When you’re doing bookkeeping for handyman business compliance, there’s a few things you need to keep in mind. You need the right system to track the essential tasks so you can manage your finances well. Let’s go over the basics to get you started!
Definition and Scope of Bookkeeping in the Handyman Sector
Below are the key areas to pay attention to when doing bookkeeping for handyman business finances.
- Income tracking involves creating detailed invoices per job that’s ready to bill, whether partially or in full. When you get paid, record that in separate categories for cash, check, or electronic transfer.
- Expense tracking entails keeping a record of all the materials you purchased for each job. Include:
- Tools and equipment used in your business, from the initial purchase to each round of maintenance.
- Business vehicle mileage, fuel costs, and maintenance expenses.
- Other business expenses like office supplies, business insurance, advertising costs, etc.
- Tax preparation involves complete documentation and proper filing. Make sure you know all the eligible tax deductions, including equipment depreciation, so you can lower your tax liability.
- Financial analysis entails a review of your important financial reports. For example, your Profit and Loss and Cash Flow statements.
Essential Bookkeeping Terms Every Handyman Should Know
- Income is the money you earn from providing services.
- Expenses are the costs you incur while running your business.
- Financial statements are reports that tell you about your finances. They include:
- Income Statement – summary of income and expenses over a designated period.
- Balance Sheet – overview of assets, liabilities, and equity at a designated time, indicating the business’s financial health status.
- Accounting Methods – accrual accounting vs cash accounting are how your business records income and expenses.
- Taxes – income, sales, and self-employment taxes.
Setting Up Your Bookkeeping System
Choosing the Right Bookkeeping Software
For proper bookkeeping for handyman business tracking, you need software that’s tailored for small businesses and trades. Below are some popular options.
- QuickBooks Online is a more comprehensive software with invoicing, expense tracking, payroll, and inventory management features. Businesses of all sizes can use this tool. Pricing starts at $25 per month.
- Zoho Books is also a more comprehensive suite that offers invoicing, expense tracking, payroll, and inventory management. It caters to small businesses. Pricing starts at $19 per month.
- HoneyBook is comprehensive business management software that offers invoicing, expense tracking, project management, and client communication features. It’s suitable for small businesses. Pricing starts at $29 per month.
- FreshBooks is a simple invoicing software that includes time tracking and expense management features. This is best for smaller businesses. Pricing starts at $15 per month.
- Xero accounting software offers invoicing, expense tracking, payroll, and inventory management features. It’s suitable for businesses of all sizes. Pricing starts at $20 per month.
- Bonsai is a client management tool that offers invoicing, time tracking and expense management features. It works for small businesses. Pricing starts at $19 per month.
- Wave has invoicing, expense tracking, and payroll features for small businesses. The basic version is free, and you pay for specific add-ons.
- Bookkeeper is easy-to-use invoicing software that includes time tracking and expense management features. It’s suitable for small businesses. Pricing starts at $10 per month.
Manual vs. Software Bookkeeping: Pros and Cons
Manual bookkeeping for handyman business tracking may be a good option to start with. You have very low upfront costs and maintain complete control over your financial records. Just make sure you are accurate, even when record-keeping becomes tedious.
As you grow and tracking becomes burdensome, you can look into software options. Don’t forget to get help with financial insights, though, because manual bookkeeping doesn’t give you the advanced analytics and reporting capabilities that software does.
There are several options when it comes to accounting software for small businesses. It doesn’t have to cost a lot, and it can save you a lot in terms of time, effort, and avoiding errors. You also get those valuable business performance insights I mentioned above.
Most accounting tools are scalable, but watch out for the costs of more advanced features. Make sure you have the time to learn it, or hire a bookkeeper to take over for you. Keep backups, too, in case of software or cloud glitches.
Daily Bookkeeping Practices
Recording Transactions
If you’re not ready for software, we recommend at least using online spreadsheets for tracking. This helps with computations, and downloading a backup is easy.
Make sure you categorize every transaction, including debts. Include all the relevant details. Always ask for receipts and issue receipts, and keep all your copies. Digitize the physical ones and print physical copies of the digital ones as backups.
If you make changes to the filing system or categories you chose at first, make sure you take note so no one gets confused.
Set a regular schedule for updating your records. Daily is best for recording, but weekly works if you won’t forget anything and don’t have many transactions. Then, monthly – or weekly if you have a lot of business – reconcile your records with your bank and credit card statements to find and correct any discrepancies.
