Hey Contractors Take Control Of The Financial Health Of Your Business
n an article titled How and taking care of all the
Contractors Get Rich, I annoying little accounting
introduced you to the six details is of utmost importance.
systems that control the fate of
your construction business. In That said, financial controls
this article, we address perform a defensive role.
financial control.
Sales and operations are your
As a reminder one last time, they offense. They score the points.
six systems are: They earn the money. Without them
you have no money.
1. Marketing
2. Sales Financial controls make sure you
3. Staffing get to keep the money you earn.
4. Planning They keep you out of trouble.
5. Tracking
6. Financial Control If you listen to financial
advisers and accountants, they
Before diving into the details, will try convince you that the
let’s take a moment to discuss secret to business success is
the role financial controls play financial control. In other
in your business. words, setting financial goals
and watching their performance
To start with, the purpose of closely. They are gravely wrong.
having a business is to create They have the cart before the
more wealth than you would as horse.
someone’s employee. Since few
things in life are riskier than The fact of the matter is if you
owning a business, keeping a can sell well, hire well, and
close eye on the financial end organize your crews well, you are
almost guaranteed to make money. Otherwise, you risk getting in
At that point, the primary trouble with the tax man and the
benefit of financial controls is employees.
keeping you out of trouble with
the tax man and preventing VERIFYING EMPLOYEES ARE PAID
someone from stealing your money. CORRECTLY
You need control systems for: Your need a process for verifying
your employees’ have recorded
BOOKKEEPING their time correctly, are being
paid the proper wage rate, and
Bookkeeping is defined as: the are being paid on time. If you
practice or profession of have a non-union shop that
recording the accounts and sometimes works on prevailing
transactions of a business. wage jobs, this becomes a much
Bookkeeping involves paying bills greater challenge and requires
and tracking income. Bookkeeping additional paperwork (certified
performs the six following payroll).
functions:
MAKING FEDERAL AND STATE TAX
PROCESSING PAYROLL PAYMENTS
Payroll is the primary reason you The timing of tax payments varies
may be better off hiring an with the frequency of your
outsider to performing your payroll and the size of your
bookkeeping. Payroll is business. Your payroll system
complicated and difficult. tallies up the amount of money
that must be withheld from each
It must be done by someone who employee’s paycheck and your
knows what they’re doing. additional payroll taxes.
Weekly, monthly, or quarterly you By the end of January, your
are required to make the state bookkeeper must have correctly
and federal deposits. Failure to filled out and mailed your
due so leads to horrific employees’ W-2s and your
penalties. You need a system to subcontractors’ 1099s. I’m not
make sure that the money is being sure what the penalties are for
properly withheld and properly sending them out late, but you
deposited (usually through your are required by the IRS to send
bank). them out by the end of
January.
PAYING BILLS ON TIME
COLLECTING EMPLOYEE INFORMATION
My former company’s bookkeeper
was a master at hiding money so This may strike you as trivial
that when our quarterly taxes but many it isn’t. You are
were due, she had the cash to pay responsible for making sure you
them. She knew paying our bills hire legalized Americans. You are
on time was important to our wise to verify your new hires are
owners. They hated late fees. free of drugs. You need to get
their correct mailing addresses
Few contractors can afford to pay and emergency contact numbers in
the late fees associated with case they get hurt on the job.
suppliers. The industry simply
doesn’t give up enough profit to PREVENTING THEFT
offset the 1-1/2% monthly
interest rates suppliers like to Accounting procedures are
charge. designed to prevent someone from
stealing your money without
SENDING OUT 1099’S AND W-2’S leaving tracks. If followed
closely, accounting procedures procedures in place to monitor
even prevent theft by the owner. the flow of your funds and to
know whether money is
Regardless of how much you trust disappearing improperly. That
your bookkeeper and employees, means keeping a close eye on your
you need internal systems to bank accounts and cash flow.
monitor the handling of your
money. It’s pretty difficult to steal
cash when it’s movement and use
ENSURING SUPPLIERS’ BILLS ARE is being watched closely by
LEGITIMATE someone not running the books.
