The construction industry is no stranger to financial challenges. Long project timelines, significant material orders, and upfront labor expenses often characterize this type of work. Construction contractors need careful management of their finances to ensure financial stability and profitability. With help from a South Jersey accountant, you can avoid these issues that lead to reduced profitability, missed deadlines, and even bankruptcy. Here are the top financial mistakes construction contractors make and how to avoid them in your company.

Not Documenting All Work

In the construction industry, project managers can make changes on the fly without proper documentation. However, this can lead to a wide range of financial challenges for contractors, including reduced profit margins and even losses on a project. Unfortunately, these problems stem from the industry’s split-second nature, where decisions and changes are based on a brief conversation and a handshake. Without proper documentation, these changes may go unnoticed and unrecorded, leading to additional costs that may not be billed.

If you want to address this challenge, you need to implement better processes to facilitate mid-project changes. You will need a detailed scope of work, which outlines all project requirements and specifications from the start of the project. The scope should be supported by a detailed change order process that allows contractors to put together pricing and document project changes before sending them to the finance team for invoicing. By implementing these processes, contractors can avoid undocumented changes and ensure all work is invoiced. With that, you can reduce the risk of financial losses and improve your company’s overall profitability.

Late Invoices and Missing Bank Draws

Projects often have invoice submission deadlines for monthly draws from the bank. Missing these deadlines can result in delayed payments and cash flow issues. Late invoicing can significantly impact a construction company’s financial health. If workers and vendors are not paid on time, the company’s financial risk increases, leaving a lack of available cash to put back into the business. The causes of late invoicing can vary, but common issues include lax reporting systems, poor communication between the field and finance departments, or an overworked financial team.

Consider hiring contractor accounting services to address these challenges to ensure all invoices are submitted on time. By addressing these issues proactively, you can ensure workers and vendors are paid on time.

Insufficient Cash Reserves

Sometimes, the construction company will have to cover the labor and material expenses before receiving a full payment from the client. As a result, construction companies may need help to cover costs and make essential payments, such as payroll. This can lead to unnecessary loans or payment delays, which can accrue interest costs or cause distrust among vendors and employees. Insufficient cash reserves can be a significant issue for construction companies since it limits their ability to grow their business.

If you want to avoid these issues, consider requiring a 25-50% deposit on projects, which can help reduce the labor and material costs being fronted by your company. You can also renegotiate vendor contracts to extend billing cycles or pay some or all expenses after completing the project. However, this approach works best when a good, trusting relationship with vendors exists. By implementing these strategies, you can reduce your financial risk, keep more cash on hand, and preserve working capital to grow the business more strategically. Additionally, having sufficient cash reserves can help you weather seasonal fluctuations and unforeseen circumstances, providing a foundation for long-term success in the industry.

Misunderstanding and Misallocating Costs

When it comes to understanding costs in the construction industry, you need to have a clear and comprehensive understanding of all the expenses associated with a project, including materials, labor, equipment, and administrative costs. Without an understanding of expenses, construction companies may be pricing jobs incorrectly, resulting in projects that are destined to be unprofitable. By properly allocating and tracking costs for each project, companies can gain a more accurate view of their profitability and make more informed business decisions.

You will want to analyze your income statements and identify costs that need to be properly allocated. When you take a more strategic approach to cost allocation and tracking, you can maximize profits on all projects and achieve greater overall profitability.

Front-Loading Costs

Front-loading costs refer to spending a large amount of money upfront in a project’s early stages. Permits and site preparation expenses are all included in this practice. While it may seem necessary to get a project off the ground, front-loading costs can lead to cash flow problems later on in the project when the money runs out before completion. Front-loading costs can strain a construction company’s cash flow. In turn, the company may need to take out loans or delay vendor payments, which can negatively impact business relationships. Additionally, it may result in a project’s completion taking longer than anticipated, leading to potential penalties and damages.

You should develop a comprehensive project plan outlining expenses and expected timelines to prevent front-loading costs. With that, you can allocate resources and manage cash flow more effectively. Additionally, consider spreading costs throughout a project, negotiating with vendors for payment terms, and setting aside contingency funds to cover unexpected expenses.

