you haven’t watched our video on job descriptions, make sure you check that out because. In that video, we talked about having a good job description before you hire a bookkeeper line out.
The things that they’re going to be responsible for the reports are going to have to turn into you. The transactions that they’re going to have to take care of are they’re responsible for accounts payable. Are they responsible for accounts receivable and collecting your money or are they just responsible for the day-to-day transactions and making sure those are right, you need to clearly identify that and build a job description for it.
Once you have that up, you posted it on your favorite job site. We use indeed a lot, but whatever job site that you’re used to reaching out to employees to get hired, you post it out there and you start getting candidates in.
So one of the first things that we do is we have a phone conversation with them. First of all, just getting their experience, getting their background, listening to them, making sure this is a responsible first person. They answered the phone on time. They’re ready to talk to you. They sound professional .
All that kind of stuff. And we’re just asking them some general questions. What is their experience had? Do they have any experience in construction, accounting? And do they have any quick books experience or, you know, whatever software that you’re using for your accounting. So you start there. If they’re a good candidate on the phone, we’ll bring them in.
Now, before we interview them, one of the first things that we do, and we hit them with this by surprise because. If you tell him that you’re going to do this, they’re going to gain the system a little bit if they can. Right. So one of the first things that we do when they arrive for the interview, as we give them an accounting quiz or an accounting test, and this is usually 10 to 20 questions that are pretty simple, for anybody with bookkeeping or accounting experience.
Would know the answers to these questions. So we give them this quiz and guys, you would be surprised that when we were hiring for this role, how many people came in and didn’t know the basics of bookkeeping and accounting, right. General stuff. What does an asset, what does a liability basic, basic, basic stuff.
And we filtered them out right there. The good candidates that we’ve always found, usually mastered that quiz. Now, oftentimes they would have, you know, if there was 20 questions that get 19 right or 18, right. Whatever the case may be. And most of it is because, you know, they learn this stuff 10 years ago because that’s how basic this, this quiz is.
It’s basic accounting stuff, but it weeds out the people that people that get five questions, right. Or a few questions, right. Or 10 questions or. They bombed the quiz. And you can easily filter out out people. And then you have your interview and you go through your standard interview process.
And boom, you find your good bookkeeper. Now another option, which can be good as to outsource your bookkeeping to someone that is specific in your trade. So if I’m a roofing company and I want to look for an outsource bookkeeper, I’m looking for a bookkeeper that specializes in roofing, or if I’m a plumber, I’m looking for a bookkeeper that specializes
in helping plumbing businesses. Right? So find someone that’s a specialty service, don’t just hire it out to a general bookkeeper, or an outsource bookkeeping company, because chances are, if they haven’t done construction accounting, then they’re not going to know how to do the job costing and things that are specific to your industry.
And maybe just don’t outsource it to just a general bookkeeping company, outsource it to someone that knows your specific trade specifically, so they can dominate and help you get you the numbers that.
Bookkeeping Systems For Construction Accounting
And one of the last things you got to do, guys, is you got to have good systems for your bookkeeper. We talked about the good job description. You gotta have those expectations set with them. You gotta have. What they’re responsible for what they need to deliver to you have checklists that they’re responsible for that lays out, the things that they need to be doing the priority of those things.
When those things gotta be done, when you need your reports, all that kind of stuff, guys, so that you make sure that you’re getting the data that you need to make decisions. So guys, a bookkeeper. And your company is one of the most important roles I highly recommend. If you don’t have a good bookkeeper or someone that’s really doing a high level job with this, and you were a growing company and want to get to the next level, that should be your next hire.
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