Bookkeeping for construction and trade businesses

‍Bookkeeping for trade and construction businesses.

Trade and construction businesses make up roughly 17% of small businesses in Australia, the largest segment; followed by professional services and real-estate as shown below:

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As a tradesmen’s business grows so does the need to track many administration functions in a more detailed way. Bookkeeping for a painter, plumber, builder or bricklayer can be very different to bookkeeping for a purely service based business such as a law firm or IT firm.

Not only will it eventually become desirable to account for larger jobs as projects in order to see the profitability of these larger jobs, but on-sale of materials and products will also be mixed with sale of services creating unique GST implications.

Here are four main focal points to consider in regards to bookkeeping for a construction related trade:

System input & restrictions:

Tradesmen will generally be on the road and have minimal time to sit in the office and enter receipts that they have accumulated. Setting up an easy to use input system through Xero, MYOB or Quickbooks will allow the tradesmen to enter invoices and expenses on the run and allow them to digitally capture receipts so they do not have to keep hold of physical copies which will inevitably be lost.

Account restrictions can be created in most SME accounting software to allow individuals to access only selected modules of the program. This is a smart idea as it means staff who are inputting data cannot interfere with reconciled financial data.

Inventory:

Most painters, plumbers, carpenters and electricians will provide materials to their clients and install them at the same time. In this situation the payment for the goods can be either a reimbursement for an expense or can be lumped in with the job invoice sales total. This creates a situation where GST credits are being claimed through the purchase of materials and GST is being collected on the sale of the items.

While the GST collected from the items is being offset with the GST paid when they were purchased, the GST collected from services is not being offset with a related credit as payroll (AKA the cost of the labor) does not accrue any GST.

Ensuring all wholesale goods are entered with their related GST amount and attention is paid to the input on the Business Activity Statement is critical to ensure all GST liabilities are correctly accrued.

Allocating jobs to customers:

Allocating jobs / projects to customers will become extremely important as businesses grow and repeat customers return and have queries about old jobs and what materials where used etc.

All job supplies should be thoroughly described and attached to a customer account in Xero or Quickbooks. Related documents and materials should be photographed and digitally attached to the project invoices or bills.

Most SME accounting software has the option to print financial statements such as profit and loss for certain projects only, this is a great way to view the financial outcome of individual Jobs.

Processing Payroll correctly:

Tradesmen often deal with subcontractors along with employees and often get additional help on various jobs. Making sure that the labor laws are followed tightly and superannuation is paid when it must will save the pain of having to backpay unknown liabilities.

Whether your worker is considered an employee or contractor depends on a range of factors such as whether they set their own hours or their hours are controlled by the employee, whether the worker can delegate the work to another or are ultimately responsible and a range of other factors.

Penalties for categorizing employees as contractors usually involve paying back to the employee all benefits, accruals and superannuation that would have been owed if they were paid as a regular employee for their duration of work.

Paying employees in conformance with award wages and overtime rules as administered by the fair work ombudsmen will protect you from potential legal action from disgruntled employees and allow you to focus on business operations.

Does your business need help to execute the above principles?

If you are a tradesmen and are looking for a bookkeeper in Wollongong, Sydney, Bowral or anywhere else in the Illawarra or southern highlands you can check out CTK ACCOUNTING'S full range of bookkeeping services at ctkaccounting.com

Although we consider ourselves the ‘best bookkeepers in Wollongong’ we recommend you find a bookkeeper who fits the ins and outs of your business and whose available hours and capacity aligns with the amount of attention your business needs.

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