Consider TMD Accounting for Your Construction Company Financial Needs

As a family-owned and- operated accounting firm, we have extensive experience assisting with accounting for construction business clients. Our team provides personalized, high-quality service to meet your financial situation. See how we can help your construction company succeed. Call us at 856-228-2205 to schedule a consultation.

As your business expands, self-managing your finances can quickly become daunting. Many companies, which initially handle their accounting in-house, often realize that outsourcing is a more efficient option. While outsourcing your accounting may seem like a relief, transitioning from in-house to outsourced accounting can be challenging. Here are a few tips to help you make the transition as seamless as possible.

Pros and Cons of Using an Outsourced Accountant

Outsourcing eliminates the time and costs of the hiring process. Along with that, it provides access to expert accountants and bookkeepers. Additionally, outsourcing makes it easier to scale accounting services, leverages automation technologies, and provides a valuable advisor to help make the process more efficient. By choosing the right outsourcing company, you can ensure that your accounting is in the hands of a reliable and knowledgeable firm.

One of the main disadvantages of using an outsourced accountant is a need for more control over the quality of the work. When you outsource small business accounting services, you rely on a third party to manage crucial financial information. It can be challenging to monitor their performance and ensure that the work is being done accurately and efficiently.

Another potential issue is a need for more direct collaboration with your accountant. When working with an outsourced accountant, communication may be limited to email or phone calls, making it more difficult to establish a close working relationship and receive timely and personalized support.

Make the Switch by Choosing the Right Partner

Choosing the right financial partner is vital to a successful accounting transition. With the right support, the process can be smooth and effective. If you want to ensure that you choose the best fit for your business, consider the following qualities when selecting an accounting firm.

Proactivity

A good accounting firm should be proactive in helping you transition from in-house accounting to outsourcing as seamlessly and stress-free as possible. If they aren’t offering support during this stage, it may be a sign that they are not the right fit for your business.

Communication

A strong communication style is crucial in any business relationship. Look for responsive, clear, and proactive communication from the accounting firm.

Expertise

Make sure the accounting firm you choose has the experience, knowledge, and technology to meet your needs. You will want to consider their track record and reputation in the industry.

Customer Focus

A quality accounting firm should be in tune with your needs from the start. You want them to be committed to making your life easier. Your prospective accounting firm should be customer-focused and dedicated to your success.

Get an Early Start With the Right Plan

When transitioning from in-house accounting to outsourcing, you need to plan and budget enough time for the process. You want to ensure that your financial statements and reports are received promptly. Keep in mind that the switch may take several weeks to complete. To make the transition as smooth as possible, plan to spend two to four weeks gathering your financial records and documents for your new accounting firm.

Once you’ve handed over your financial records to your new accountant, they should be able to provide you with an estimate of how long it will take to start monthly accounting services. Remember that if you need to catch up on bookkeeping or taxes, your accountant will need to complete them before moving forward with future financial statements. On average, it takes 60-90 days to complete one year’s worth of back taxes.

You should be cautious of accountants who make unrealistic promises, such as claiming the transition will be “a breeze” or take “no time.” These promises may be a sign that the accountant needs to be more serious about the financial health of your business. On the other hand, if they finish the work too quickly, you might want to be skeptical of the quality of their work.

Set Achievable Goals

Before transitioning to outsourced accounting, you will want to understand and communicate your specific pain points and goals. Knowing why you want to outsource and what you’re nervous about can help establish clear expectations and ensure a successful partnership with your new accountant.

To get the most out of your accounting relationship, take the time to list everything that frustrates you about your current accounting process and your future financial goals. By providing this information to your accountant, they will better understand your needs and tailor their services to meet those concerns.

A quality accounting firm will have established processes to ensure your success, including meetings designed to help you establish best practices and a plan for working toward your financial goals. Your accountant should thoroughly understand your business and be equipped to provide the guidance and support you need to succeed.

Find an Accountant

Transitioning from in-house to outsourced accounting can be a significant step for your business. Whether you have an in-house accountant or use a combination of an in-house bookkeeper and an external accounting professional, there are certain advantages to working with an outsourced accounting service.

