The topic of how difficult it is to find a tradie with capacity is a popular one at the moment, which leads me to believe that accounting, paperwork and tax will not be top priority for those in the industry. Now is a great time to look forward and decide what direction you want your business to go in 2018. For those in the building and construction industry, it seems that an increase in profitability features high on the wish list.
Here are five tips to help make 2018 the most profitable year yet.
Tradies all say that dealing with paperwork and compliance is one of the toughest, most time-consuming parts of the job. Invoicing, payroll and GST is not everyone’s forte. Falling short in any of these areas can have significant and costly consequences.
A good accountant with knowledge of cloud-based applications is a great asset. They can recommend the best online accounting systems and job management software that best suits your business. Accounting software such as Xero, Reckon and MYOB give you details of your financial performance in real time, eliminating the need for spreadsheets that remain static and are error prone. These platforms also offer integrated payroll systems, which can take the stress out of each pay period. GST is automatically calculated and ready for filing directly with IRD. Customised invoice templates can be set up to save you time at the end of a job, which look professional and are easy to read.
Even though you may be charging big bucks for a job, it often turns out that you are only just breaking even, or worse, are costing you money. This is where job management applications are hugely advantageous.
Workflow Max or trade industry specific apps such as Fergus, Tradify and Service M8 will guide you from job costing and quoting through to invoicing and payment. Each job is made up of various tasks and costs with estimated dollar values applied. Labour cost is calculated based on employee pay rates and hours required. At any given time, a jobs progress can be viewed to ensure all costs are being captured and billed. Knowing exactly much money your jobs are likely to make you, will help you avoid work that would dig you into a hole, and allows you to pick winners right from the start.
Get paid sooner
Invoices for trade/construction work tend to be on the larger side, which clients can often put off paying. Whether you are a subcontractor on a big job site, or a sole trader doing residential one-off jobs, you should be getting paid regularly and on time. Online invoicing from cloud-based applications mentioned above means that you can send all invoices via email instantly. Customers can then view their invoice online and you can see the exact date and time they opened it – no claiming the invoice was not received! You can even connect online payment services like PayPal or Stripe so that clients can pay on the spot. Enforcing strict payment policies is a good idea too, a 7-day payment term is perfectly reasonable. For high value projects, it may pay to agree on a payment schedule throughout the life of the project with your client. An early payment incentive can also work a treat!
Minimise bad debts
Debtor management in any business can be tough and the construction and trade industry is no exception. Chasing bad debt is never a pleasant task. Fortunately, there is an easy way to automate the pain away. Xero and most other apps will send late payment reminders automatically to allow you to chase bad debt without lifting a finger. Xero integrated app Debtor Daddy even provides you with a receivables manager that will call your clients on your behalf if they do not respond to reminders. Minimising bad debt levels makes a huge improvement to your business, and really lifts profitability.
Stick to what you know
Many business owners take care of the books themselves, when in fact it is far more efficient and cost effective to pay someone else to do it. Information can be sent seamlessly to an accountant via cloud apps, which will enable them to take care of compliance and provide you with meaningful financial reports without having to chase you. Invoices from suppliers can be scanned or snapped by a smart phone and filed directly into Xero ready for your accountant to process. Employees can prepare their own timesheets using job management software on their own devices and submit for payroll processing. HubDoc or Receipt Bank apps can be used to extract key information from supplier invoices that have been scanned or emailed directly to the app for automatic data entry into Xero.
As featured in The Profit.