Happy Tuesday Folks!

Welcome back to another edition of The Contractor Finance Playbook.

Today we’re switching it up a bit and doing a little Q&A answering some of the questions that you have asked. It’s basically an extended version of From The Field (formerly From The Feed).

Now, let’s dive on in!

First of all, don’t feel like you have to become an expert in running a business overnight. You’re an HVAC pro that decided to go on their own, so it’s understandable that you’re not going to know everything about the business and finance side of things right off the bat.

As you start to grow I would prioritize making sure you know your numbers and truly understand what your financials are telling you.

Knowing your numbers gives you the visibility into your business that you wouldn’t have otherwise. It answers questions like:

You don’t need a complicated system to get started, but you do need accurate books and a consistent process for reviewing them. It’s not enough to simply know how much money is in the bank account. You need your financial data to understand how your business is operating so you can make informed decisions about where your headed.

The better you understand your financials, the more confident you can be running and growing the business.

You can definitely set up QuickBooks yourself, especially when you’re just getting started. The software itself isn’t too difficult to use.

The bigger question is whether you know how to set it up correctly for your business. The Chart of Accounts, income and expense categories, bank feeds and other settings all affect your financial information.

If you understand accounting and have the time to learn it and the software, doing it yourself can be a good option.

If you don’t, I’d strongly recommend having a bookkeeper or accountant set it up correctly from the jump. It’s easier and usually cheaper to build it correctly upfront than to untangle months or years of bad books later.

Once it’s set up properly, you can always decide whether you want to manage the day-to-day bookkeeping yourself or have someone else handle it.

First, I want mention that I am not sponsored by any of these companies. These are all platforms I have seen or used firsthand and generally recommend these platforms.

I also want to note, every payroll platform has its quirks and no platform is perfect. But these are the best payroll platforms out there currently and highly recommended by accountants and accounting firms nationwide.

My top two recommendations for small to mid-size contractors are Gusto and OnPay. Both are geared to supporting smaller businesses and are relatively cost effective compared to other payroll platforms. Base plans start at $49 per month and $6 per employee. They also allow unlimited pay runs so aren’t charged extra for any one-off pay runs that aren’t part of the regular pay cycle, it’s included in the base fee.

The downside of these two platforms is that they typically support businesses up to 50 employees. Unfortunately these platforms aren’t built to handle the complexities that come with businesses past that threshold.

If you’re under the 50 employee threshold I definitely suggest checking these platforms out. Links are below:

Gusto: https://gusto.com/

OnPay: https://onpay.com/

If your business is more complex or is at or surpassed the 50 employee threshold check out ADP Workforce or Paychex Flex.

Both scale cleanly past 50 employees and support multi-state tax filings and has broad HR/benefits capabilities. The downside of these platforms is they are generic platforms so if you have to do something like union fringe calculations, these platforms won’t support that and you will need an additional add-on tool for those calculations. They also charge per employee per payroll so the cost can fluctuate some depending on how many special pay runs you have in a given month.

Rippling is another solid option in this same vein as ADP & Paychex and tends to be more tech forward. They are also a strong option if you need HR/IT structure to your back-office. However, like ADP and Paychex, it is also a general platform so it may not handle construction specific items.

ADP Workforce: https://www.adp.com/logins/adp-workforce-now.aspx

Paychex: https://www.paychex.com/

Rippling: https://www.rippling.com/products/payroll

One final thought on this one before I move on to the next question. Stay away from QuickBooks Payroll AT ALL COSTS!

The platform is shaky and experiences outages and issues often. On top that, their customer service and support is horrendous, so if something happens it could take a very long time to resolve or you may be straight out of luck.

I know it may be tempting to go with it because it’s an easy option and its already part of QuickBooks but it’s just not worth the hassle in my opinion.

For contractors, quarterly taxes can be tricky because revenue, and therefore your tax liability can fluctuate significantly from month to month. The best approach is to work with your CPA or tax professional to estimate your quarterly payments, while setting aside a portion of each payment you receive for taxes.

Generally speaking I recommend setting aside at least 27-35% of each payment to ensure the tax liability is covered. But again, work with your CPA or Tax Professional to get that dialed in so you’re aren’t under or overpaying.

Payments can be remitted directly to the IRS website and quarterly estimates are usually due on the 15th of the quarter month (April, June, September and January)

There isn’t a one-size-fits-all answer to this, so my officialanswer is: it depends.

Sole proprietors or single member LLC, you will take owner’s draw, partners typically receive distributions and my receive guaranteed payments. An S-Corp owner that works in the business will need to take a reasonable salary through payroll.

The most important thing here is to keep your personal pay and business expenses seperate to ensure everything is being recorded correctly. Your CPA or tax professional can help determine the right approach for your specific business.

That’s all for this week folks!

Til next time, cheers!

Preston