By following these tips, you can be better equipped to smoothly transition to outsourced accounting and enjoy the benefits of working with a professional and experienced South Jersey accountant.

Choose TMD Accounting for Your Small Business

We are a family-owned and -operated accounting firm. We have helped numerous clients over the years. Whether you need help with payroll or taxes, we are here to assist you. Schedule a consultation by calling 856-228-2205.

Many businesses use software programs for their bookkeeping and accounting. These methods have made bookkeeping and accounting easier for small businesses. Unfortunately, it has also made errors in bookkeeping more common. Some accounting errors are minor and unimportant, while others are more significant and might have a negative effect on your business’s financial health. Here are the top five small business accounting errors and how you can find and fix them.

#1- Listing Potential Profit as Current Cash Flow

Many businesses believe that profit is the same as cash flow. For example, if you have closed a deal for $40,000, you might assume the initial dollar amount could be considered pure profit. However, that is not always the case. Remember, the costs to complete the deal or other problems could cut into those profits. Plus, it will take money and resources to complete the deal. As a result, you may lose a significant portion of the profit before the project finishes. While it is tempting to write down all income as a new cash flow, it gives your business a false sense of security that you are operating a financially healthy business.

#2 – Forgetting to Record Transactions

Accountants must keep a meticulous record of all transactions. From small payments to large ones, it is crucial to ensure that every detail is recorded and categorized in the correct account. Bookkeeping is just as important for small companies as it is for large ones. With the proper accounting and bookkeeping practices, you can access information to assess your business’s financial health.

To keep your business financially secure, you need to establish a serious bookkeeping and accounting system that accurately categorizes your assets and liabilities. It is also important to check your books and accounts monthly. When you are not serious about these duties, it can lead to financial troubles.

#3 – Failing to Reconcile Books With Bank Accounts

You need to check your bank balance against your ledger frequently. This practice is called reconciliation. When you frequently check your record against the bank accounts, it ensures your account balances are accurate.

It can be easy to forget to record small costs and expenses, which can cause problems later. Reconciling your accounts will allow you to track your financial situation. Every time you pay for something, ensure the receipt is recorded in your business’s accounts. This will help you keep track of your business’s financial health.

#4 – Not Communicating With Your Bookkeeper or Accountant

These professionals need to be aware of all the transactions in your business. For that reason, keeping good records of your company’s financial information is essential. In addition to that, you will want to ensure those records are available to your bookkeeper or accountant. When it comes time to monitor your income and spending, you should keep a paper record of all transactions. Communication will help prevent any problems regarding your accounts and books.

#5 – Managing Bookkeeping and Accounting Responsibilities by Yourself

Are you a small business owner who handles your bookkeeping and accounting in-house? It can be tempting to save money by doing these tasks on your own, but it may not be worth the time and effort. While some might think that managing their own accounting is an excellent way to save money, it could cost them more than they realize. Hiring an accountant involves upfront costs, but it will be worth it for your business in the long run.

When you hire an accountant to manage your accounting, you give yourself a chance to save money. Accountants often know about certain tax deductions and can spot errors in your company’s books. You may be hesitant to hire a professional to handle these tasks, but small business accounting services provide many benefits.

How to Prevent and Fix Errors

Now that you know the common errors, how do you find them? Here are a few tips to follow.

Keep an Audit Trail

An audit trail is a set of documents that confirms the transactions you record in your books. You base the entries on your company’s purchases, sales, and expenses when you record transactions. The audit trail details all the information about transactions so you can use it to cross-check your bookkeeping.

Use a Consistent Process

It is important to review your books regularly to spot errors. While the frequency of your bookkeeping review depends on your business, you should conduct a checkup at least once a month. Even small mistakes can snowball into bigger problems when you do not catch them. If you don’t currently have a regular accounting process in place, consider starting one to catch accounting mistakes early and prevent future issues.

Have Someone Else Look at the Books

When it comes to your accounting, you are better off having someone else check your books. After all, you’re a business owner, not an accountant or bookkeeper. If you want to catch mistakes, save money, and prevent headaches, ask an experienced professional to help with these tasks.

Need an Accountant for My Small Business?

