Contractors Are Confused About Their Bookkeeping

Many of you may begin with the thought; I am just a contractor.

I don’t want to be the business owner; I just want to do the work.

That is what is important. Yes, doing the work is important. Keeping track of your hard costs, soft costs, general expenses, and overhead is the difference between making or losing a profit.

Ignoring the costs does not make them go away; it just avoids putting them on the tax return. Any missed expenses make your profit on the job look higher than it is and causes you to pay more income taxes because all net profit is taxable.

All businesses need to keep track of their company expenses, including the material, and much more. Contractors usually go from one extreme (doing nothing) to the other (trying to count every bean, every paperclip, all the nails and, the scraps of 2x4’s). The balance is somewhere in the middle.

Labor is the highest cost you will face. As an owner/operator, you're entitled to the same wages your construction company would pay for having another construction worker on the payroll. Otherwise, why not go to work for someone else?

Favorite Option: No Bookkeeping System

• One checking account - a mix of business and personal expenses

• Multiple credit cards which are a mix of business and personal expenses

• No formal invoices to customers

• Give verbal amounts to customers to pay; maybe send them an email

• Have customer payments made out to you instead of the company

• Part of the time, deposit the check into the checking account

• Most of the time, cash the check; randomly put the money into the bank or Hip National Bank

• Ignore the government until forced to respond

• Usually, throw away all your receipts, deposit slips, bank, and credit card statements.

• Emergency; toss everything you can find later into a file box (all receipts - business or personal)

• Take the Magic File box unsorted and may not have all statements to the tax accountant

• Drop and Run – Tax Accountant’s problem now

Next Option: Limited Bookkeeping System

• Contractors who are trying to do their own bookkeeping may start with a pile of receipts and some

• One checking account which is a mix of business and personal expenses

• Multiple credit cards which are a mix of business and personal expenses

• Catch yourself from throwing away all your receipts, deposit slips, bank, and credit card statements

• When you remember, toss everything you can find into a file box (all receipts business, personal, junk mail)

• Randomly look for the missing bank and credit card statements and add them to the chest

• Create a written proposal, send the customer an email in “story form” with an amount to pay

• Give verbal amounts to customers to pay

• No formal invoices sent to customers

• Have customer payments made out to you or the company (based on what the customer wants)

• Usually, deposit customer’s check into the bank, maybe put into the bank or Hip National Bank

• Ignore the government until forced to respond

• Take the Magic File box unsorted complete with junk mail that may not have all tax accountant statements

• Drop and Run – Tax Accountant’s problem now

This process can go on for years until the contractor is willing to make a change - even a slight one; nothing will change. No one can make a contractor like to do paperwork. It is not a natural skill set.

The question is how to make paperwork more straightforward, simpler, and tolerable for the contractor to do before getting back to the "Fun Stuff" like building something, taking apart something, or fixing something.

To Explain In A Way, Your Spouse Would Understand

• Contractor’s Clean House (tear out walls and fill a dumpster)

• Rearrange Furniture (remodel and move walls)

• Buy New Stuff (Sheetrock, cabinets, light fixtures, plumbing fixtures and faucets, carpet)

• Install Stuff (secure to wall, floors, and ceiling so we can’t move them)

To Explain In A Way, You Would Understand

• Wives move to rearrange furniture as part of cleaning the floors, baseboards edge to edge.

• Once the furniture has been moved and cleaned behind, it is easier to leave the furniture in the new location than move it back to the original place. This process is called Spring, Fall, Summer, Winter Cleaning.

• The contractor knows his stack of papers got moved. His desk, chair, sofa, remote, dresser, clothes moved, and he is clueless about why. It was all perfect exactly where he left it; now everything is lost.

• Unlike the Construction Business owners who have laborers to help with heavy work, most wives have helpers who stand under 4’ tall and want a cookie and a cartoon break (often). By the time they are over 5’ tall, they are out with friends anytime there is a hint the vacuum cleaner might be calling their name.

• On a serious note: Many kids are great helpers learning about the business, are out on the job site, working in the office, and helping at home. For contractors – the number of jobs on the “To-Do List” is endless.

