Keys to Having a Great Financial System at Your Business
authors Shawn McCadden | July 8, 2019
I can’t imagine how someone would risk starting and running a remodeling business without knowing how the financial side of things work—knowing whether they will make a profit. Not knowing can put your retirement and your family’s future at risk.
It might be just as foolish as setting out on a road trip to the other coast with duct tape over the gas gauge. Imagine not even checking your gas gauge as you begin your journey. Yet, every day a new remodeler will start a business and do just that. It’s one of the main reasons 85 to 95 percent of all contractors eventually fail in business. Others can keep limping along pretending to be business owners because their wives have a good job with health insurance.
Without the right financial system in place at your business, should you be allowed to call yourself a business owner? I don’t think so. Creating and maintaining an accurate financial system should not be a future goal, it should be something you already have in place. If you are committed to putting a great financial system in place, you should not assume you can do it on your own.
You will need help with both the creating and the maintaining of your system. You will also need the right accountant to help you make sure your system is accurate, mentor you on how to use it, confirm you are pricing for profit, and make sure you don’t pay any more taxes than is legally required.
Knowledge and ‘Schema’
I went to night school early in my career to learn about business accounting. The teacher was smart and I learned a lot, but I still had no idea how to set up a financial system specifically for a contractor, and how to use it. I had gained knowledge about how accounting should work. However, I lacked the experience I needed to set up and use QuickBooks to measure results at my business. What I needed was help from someone who already had the experience, also known as “schema,“ for how to do so, specifically for remodelers.
Additionally, after QuickBooks was set up and was consistently being used properly, I also had to gain the necessary schema for what my financial reports were telling me. That way, I would know whether the results were good or bad. My point is that knowledge is required but may be worthless unless you also make the investments needed to use to truly understand your system and what it can tell you. You need experience and practice to develop schema.
Bookkeeper or Data Entry Clerk?
Using, maintaining and keeping your financial system accurate takes a fair amount of time. With all the responsibilities of owning a remodeling business, as well as the potential value of where the owner invests his or her time, it’s typically foolish for an owner to also be the bookkeeper. Plus, a good bookkeeper is not only much less expensive per hour than a business manager, the right bookkeeper will likely be better, more detailed, faster and will probably even enjoy doing it.
One key consideration here is to be clear on the difference between a bookkeeper and a data entry clerk. The data entry clerk only enters data. Although the clerk is expected to enter things accurately, they are typically only following the instructions of another person who is fully responsible for the accuracy and integrity of the bookkeeping.
A bookkeeper, therefore, keeps the books. Unlike a data entry clerk, the bookkeeper needs to have both the knowledge and the schema to keep a remodeling business’s financial information accurate and up to date. I recommend you hire a qualified bookkeeper, not a data entry clerk, otherwise you, the business owner, becomes the bookkeeper by default. As the business grows, hire a data entry clerk to assist the bookkeeper.
Accountant vs. Historian
Your remodeling business needs a real accountant. You need someone who can help you plan and price for profit before you sell work. You need someone who can help you read and interpret financial reports. You need someone to ensure that as you do business throughout the year, your pricing, estimating and production methods are working as needed to create planned profits. The right accountant would have already sat down with you to discuss your business goals for the year and how the new tax laws might affect your bottom line. The right accountant will have the schema needed to be a proactive partner helping you plan for and protect business profits.
If you think you have an accountant but you did not get the assistance I just described above, you may have what I refer to as a historian not an accountant. An accountant who helps you by doing your taxes after the year is over, is only reporting on what has already happened. By tax time, it’s too late. What if you find out in April you lost money the year before? How much new work will you have sold by April with the flawed pricing strategy? One contractor I spoke with became painfully aware of this reality at tax time. He found he lost $40,000 the year before and had already sold $500,000 of new work using the same pricing strategy.
As the old saying goes, “history repeats itself.” As business owners, if we don’t consider the lessons learned when we study history, we are destined to relive it. On the other hand, a sound financial strategy and systems can help create profits and a great future for you and your business. QR
McCadden is a speaker, business trainer, columnist and award-winning remodeler with more than 35 years of experience. He can be reached at shawnmccadden.com.