570: Construction Business Practices For Getting Paid And Paying Yourself

This Podcast Is Episode 570, And It's About Construction Business Practices For Getting Paid And Paying Yourself Running a small construction business may seem like hopping from one task to another, needing more support and guidance. That can make it tempting to let some to-dos on your checklist slide, especially those related to finances, which can be challenging and are often outside your preferred skill set or experience.    The issue, of course, is that clients can only pay you once you've invoiced them. And as you make your salary a top priority, you can also pay yourself. You need an invoicing system that makes the process less painful—or even removes it entirely from your hands.  

There are some tips you can follow to keep your finances healthy and enable you to thrive. Here are some practices to improve managing your financials so you can have the best chances of success in your construction business..

Pay yourself

The business owner's salary is the line item most often left out of a small construction company's budget.

As a construction business owner, you may be tempted to keep putting every cent you earn back into your contracting business, but paying yourself first is necessary. You need to earn a living; paying yourself can help your business succeed. You need to pay your bills and be financially sound. You'll also need to have money set aside for your retirement. 

Ensure you draw a regular income from your business to cover your expenses. Talk to your accountant for guidelines on how much to pay yourself, and always treat yourself as generously as you would your employees.

Reward financial milestones met and projections exceeded with a bonus. Raise your salary when your profit shows continuous growth. If giving yourself a raise creates some anxiety, do it in confidence, knowing you can always make adjustments as needed.

Have a separate business bank account

From day one, business owners should have a separate bank account to deposit their income and pay their business expenses.

Keeping your business and personal finances together makes it more difficult to track how your business is doing and how you're doing. Separate bank accounts for your business and personal finances allow you to monitor where and how you spend money more efficiently.

It's also crucial to designate a business-only credit card. During tax time, separate statements make submitting claimable expenses quick and easy while reducing painful audit risk.

Have separate accounts for your business and finances, and deposit your salary (see the above tip) into your account. 

Have a good billing strategy

Every business owner wants to make money. Invoicing is typically one of the tasks that contractors like the least. Chores like creating and sending invoices are set aside for other more enjoyable or urgent tasks.

Eventually, you'll deal with clients who are slow to pay their bills. Money your clients owe you isn't accessible until it's in your bank account. The good news is that we have developed two solutions that can streamline your client's payment process:

The difficulty often comes down to waiting for clients to pay their invoices. Chasing down one or two chronic late payers costs valuable time and money; if reliable clients stay caught up on one month, the result can be devastating. Many contractors use QuickBooks For Contractors to keep track of Job Costs and invoice their clients—it works well if you only have a few simple invoices. 

The tricky part is when you get beyond two invoices, add some job deposits, and change orders because there is no "magic button" in QuickBooks to generate an invoice that will make sense to your client.

Randal DeHart created this Excel program for complex invoices, which shows the money trail from beginning to end in a way that everyone can understand and appreciate, which means you get paid faster, with less hassle, and your clients will love you for it.

Send your invoices immediately when a contract wraps up or it's your scheduled billing day. Automating your invoicing with a cloud-based accounting solution will eliminate the need for time-intensive manual billing and ensure you stay caught up.

This class will help you master setting up, requesting, receiving, reporting, and applying Job Deposits in QuickBooks. It will also take the stress out of generating a report to see who has deposits and balances and teach you how to avoid payment problems by offering options to your clients.

Remember to invoice immediately and follow up before the payment deadline so you can get started on your client's large companies with their payment terms, find out what those are, and be mindful of them when billing. 

Hire a construction bookkeeper

Bookkeepers handle your company's day-to-day financial transactions and records. That includes invoicing and following up when invoices aren't paid.

A bookkeeper creates the invoices and ensures they're sent out on time. They record all payments that come in and follow up on unpaid invoices. Having a complete view of your company's financials lets them tell you if you're charging enough for your services.

Think about how much easier it would be to get paid if someone else was responsible for ensuring that happened.

Final thoughts

Many construction businesses generate revenue, but it typically takes time to see healthy profits – another reason it can be difficult to pay yourself first. Nonetheless, rewarding yourself for your hard work will motivate you to keep working, even if you aren't able to pay yourself a large salary right away.

One of the best ways to encourage customers to pay on time is to maintain a friendly relationship. Encourage goodwill by adding a handwritten note to your invoices, remember your clients' birthdays, and thank them occasionally for their ongoing business. 

It's a simple fact: when your customers feel connected to the person behind the business that serves them, they'll be more inclined to take care of their invoices quickly. 

Let me know how I can help your business with Invoicing. We can tailor our services according to your company needs - whether you're just starting or scaling up.

PS 

About The Author:

Sharie DeHart, QPA, co-founded Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations. She offers insights on managing the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com