Happy Tuesday Folks!

We’re back with another edition of The Contractor Finance Playbook.

This week I touch on four numbers that every contractor should be tracking every week.

Plus I answer a question that I came across in a Facebook group recently that I’ll share my thoughts on.

Let’s dive on in!

Many contractors don't go out of business because they aren't profitable. They go out of business because they run out of cash. 

In many cases, the warning signs start showing up weeks in advance. And if your keeping an eye out on the right numbers, you can resolve them before they get out of hand. 

As I talk with more and more with contractors, I see that many manage their business off of instict. Don't get me wrong you need to have good business instinct but you can't solely run your business off of it. 

My grandpa owned and operated an old school drive-in restaurant for over 50 years. When he opened up and walked in the kitchen in the morning, he could tell how much he had in sales the previous day based on how much bread was left over on the bread rack. 

And he was pretty dang good at it too, usually his guess would be within a couple $100 dollars.

Many contractors try to the equivalent - run their business off instinct, job backlog or whatever cash happens to be in the bank account that morning. It may work for a while, but once payroll grows, projects start overlapping and expenses start stacking up, guessing can become very expensive. 

If you want to stay proactive and stay on top of cash flow, protect margins and make better informed decisions, there are three numbers you should review at least once every single week. 

The other week I wrote about why you shouldn't run your business through the bank account. If you missed it you can read it here.

And while yes, you shouldn’t make decisions solely based on bank account balances...you do need to check them often. 

While your bank balance only gives you a snapshot of where you stand at a specific time, you need to check it often just in case something unexpected happens.

Now, what’s even better is if you a cash flow forecast, that will give you insight into where your headed a week, month and beyond.

That difference maters. 

Take a contractor that has $75,000 in the bank. Looks great on the surface. 

But if in the next three weeks they have payroll, materials, equipment payments and overhead due that totals $110,000...they're in trouble. 

That's why having a cash flow forecast is so important for contractors. 

A simple week cash flow forecast gives you visibility into:

It doesn't have to be super complicated either. 

Personally, I'm a fan of 13 week forecasts its granular enough to show what's coming up next week but also two months from now. 

If your putting this together yourself you can always forecast 4 weeks out. Take your current jobs, whats completed/expected to be completed, when the payments for those jobs are expected to come in, and net it against all of your expected cost for that same period. Its not perfect but it will at least get you started. 

A forecast can give you clarity on what's coming up and help you make smarter decisions before cash gets tight. 

Because cash flow problems rarely start overnight. 

Revenue doesn't mean a thing if its just sitting on your balance sheet as an unpaid invoice. Not to mention you could be potentially be paying tax on revenue that you haven't even collected on yet. 

This is why its so important that Accounts Receivable balances are reviewed and managed weekly.

At a basic level you need to understand:

At a deeper level its also helpful to do an analysis to understand:

Too many contractors assume the money is coming because the job is complete. Invoices don't pay themselves and the longer invoices sit unpaid, the less likely they are to be collected. 

The gap between earned revenue and collected cash is where many businesses get squeezed. 

Review your AR aging report weekly and pay attention to the trends. 

If receivable balances are climbing faster than sales or more invoices are moving into 30, 60 or 90+ days past due,  then you have a process issue, not just a payment issue. 

Project margin tells you which jobs are actually making money and which ones aren’t.

And for contractors, its a very important indicator of a businesses health. 

You can grow revenue and still lose money if labor, materials and subcontractor costs are higher than expected. 

Tracking profit margin by specific job gives you visibility to: 

If margin is slipping, it means you aren’t pricing high enough.

A pricing issue, labor overrun or material cost increase can quietly erode profits long before you see it in the financial statements. The sooner you can identify margin reduction, the sooner you can make adjustments before its too late. 

The could mean raising prices, controlling labor or reducing costs. 

Look at all of your upcoming bills and payments scheduled for the next 4 weeks. Make sure to include all of the bills that are automatically drafted.

Note which ones are upcoming in the next week. If cash is tight are there any payments that can be rescheduled without hurting the relationship.

Similar to Accounts Receivable where cash is coming to the business, viewing upcoming payments and bills gives you visibility to what is leaving the business.

This visibilty let you know if you need to potentially need to make adjustments.

This is a new segment where I take a popular question from social media feed and give my honest thoughts on it

“I’m thinking of disconnecting my QBO sync, but would like to hear any thoughts for or against it. Initially the sync was great to bring the customers over now I feel like there little annoying this that I have to keep fixing to make things go smoothly. I hate that if I archive a customer in Jobber I have to do the same in QBO. And QBO will do weird things with applying sales tax to customers that we dont need to collect sales tax from so I hate having to double check how services or customers are set up.

My thoughts are that I don’t need to keep track of who paid what in QuickBooks- that I just need to record the income.

We don’t have a lot of sales tax we have to pay so I can use the Jobber report to make my quarterly filing with the state and just record that in QuickBooks.

If there’s anything I’m not thinking of please share! I’m feeling like I just want to disconnect this week and just move forward with a new system.”

To answer the question - No, you shouldn’t be disconnecting the Jobber sync from your QuickBooks account. Part of the benefit of investing in business management tools like Jobber is the sync to the accounting software.

By disconnecting the sync you lose out on the benefits of this even if it “makes things easier” in the short term.

Here’s why disconnecting the sync or not syncing at all is problematic:

By not having the information in Jobber automatically flow to QuickBooks you go from manually managing one system to two, which puts more work on you and/or your admin staff. This takes time away that could be used to focus on more value-added tasks.

Once the sync is disconnected you will have to manually clear the outstanding receivables in QuickBooks manually. As customers pay and are marked paid in Jobber, someone will also have to go to QuickBooks and mark the invoice paid on the customer account as well. Not doing this will create a big mess and will result in a large cleanup fee come tax time.

When deposits are received from Jobber or any of these business platforms, the fees are already taken out before the deposit even hits the bank account.

By only recording the deposit amount as income, you are understating the real revenue and losing the the processing fees as a seperate deductable business expense.

The right way to do this is to create the deposit for the gross sales amount as income and then breakout the processing fees as a seperate expense.

When it’s setup correctly, the sync handles most of this automatically.

They mentioned using a Jobber report ti make their quarterly filing with the state and record that in QuickBooks after the fact.

By not having the invoice data transferred to QuickBooks, the sales tax that is collected is being reported in gross income. This causes net income to be overstated and if they were ever in a sales tax audit, the amount in QuickBooks won’t match the amount that was remitted to the state.

If your using QuickBooks or other accounting software, it should always be what you go by and all other third party systems or applications should tie back to that.

By take the approach that this person is considering you lose out on visibility in your reporting and a clean audit trail if you were ever audited by the IRS.

Even if you use your Jobber reports to give to your tax preparer or CPA at the end the year, I guarantee they aren’t using that report as the basis of the return. They are likely transferring the data to a low cost ledger platform that you don’t even see.

It sounds like the sales tax and customer maintenance issues this business is experiencing is a setup issue with the mapping and not a sync problem. Getting this mapped to the correct accounts in QuickBooks typically fixes both issues without having to disconnect anything.

That’s all for this week folks!

Til next time, cheers!

Preston