10 Key Trends in Accounting for the Contractor Business
One of the most frustrating aspects of the contractor business is paperwork. Unfortunately, just like a Monday, it always comes around. And there’s no paperwork more important for your contractor business than your accounting paperwork.
Accounting for contractors is notoriously tricky. As a contractor, you often work on the go. You may purchase supplies in one state and use them in a different state, making you have to deal with different tax rules and compliance issues for different parts of a job. If you lease materials, you need to understand leasing accounting best practices, and if you have a team, you may need to pay a mix of full-time and flex workers. You'll need to juggle all of these factors when working through your contractor accounting.
Adopting strong accounting practices can keep your business from losing money in audits, improve your pricing negotiations, and help you make important business decisions. Following a few of the current trends in accounting for the contractor business will put you on the road to getting there.
1. Have a System for Managing Change Orders
Change orders happen any time there’s a change to a project. For many contractors, they're just part of the job. But, if work begins on a project before change orders are officially drawn up or signed, it might cause a negotiation dispute. That’s why it’s important to have a system for creating change orders quickly and keeping track of them once clients have signed.
2. Keep the Books Project by Project
Each project has its own schedule, materials, and timeline. That makes project-based bookkeeping a more practical method of bookkeeping than trying to do everything on a monthly or quarterly basis. This helps contractors track not only when they make purchases but also which projects each of those purchases belongs to.
3. Choose Cash-Basis Accounting
There are several different ways contractors can choose to do their accounting. These include:
Completed contract method
Percentage of completion method
Although each method has its pros and cons, cash-basis accounting is one of the simplest, making it the preferred method for most contractors today. With cash-basis accounting, you only record revenue when you actually receive funds (instead of when you have contracts in progress), and you only record expenses when vendors are paid (instead of basing things on estimates). The simplicity of this method takes the guesswork out of your accounting and reduces bookkeeping expenses.
4. Plan for Taxes Year-Round
Doing taxes at the end of the year is a scramble. By planning for taxes year-round, contractors can keep their tax information organized and take advantage of things like the R&D tax credit.
Preparing for taxes year-round can save you money during tax season. If your paperwork is all in line, you’re less likely to get audited — but if an audit still comes your way, you're more likely to make it through with minimal frustration.
5. Automate the Busy Work
Automation software takes the most tedious accounting processes off your hands. From crunching numbers to tracking your transactions, automation processes can make accounting faster and more accurate.
You might have to enter some information into automation software by hand. But often, you can sync up your normal project management software with automation processes to make the job easier.
6. Use More Cloud-Based Accounting Software
Contracting jobs can occur anywhere. Your projects take you on the road, and you may travel from job site to job site throughout the day.
Cloud-based accounting software lets you securely upload information into your accounting software from anywhere. Of course, you can also access this information from wherever you happen to be.
7. Make Accounting More Mobile
Mobile accounting technologies go hand-in-hand with using cloud-based software. They let you use your phone to manage major accounting projects, from double-checking your budget to getting customers to sign off on estimates or change orders.
Mobile software is great for helping you manage your day-to-day workflow. It also allows you to collaborate with other team members, so CPAs, bookkeepers, and staff can ask for and add information as the job goes on.
8. Look Outside for Accounting Help
Outsourcing certain accounting functions, from bookkeeping to tax preparation, lets contractors spend more time on what matters most to their business: their clients.
However, contractors looking to outsource accounting functions need to be extra organized. Outside bookkeepers and accountants need to have easy access to all the information necessary to do their jobs.
9. Put It All on the Blockchain
Data management and security are big concerns for all business owners. Blockchain technology gives you some peace of mind by recording information in a way that's almost impossible to hack into. In combination with mobile accounting technologies or cloud-based accounting software, blockchain lets you maintain your accounting information on the go without worrying about security breaches.
10. Crunch Your Data
Contractor work is competitive, and staying afloat in the field requires you to understand your actual costs and profits, as well as the pricing choices of your rivals.
Data analytics can give you valuable insights into your operations, like how often you go over budget, how the market has changed in recent months, and which project types give you the best return on investment. In turn, this information can help you make decisions about pricing, marketing, and scaling.
Spend Less Time Paper-Pushing with Vendrix
With all the moving pieces you need to keep track of, contractor accounting can easily take up huge swathes of your week. Vendrix can help.
Our cards allow you to view and control business transactions as they’re happening. In-depth purchase details and budget-based spending limits ensure your team stays on track rather than forcing your company to eat unexpected expenses down the road.
All of this is possible while empowering your team members to do their jobs with our personalized employee cards that set spending limits based on roles you assign.
Contact us today to learn more about how Vendrix can improve your contractor business accounting and save you time and money going forward.