Theft can be spun many different VERIFYING LEASE TERMS AND
ways. You should consider any PAYMENTS ARE PROPER
attempt by a supplier to
over-bill you as theft. Someone Lease companies are notorious for
needs to be checking supplier taking money that rightfully
invoices for quantity and pricing isn’t theirs. They do this in a
against the original order. couple of ways, their favorite
being not telling you when you’ve
KEEPING TRACK OF YOUR MONEY paid the lease off. Yes, they
actually let you keep making
Here’s a warm and fuzzy story for payments and have little clauses
you. The founder of a mechanical buried in their contracts that
contractor was forced to end his let them keep the money after
retirement and return to his firm you’ve mistakenly paid it!
after a successor had stolen over
$1 million and disappeared. Your bookkeeper needs to stay in
close contact with the lease
You must have sufficient company and keep a separate
payment schedule for each piece Here’s a nasty part of every
of leased equipment. It’s the business: going after your money
only way to prevent being ripped when your client is dragging his
off by one. feet on payment.
CASH MANAGEMENT It really boils down to this. You
had an agreement. You performed
MANAGING YOUR CASH the services he hired you for. He
needs to pay on time.
About the only time small
contractors have extra cash is Failure to do so means he is not
just after the end of their the type of client you want to be
season when their receivables doing a lot of work for UNLESS he
keep rolling in but the labor and consistently pays a higher price
material expenses drop way off. than your other clients for the
same work.
Every other time of year,
decisions have to be made as to BUILDING AND MANAGING YOUR CREDIT
which bills to pay when, how much LINE
cash to hold back for tax
deposits, and when new equipment Credit lines are essential for
can be bought. running a construction business.
Many, many problems are created
You need to keep a close eye on when you don’t have access to
your cash flow. A detailed cash quick cash - which is what a
flow budget is the easiest way to credit line gives you.
stay on top of your cash.
You need a strategy for building
COLLECTING LATE RECEIVABLES a credit line equal to 10% of
your annual sales.
Banks don’t hand them out like If you do, they will help you
candy. You need to leave money in solve cash problems when you most
the business, which strengthens need their help. Otherwise, you
your balance sheet, and lowers will find yourself in a financial
the risk to your bank of default bind that is very difficult to
on the credit line. escape from.
FILING LIENS AND CLAIMS DEVELOPING RELATIONSHIPS WITH
BOND AND INSURANCE AGENTS
Unfortunately, liens and claims
are often a necessary tool in I have found that bond and
construction. Some building insurance agents are the most
owners simply will not pay their reliable source of insight and
bills until forced to. Liens advice you can tap (myself
create headaches for them. excluded of course). These agents
Claims, being lawsuits in most will help you keep your insurance
cases, are necessary when the costs down, process the paperwork
liens are not working. you need for jobs, and guide the
financial management of your
PROFESSIONAL SERVICES business - all for free.
DEVELOPING RELATIONSHIPS WITH QUALIFYING AND EVALUATING YOUR
BANKERS CPA
You MUST develop a relationship Here’s the best tip I can give
with a banker who will go to bat you: hunt down a CPA whose
for you. Not many will. You will clientèle is almost exclusively
have to hunt around, listen to contractors.
their advice, and follow it.
Construction accounting is so
unique, the IRS actually has a WE’RE DONE SYSTEMATIZING YOUR
different set of guidelines for BUSINESS!
claiming income. Few accountants
understand the nuances of Yes. We’ve reached the end. In
construction accounting. hindsight, isn’t it easy to
implement the systems you need to
Find an accountant that knows WIP run a real business?
inside and out (if you have to
ask what WIP is, you have the Hardly.
wrong accountant). Find an
accountant that understands the If you've read the entire series
cost-of-goods sold needs to of articles on How Contractors
include equipment costs. Find an Get Rich, you’ve read roughly 30
accountant that will advise you pages, explaining the six systems
how to best handle the financial your business needs. We didn’t
side of your business. even go into detail. Scary, huh?
GETTING THE PROPER INSURANCE That’s why so few contractors
COVERAGE succeed in building real
businesses, ones that keep the
Here’s where your insurance agent money flowing in while they’re
should come into play. You need away pursuing other activities.
to make sure that your coverage
doesn’t leave any gaps that would That’s also why almost every
leave you open to losing business owner needs help
everything and you need to make (mentor, friend, business
sure you are not double covered associate, coach) identifying and
when working for other fixing the highest priority
contractors. problems. Much time and money is
lost focusing on problems whose
resolution will not grow the It’s your business, your life,
business. and your decision.
About the Author:
Ron Roberts, The Contractor's Business Coach, teaches contractors how to turn their businesses into money making machines. To receive Ron's FREE Contractor Best Practices Newsletter visit http://www.FilthyRichContractor.com.
Published At: www.Isnare.com
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