Accounting for tradies can really only be described in one word. Headache. You may have a slightly less politically correct word in mind, and we completely agree with your assessment of the situation. Between keeping track of your receipts, managing your employees' pay and reporting your earnings to the ATO, how much time are you left with to pick up the tools and earn the income that keeps your business running?
If you're struggling to manage your accounting, never fear! We've put together these accounting tips for tradies to simplify your bookkeeping.
But first, it's time to learn the lingo.
If someone asked you for your income statement, would you know how to generate it? Do you know the difference between assets and liabilities? Without familiarising yourself with the refined (though ultimately dull) language of accounting, you'll never wrap your head around the practice. Here are the top words and phrases we think you need to know.
An income statement is a statement that shows a company's revenue, expenses, and profitability. Some refer to it as a profit-and-loss (P&L) or an earnings statement. An income statement is essential when you’re conducting accounting for tradies. An income statement shows how well your business is meeting income targets, taking into account how much your business makes from different income streams minus the costs of running your business. The income statement is one of three financial statements that every public company is required to issue quarterly and annually. The others are the balance sheet and the cash flow statement.
Cash Flow Statement
A cash flow statement is a financial statement that summarises the amount of money flowing in and out of your company. The statement includes all income streams, including day-to-day operations and external investment sources.
Assets (fixed and current) (FA, CA)
Current assets (CA) are assets that you expect to convert to cash within one year. Current assets often include cash, outstanding accounts receivables, and inventory. Fixed assets, on the other hand, are assets that you would expect to keep within the company long term. These often include land or other real estate, and major machineries such as cars, trailers, and tractors.
Expenses (fixed, variable, accrued, operation)
Expenses are the fixed, variable, accrued, or day-to-day costs that your business may incur through its operations.
- Fixed expenses: regularly scheduled payments such as rent.
- Variable expenses: expenses that change each time they are paid, such as labour and bills such as petrol, gas and electricity.
- Accrued expense: expenses that have yet to be paid.
- Operation expenses: business expenses that are not directly associated with the jobs you complete. Examples include property taxes, insurance payments and advertising costs.
Liabilities (current and long-term)
When your business incurs debts, these are known as liabilities. Current liabilities are the debts that are payable within a year, such as outstanding invoices owed to your suppliers. Your long-term liabilities are often payable over a longer term, such as a mortgage for office or warehouse space.
Accounts Receivable (AR) and Accounts Payable (AP)
The amount of money your customers owe your business is known as accounts receivable - it's the money you expect to receive. When you owe money, such as invoices for parts and tools, that is your accounts payable.
Effective Tips For Accounting For Tradies
You're so busy running other parts of your business that it can be hard to keep on top of the accounts without a little help. To keep you up to speed with where your money is, where it's going and when you'll be getting more, here are 11 quick and effective accounting tips for tradies.
Implement A Cloud Based Tool
Accounting is built into all business operations. But when your business is small or new, it can be hard to justify the cost of hiring a bookkeeper. In those instances, it can be easier and more cost-effective to implement cloud-based accounting software. Accounting software can help you:
- get a clear picture of your profitability
- prepare for tax time
- pay your bills on time
- follow up on your clients' unpaid invoices.
With the right software, accounting for tradies is easy You can set up automated reminders to follow up, pay bills and check your revenue so you'll never lose track of your accounts.
Track Receipts For Equipment Purchases & Repairs
Most tradies need a large assortment of tools and equipment to get the job done. Those tools are assets that you can claim as a deduction come tax time. But you can only do so if you keep track of your receipts.
Claim Deductions For Your Vehicles
There are two key areas when it comes to claiming deductions for vehicles; the purchase of the vehicle and the travel costs of the vehicle.
If you have a compulsory uniform or need protective clothing to do your job, you can claim the cost and cleaning of these against your tax.
Claiming Losses Against Obsolete Materials
Tradies can claim the cost of obsolete, unusable, or damaged materials at the end of the tax year.
These can be written off for the total value as long as this will be shown as a loss on your books.
Furthermore, if you have customers that can't, or won't, pay you for your work, you can also write off the cost of this work to reclaim the debt.
Get Familiar With Your Tax Responsibilities
There are so many tradies out there who miss out on hundreds of dollars’ worth of tax deductions because they either don't know what they can claim or don't have the time to attend to their deductibles.
Don't be one of them!
To potentially save your business a lot of money come tax time, get to know your tax responsibilities.
Benefits Of Implementing An Online Bookkeeping Tool
Conducting your bookkeeping by hand leaves you open to human error, which, in business terms, can mean a lot of lost revenue. Software is the key to successful accounting for tradies. You can remove the human error element by automating the basic and repetitive tasks such as:
Payroll is a great example of where accounting mistakes often happen. When you process payroll by hand, you're contending with poor handwriting, different awards and hourly rates, and forgetful employees who may or may not always fill out their timesheets correctly. Any one of these can lead to profitability loss if you make overpayments without realising. You also risk not meeting your PAYG obligations, which will draw the attention of the ATO.
The simple solution to any of these potential problems is software. Click here to learn more about the advantages of an AroFlo Accounting Integration and how it can save you hours of admin work every day.
Accounting for tradies software packages now have inventory tracking features to help you keep track of your stock and supplies. They can track inventory as product orders are processed and can forecast when you are likely to run out of stock – that way, you can order more items in advance.
Cash Flow Management
Improving your cashflow system is much easier when you use accounting software - you can record and track your payables and receivables, so you're always on top of your current cash flow status.
Plus, you can keep records of bills and invoices, which will help you avoid late fees and overdraft charges.
Save Time With Automation
Accounting for tradies software makes daily routines faster, halving the workload required for collecting data from paper documents and filling in forms. It also saves time for employees in filing paper time sheets and sick/leave forms. It also improves data latency, with data being available in real time.
4 Best Accounting Software
The best accounting software doesn't exist. But what you can find is the right accounting software for you. Run a free trial of the following systems to find out which one makes your accounting for tradies simple.
AroFlo is a smart, efficient invoicing solution that aids you in managing your business cash flow. We have designed our invoicing software with tradies in mind. Therefore, we have features that let you run your bookkeeping on the go. Take payments, check your income statements, keep track of your inventory and manage timesheets - all in one place.
Xero is a cloud-based accounting software that comes with a surplus of integrations. Accounting for tradies is made easy with Xero, whether you're a sole trader or you run a fleet. Xero accommodates unlimited users and user-level permissions and provides significant automation and mobile functionality.
Run your trade business confidently when you implement MYOB for your accounting. Get accurate data reconciliation, automated expenses and secure access from anywhere, on any device.
Neat is a popular software package when accounting for tradies, particularly those who do their own bookkeeping. With neat, you'll save time by reducing manual entry, have your tax information ready to go, and arrange all of your files in any way you like, thanks to Neat's adaptable folder structure.
Accounting For Tradies Is Simplified With Technology
As a business owner, it's important to have a reliable accounting system in place. Because when it comes down to it, any time you put aside to manage your accounts is time taken off the tools and away from bringing in money.
Save yourself the headache (or whichever tasty word you chose) of managing your accounting by hand by letting technology do the work for you.