When you need help with your small business accounting, reach out to TMD Accounting. For over 40 years, we have served the Gloucester County community and surrounding areas. Whether you need assistance with bookkeeping or accounting services, we can help you get a handle on your finances so that you can focus on operating your business. Schedule a consultation by calling 856-228-2205 today.

As an entrepreneur, it can be exciting to open a new startup. Making sure that your accounting processes are established correctly can make a difference in the success of your business. It is rarely a good idea for new business owners to try to manage their accounting because of the potential for errors and the penalties they could face for mistakes. Here is what you need to know about establishing good accounting practices from TMD Accounting.

Bookkeeping vs. Accounting

Bookkeeping and accounting are not the same things. You must understand the differences between these essential functions so that your financial records can be kept properly.

Bookkeeping involves keeping track of daily transactions. Bookkeepers typically do not analyze a company’s finances but simply record transactions. The tasks of a bookkeeper include the following:

• Record and categorize daily transactions
• Create and send invoices
• Record when invoices are paid
• Follow up with clients who owe unpaid invoices
• Process payroll
• Reconcile bank statements
• Prepare financial statements
• Provide financial statements and tax documents and give them to the accountant

Bookkeeping doesn’t require any certificate or license and is relatively simple to do.

By contrast, accounting is much more analytical and subjective. Accountants must be certified. Some of the tasks that an accountant might do include the following:

• Adjust entries to balance books
• Analyze financial statements
• Assess a business’s financial health
• Advise business owners about financial decision-making
• Prepare and file business tax returns
• Complete audits

Accountants are generally required to hold Bachelor’s degrees in accounting and/or be certified public accountants (CPAs). They have more experience and education than bookkeepers.

Managing Accounting for Startups

To establish accounting practices for your small business, you should do the following things:

• Open separate business checking and savings accounts
• Avoid commingling business and personal funds
• Choose either the cash basis or accrual basis accounting method
• Establish your bookkeeping system
• Purchase accounting software
• Create your business’s chart of accounts
• Decide your business’s accepted payment terms
• Keep thorough transaction records
• Financial Records to Retain

You will need to create and retain the following important financial records as a startup business:

1. Balance sheet – A snapshot of your company’s finances and can be updated or prepared at any time

2. Profit/loss statement – Summary of your company’s expenditures and revenues over a set period to monitor your business’s growth

3. Cash flow statement – Report used to predict whether your business will meet its obligations and includes both variable and fixed expenses

4. Accounts payable/receivable reports – Provide detailed information about your outstanding invoices and how long they have not been paid as well as what you owe and to whom it is owed

5. Business tax returns – Prepared, filed, and retained for seven years

Other records to retain include the following:

• Forms 1099-MISC
• Invoices, gross receipts, receipt books, and bank deposit records
• Purchase records and receipts
• Expense records, including proof of payment, canceled checks, credit card receipts, account statements, and paid invoices
• Documentation of business assets, including acquisition dates, purchase prices, how they are used, when disposed of, selling prices, and improvements
• Employment tax records for at least four years

Why Good Accounting is Important

Startups need to have good accounting practices to help them understand their financial situations at all times. When you implement good accounting from the beginning, it can help you establish good business habits that can benefit your business and facilitate its growth.

Many startups fail because of a lack of cash flow. Proper accounting can help you monitor your business’s cash flow and the rate at which it spends money. Your accountant can identify trends in your business’s cash flow and cycles during which your cash flow might be heavier or lighter. They can also help you identify areas in which you are spending too much and offer advice for how you to reduce your business’s spending.

Good accounting also helps your business to comply with the tax law and avoid potential IRS audits. When you have small business accounting services in place for your startup, your accountant will prepare your business taxes for you and ensure they are correct. They can also help you understand the deductions and credits for which your business might be eligible and the types of documentation you will need to support them. If the IRS selects you for an audit, your accountant can guide you through the process and communicate with the IRS for you.

A good accountant can review all of your records and help to identify all potential deductions and credits. This can help to reduce your taxable income and the taxes you might have to pay.

