Contractors – Avoid these common accounting mistakes.

If you’re a subcontractor looking to get started, here are some of the most common mistakes and blunders that subcontractors make, as well as how to avoid them.. 

Underestimating costs. 

There are two elements to consider when determining your pricing. The first is what are the exact materials costs (also known as Cost of Goods or COGS)? We’ve lived in a time where inflation has been low, and material costs have remained constant. That is no longer the case; prices for many items have increased dramatically, wood, paint, and metal all cost far more today than they did a few months ago. It’s vital to know your expenses in real time, so don’t guess; in this day and age, you’re likely wrong if you don’t double-check.

The second aspect of materials expenses is not considering the cost of changes and delays. Customers may reverse their decisions, general contractors (GC) might have misunderstood the scope of the job, which may result in omissions or changes. As a result, change orders are critical. When there is a change, it usually implies the need for more labor and materials. You must submit a change order to notify the customer (or GC) that the requested tasks are out of scope and an additional charge will be added to the total price, not doing this means that the customer may dispute your charges at the time of payment and might withhold payment from you. When changes occur, make sure they are documented and accepted before you do the work. 

Overestimating skills and underestimating the learning curve.

You may think you’re an expert in your field, but that doesn’t imply you have the abilities to manage a company. There could be additional details of the job to consider, for example, many drywall contractors prime their work after it is completed. Do you have the skills and equipment to apply primer yourself, or do you need to hire? 

Estimating can be difficult; make a miscalculation and you’ll end up paying for it. You don’t need to be an expert in order to estimate the cost of something correctly, but you do need a good process to follow the steps to obtain the cost of materials and labor. Simply because you can do the task doesn’t guarantee that you will estimate correctly. When estimating, think about not just the materials but also how long it would take. We frequently underestimate how long a project will take because we didn’t anticipate that each task has its own set of difficulties, perhaps you’re working alongside another contractor who is slowing you down, maybe bad weather makes the job more difficult and takes longer, all of these things must be considered while determining your price.

Many contractors overlook the time (and cost) it takes to go and acquire supplies as well as the cost of purchasing and maintaining equipment when they don’t include it in their quote. Every trip to Home Depot is not just costing money, but also time.

Time Management 

Being a sub-contractor gives you more control over your time. However, as a business owner, managing your time may be challenging. You must not only complete the work, but also send bills, keep track of costs, obtain supplies, manage payroll, deal with inspectors and licensing requirements. There are numerous expenditures that add up, and take away from the work you perform that gets you paid.

Outsourcing is a great way to recover time and bring in experts into your business who have “been there and done that”. Accounting experts like the team at Profit Matters can do the bookkeeping, invoicing, and payment aspects for your business and on top of that guide you with advice and experience obtained from 100’s of years combined experience with businesses like yours. 

Failing to invoice on time.

It’s easy to get caught up in the daily grind and realize that you haven’t had time to send the invoice. Getting paid is critical to the success of your business, but before you can pay yourself, your vendors, and your staff, you must first bill your clients to guarantee a steady supply of money into your company (cash-flow).

Finding out after a job that you missed sending an invoice is a problem. Recently we had a customer who was approached by a sub-contractor claiming that they forgot to send a $9,000 invoice for an AC unit they installed. It had been more than a year since they did the work and the sub-contractor had no proof he did the work other than an accepted proposal. In the end he did not get paid because he forgot to invoice on time.

Not tracking or knowing expenses. 

It’s difficult to estimate projects, and it’s critical to revisit them after they’re completed looking back and seeing how you did so you can change your estimating going forward. If you continue estimating without taking into account the actual costs involved you are very likely losing money. 

Do you know what expenses are tax-deductible and which aren’t? You may have some thoughts, but a CPA (Certified Public Accountant) is an expert in tax law, so they’ll be able to tell you the ins and outs of what has changed and what new rules you can take advantage of. 

Outsourcing your accounting and bookkeeping to Profit Matters allows you to devote more time to your business while providing you with a team of professionals who are working behind the scenes to ensure that you have the most realistic estimates, are keeping track of all your expenditures, and taking advantage of complicated tax law. Get in touch today

Interested in knowing more about how to avoid common accounting mistakes and help drive profit growth for your business?

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