All successful contractors have seen hard times.
At some point (before they had a fleet of trucks and 10 forepeople (foremen) running projects), they had gotten to the point of needing an assortment of the following:
- a loan
- a line of credit
Often they were denied because their books weren’t in order. They were running their business out of their truck and checked the bank balance to see if they had enough cash to pay payroll. They lost a project, had to lay off their best teammates and had to come out of pocket to stay in business.
All successful contractors learn from their mistakes
To save you time, energy, heartbreak and many sleepless nights, here are a four ways to avoid being turned down for funding when you need it:
- You need a real chart of accounts. If your Chart of Accounts is in alphabetical order it’s not real. A real chart of accounts is organized by KPI (key performance indicator), is specific to the company’s goals and holds the primary information you need to make decisions about your business. A great bookkeeper can do this for you.
- You need your bank and credits reconciled and closed each month. Clean and tidy bookkeeping is at the heart of every banking relationship. It is also critical in bonding situations. If you are pushing hard to grow it is going to be difficult to show your capacity if your bookkeeping doesn’t fully reflect the strength of your team. The three basic financial statements matter when you go to the bank for a line of credit, a loan, etc. A real bookkeeper can do this for you. The three basic financial statements are:
- Balance Sheet
- Cash Flow (see the next point)
- P&L matter when you need to go the bank for a line of credit. A real bookkeeper can do this for you.
- You need to maintain very tight cash flow reporting. This requires an efficient process of collecting your expenses and making them part of your record keeping. Sounds simple but a great bookkeeper can make this streamlined so that your team isn’t wasting their time or your money messing with receipts. Once again, your success securing bonding and lending rests on the strength of your cash flow reporting.
- You need to maintain your projects. This can be as simple as a spreadsheet of all ongoing projects, the payment benchmarks, change orders and your current profit or loss. This includes future projects that you have won but have not begun. You need this for lending and bonding requirements.
I hope you are seeing the trend here. Great reporting gets you access to money so that you can grow.
What does it take to get great bookkeeping
- Hire an actual Bookkeeper! Sounds obvious but bookkeeping is a specific skill set and should not be managed by someone without training. Find someone that calls themselves a bookkeeper. Make sure they have worked with construction and or construction management firms. They will bring a lot of best practices and will not need to learn on the job.
- Pay them what they are worth. In NYC a great outsourced bookkeeper should be charging between $75 and $120 per hour. This is what great bookkeeping costs. It is also efficient. These people will build you a system quickly, save you and your team hours of work every month.
- Reap the benefits. Often the money this person saves you will be more than you spend on their fee. This is one area where small contractors tend to be penny wise and a pound foolish. The small amount you save will cost a large amount of money in the future. It’s far more profitable to simply make this investment.
I’m being very direct and maybe dishing out a little tough love. It’s because we see the results of bad bookkeeping when combined with contractors who are trying to grow.
This is one of the main areas that will hold you back; it wastes your time, and it restricts your growth.
Here’s an example; A contractor I know could not pull clean reports for several months because his bookkeeper was terrible. The bookkeeper struggled for several months to clean their books, the contractor tried being patient, but finally got fed up and invested in a great bookkeeping team. The new team got his books together in about 3 weeks and the contractor was able to secure bonding again. There is a lot more to this story but I’m sure you get the point.
I do hope you’ll consider the current state of your books and consider how much time you or your business partner spend working on them and if there is room for improvement.