Find an Accountant for My Small Business

If you are preparing to open a new business, establishing your accounting practices can help to keep your company on track. The professional accountants at TMD Accounting can help you implement a sound accounting and bookkeeping strategy to help your business grow. Call us today for more information at 1-856-228-2205.

Every business needs to have a strong accounting system in place so that they can understand their finances and make accurate projections about the direction of their companies. Accounting involves continuously observing and exercising control over your company’s economic activities. The success of your business will largely depend on your accounting, and it’s important for your company to strictly follow the generally accepted accounting principles (GAAP) in your accounting practices.

As a discipline, accounting is strict and follows the GAAP to prevent inaccurate or incomplete information from being reported. Here is what to know about modern accounting and the five generally accepted accounting principles from the professionals at TMD Accounting.

Principle 1: Revenue Recognition

The revenue recognition principle is the first principle your business should know. When you record data, you need to think about the time during which you recognize revenues your company earns through its income statements. When you will recognize your revenues will depend on whether your company uses the cash-basis or accrual-basis method of accounting. If you are using the cash-basis method, you will recognize your revenues during the period in which your company receives them. If you are using the accrual-basis method, you will recognize your revenues during the period in which you provide services.

The revenue recognition principle states that companies should only recognize revenues when they have mostly or totally completed the process of earnings. This means you should record revenues at the time when the purchaser takes possession or when you have completed your service. The revenue recognition principle helps businesses to keep accurate track of their accounts and prevents them from counting profits too early.

Principle 2: Cost

Businesses should also record their assets at the time they purchase a service or product to accurately track their expenses. YOu should record the cost of anything on which your business spends money and properly account for depreciation. Under the cost principle, businesses should not record the resale cost of items in their books. You should instead use the item’s historical cost. For example, if you own an office, use the historical cost of the property instead of its fair market value while making certain to account for overhead costs.

Principle 3: Matching

Businesses should make sure they match the revenues they have recognized with their expenses during the same period and record them when the expenses were incurred. If your business recognizes revenues for services or products you sold, you should also recognize the cost of those services or products during the same period.

Every expense item should match a revenue item under the matching principle. For example, if you sell t-shirts, you should recognize the revenue of a t-shirt when a customer purchases it while also accounting for the expense involved in your business purchasing the item at its wholesale price. When you apply the matching principle, you are using the accrual-basis method of accounting.

Principle 4: Full Disclosure

When your business creates its financial statements, all of the information must be complete and transparent. You should not include any information that is misleading so that your clients or partners are aware of all relevant information about your company.

Prinicple 5: Objectivity

At all times, your accounting information should remain accurate and free from opinions. You should make sure your accounting data is supported by evidence, including receipts, invoices, and vouchers. When you remain objective, your financial reports will be more reliable. You should steer clear of anything that could call your work into question because of your subjective opinion.

Under the objectivity principle, your books should include verifiable information that is supported by objective evidence and should not include any unsupported data. The values used in your reports should not be subjectively measured even when subjective data is more favorable than the data that can be verified. If you violate this rule, it could lead to confusion because of making it difficult to comprehend the subjective data. It is best to only include data that others can verify in your financial reports.

Why Is It Important for Businesses to Know Accounting Principles?

The five generally accepted accounting principles are justified, and they provide a good foundation for your company’s budgeting and planning processes. By strictly adhering to these five principles, you can avoid conjectures that could lead to financial problems.

Following basic accounting principles can also help to improve the cohesiveness of your organization. Depending on your business’s size, different employees might be in charge of different accounting principles. If you don’t have a plan, it could be impossible for your employees to perform their jobs so that you can get a clear picture of your business’s financial health. If left unchecked, this can result in significant financial problems and potential business failure. Making sure your plan is founded on the five generally accepted accounting principles can help to avoid these types of issues.

The basic principles of accounting provide a straightforward method for reporting your finances. Each principle has a role in the big picture of your company’s financial health. When you establish these principles at your business, you can facilitate a more productive and organized environment to track your cash flow and avoid problems such as unverified data and missing funds.

Find an Accountant for My Small Business

When you work with TMD Accounting, we can help you establish the generally accepted accounting principles at your business to facilitate your company’s growth and success. To learn more, call us today at 1-856-228-2205.