“It is always cheaper to do the job right the first time.” This quote from Phil Crosby is a great way to begin this topic. Thinking about finances makes a lot of us feel anxious. Right? Well, it may be time to simplify it. This blog looks at all three effective yet easy ways to keep your finances as simple as possible.
Being a consultant for over 20 years, I found that the heart of a business is the finances, and it is also the foundation of your business. And as a bookkeeper, this is where I spend the most time in so that’s where I want to start. Once you simplify that and create a system that works so that you go off on your vacation with your family, it will be STRESS-FREE.
Here are 3 simple tips that will help you get rid of procrastinating critical financial decisions:
1. Outsource your bookkeeping
I say this with a lot of confidence because when I left the construction company that I was with for 5 years, that was precisely what I did for them when I planned out my exit strategy.
I advised them not to bring in a full-time bookkeeper. I talked them out of it because when you outsource bookkeeping, that is all your bookkeeper should be focusing on, the most important part of your business. This way, your office manager or you could run the other parts of the business more efficiently.
Over the years, I found another scenario that is more common that should not be happening at a company—that people want their spouses or relatives to manage the company books. However, by the time it gets to the Accountant at the end of the year to file their tax return, it costs them three times more than if they hired an experienced bookkeeper from the start because everything has to get fixed.
So my suggestion is that if you want to add your spouse or relative, have a bookkeeper that reconciles the account at the end of every month. This way, there are some checks and balances, and the bookkeeper can help do some training along the way.
Another pitfall when you don’t have your books clean is that your tax return is not filed on time and, especially if you are a contractor, you have general liability and a workers compensation audit every single year. You can get a huge bill for the estimated premium that’s 3 times the actual amount if you can’t get your books accurate.
At the same time, find a bookkeeper who can help you with your subcontractors. If the sub-contractor’s insurance is not up to the date and workers compensation audits you and they find a lapse in insurance while they work on a project at that particular time of insurance lapse, you, the general contractor, is ultimately responsible for the heavy penalty bill.
So definitely try to find a bookkeeper, outsource the work, and make sure they are knowledgeable in your industry while keeping your books up to date.
2. Organize your finance
Organizing your finances with one bank will help keep everything easy and smooth. This is a great tip for contractors and construction companies: Open four different bank accounts with 4 different purposes for each account:
1. Open a Check Writing Account for exactly this purpose: writing checks. Every time you write a check, move money in that account and keep it there for the check to clear. That way, there is no chance for returned checks. Returned checks can cost up to $35 each and if you have 10 of those a month, that’s $4200 a year of an expense you could easily avoid.
2. The second account you should open is the Deposit Account. All deposits go in there, and you disperse them to the correct expense account as needed so over time you know what your cash flow is on a daily and weekly basis.
3. Third is the Payroll Account. Make sure all payroll-related expenses go in there every week or every other week depending on how often you release payroll.
4. Lastly, is the Daily Operations Account. This is for daily expenses, such as for gas if you have workers using the company truck and they need to fill it up with gas; Purchases of supplies, tools, etc.
By creating these 4 accounts and utilizing them for the exact reasons they are meant to be used, you will find that as a business owner, you will always have your daily and weekly cash flow numbers at the tip of your fingers.
3. Commitment to meeting with your bookkeeper and accountants on a consistent basis
The best relationship I found that sets everyone for success many times over, is a partnership between the bookkeeper and the business owner. Yes, your bookkeeper doesn’t work for you BUT should partner with you to be your eyes and ears for you and your company for long-term benefits.
Business owners know their business inside and out. Bookkeepers help put their financial information together so each month you can see where you can improve financially to continue to grow your business, especially coming out of this epidemic. So my suggestion is if you are onboarding with your bookkeeper, for the first 6 to 8 months, meet them every month. Help clarify information such as checks, who are your vendors, and help your bookkeeper clean up your books quickly and efficiently in these few early months of the onboarding process.
As for your Accountant schedule to meet with him/her at least twice a year but especially the first year, schedule it quarterly so they can give their input on how you can run your business better and financially leaner. They will also have certain financial loans that you may not even know about, especially coming out of the COVID situation. There is a lot of help out there for existing companies…….you just have to get the right one for your business.
I hope this blog helps you sit back and relax about your finances. Remember, partner with your Bookkeeper who is outsourced, organize your banking and make sure you meet with your Bookkeeper and Accountant consistently throughout the year and you are on your way to a stress-free vacation!!!