Third Option: Contractors Bookkeeping Is Easy, And Anybody Can Do it

• The contractor tries to do it all.

• The contractor works on making his best sale (spouse or girlfriend).

• The contractor operates on his best drop down sale (mother) as a favor.

• The contractor operates on having a friend (friends, spouse, or girlfriend) do bookkeeping as a favor.

• The contractor has exhausted everyone on the list above and hired a friend of a friend as a 1099 contractor.

• The contractor hires a friend who took an accounting class once as a 1099 contractor.

• The contractor hires someone who has office experience and is willing to try to do the bookkeeping.

• The contractor hires someone who did bookkeeping using other software in another field. 

• The contractor hires someone who used QuickBooks and, therefore, should be able to do their bookkeeping.

• The contractor hires a bookkeeper who is willing to make all the decisions, pay all the bills and treat it as if it is their business, implying they are the owner to Customers, Vendors, Suppliers, Other Employees.

The Last Option Sounds Like A “Dream Come True”

Until It Shifts To The “Nightmare of the Bad Bookkeeper”

• They train the contractor like an organ grinder trains a monkey.

• They refuse to invest time and money in continuing education because they know everything.

• They are passive-aggressive and will study you and your staff to learn how to manipulate everyone.

• They are masters at gaining power over you, your staff, and new employees and outside suppliers.

• They hate change and will fight tooth and nail to stop it or destroy your company.

• They know you're responsible for taxes, fines, penalties, and interest, so this is where they get even.

• They know how to increase your quarterly tax return costs.

• They understand that bookkeeping is 90% repetitive transactions and 10% complex transactions.

• They don't know what to do with complex transactions, so they put them wherever they feel.

• They have side jobs working for other companies or an entire bookkeeping business on the side.

• They decide how much integrity your company has, and they tell everyone who will listen.

• They create a miserable work environment causing turnover in your staff, which costs you money.

• They make your customers and clients feel unwelcome and unappreciated, which costs you money.

• They act as if they are serving time in jail and do the minimum required to keep their job.

• They say things to suggest businesses are bad, and construction company owners are the worst.

• They are jealous of your success and even more so if they ever had a failed construction business.

• They don't learn anything new; why should they, nobody is reviewing the QuickBooks.

• They never learn anything new unless the company pays for the training, and it is on the clock.

• They quit when the tax return is being prepared because QuickBooks is a mess, and they're caught.

• They come in a little bit late every morning and leave early to make up for it.

• They bait you with drama, nasty comments, and minor actions to find your tolerance limit.

• They get even with you for every perceived injustice against themselves and society as a whole.

• They keep you busy with lots of mindless crap to divert attention from why the books are messy.

• They let you think you control the bookkeeping and the bookkeeper until it is too late.

• They make you think they are looking out the best interest of the company.

• They let the work expand to fill whatever time you are willing to pay them to get it done.

• When they quit or get fired, expect to hear: “Chaos, panic and disorder...my work here is done”

• They become indispensable to take time off whenever they please and hold you hostage.

• They negotiate for additional perks, benefits, changes, and elimination of personal accountability.

• They network for a better job with your clients, suppliers, vendors, and your competitors.

• They represent themselves to outsiders as the owner or manager with decision-making authority.

• They text, message, e-mail, surf the web, chat on the phone, and socialize on company time.

• They train you to leave them alone by getting upset or angry whenever you want anything.

• They work hard at causing just enough chaos, so the contractor does not earn more than the bookkeeper.

• When your business fails, they tell everyone you are incompetent, and they saw it coming.

• They live in a chaotic, neurotic, psychotic, selfish, disorganized, blame game environment. 

• They work through lunch to leave earlier in the day (At the office for 7 hours and get paid for 8).

Question - What happens when the person in control of QuickBooks is unhappy with you?

Answer - The same thing that happens when the person who cooks your food is unhappy with you!

So if you are confused, and this resonates well with you, I invite you to give me a call at 1-800-361-1770. We can help you a little or a lot; although each construction company has typical issues, the solutions we offer are customized to fit your business needs.

About The Author:

Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com