Managing Invoices and Receipts
Create clear and detailed client invoices so you have complete records of each service provided and each product sold. Include contact information for both your business and the client on each invoice.
Number invoices sequentially so you can track them easily. For each one, enter any taxes and fees that applied, the due date, payment methods and terms, and any late fees.
You can issue invoices as soon as a project or milestone is complete, or issue them on a weekly basis. If you issue paper invoices, create digital copies. If you send digital ones, print physical copies. These serve as your backups.
Set a schedule for:
- Following up on unpaid invoices. (Some invoicing tools allow you to set automatic reminders.)
- Monitoring expenses to find opportunities for healthy cost-cutting.
Handling Cash Flow in a Handyman Business
Understanding Cash Flow Management
Healthy bookkeeping for handyman business finances should produce healthy cash flow. This is the lifeblood of any business, being how money moves into and out of the business.
Positive cash flow means that your business is making more money than it’s spending. Negative cash flow means that revenue isn’t covering your costs. This also eans you can’t pay back debts, and you’ll keep owing more and more.
Strategies to Improve Cash Flow
Inflow
Start by improving how you invoice and follow up on payments. Send invoices as early as possible and offer several payment methods.
Follow up on unpaid invoices every few days, and hold off on continuing projects where milestones are unpaid. You can also ask for a deposit before you begin a larger project to offset costs.
If you can, offer a discount or a reward for early payment. Discount coupons for repeat services is one idea. Make sure you explain late fees in your service agreements and hold clients to these terms.
Create a detailed budget and price accordingly. Instead of just offering handyman services, try to branch out into product sales to create additional sources of income.
Outflow
Develop good relationships with your suppliers so you can negotiate better pricing and terms. Find ways to reduce your overhead costs, too.
Delay Postpone payments where you can until your cash flow improves. If you have outstanding invoices you can’t resolve, consider factoring, i.e., selling them to a third party to get immediate cash.
Create projections to anticipate expenses and monitor your cash balance to spot potential issues early.
Always look to build an emergency fund with a portion of your income in case of unexpected expenses or downturns.
Tax Considerations for Handyman Businesses
Common Tax Deductions
- Office
- Tools and equipment
- Vehicle operation and maintenance
- Maintenance and repair supplies
- Advertising and marketing
- Professional fees
Preparing for Tax Season
Make sure you have complete and accurate bookkeeping records and documentation filed away every quarter. When tax season nears, dust them off and get ready for filing.
Look through all the potential tax deductible expenses to include in your filing. If you need help with this or any other aspect of your taxes, get help from a tax professional.
Outsourcing Bookkeeping Services
When to Consider Outsourcing
Outsourcing bookkeeping for handyman business tracking is a good idea when you begin to feel overwhelmed. If you’re doing so much business that you can’t manage the paperwork, you need help.
Outsourcing is a reasonable expense compared to the benefits you get. They can help you for a few hours every week – or whatever you need.
If you hire a service versus an individual, you get immediate experienced support with controls in place. You can get access to help with tax obligations and deductions, advice on managing your cash flow, and financial analysis.
Choosing a Bookkeeping Service
Focus on services that have proven expertise and experience, especially industry-specific knowledge. Make sure they can offer you comprehensive bookkeeping to cover all the aspects you need.
Data privacy and security is also a major concern. The service should follow the required standards and apply robust security measures.
Secondary concerns include using the cloud-based system you prefer so you can conveniently access data in real time. Better yet, a tool that Integrates with other business software you use for project management, scheduling, etc.
If you need additional services like payroll management, budgeting, or business advice, ask them about it.
The best services demonstrate prompt communication and provide regular updates on your finances. They also proactively identify potential issues and offer solutions.
Frequently Asked Questions
How do I choose the best bookkeeping software for my handyman business?
Know what you need help with and find the tool that offers these features. Then, compare pricing and support and choose the best value for your money. Ease of use is an important consideration, too.
Consider spending extra for a tool that helps with invoicing and payment processing. Mileage tracking can also be very useful. Look for clear and customizable reports, too.
What are the most critical financial reports for a handyman business owner to understand?
One of the best benefits of proper bookkeeping for handyman business finances is the data you can get. Make sure you have these crucial reports to make good business decisions:
- Income Statement
- Balance Sheet
- Cash Flow Statement
- Profit and Loss Statement
- Accounts Payable Aging Report
- Job Cost Report
- Comparative Financial Statements
How often should I update my bookkeeping records to effectively manage my business?
We recommend daily updates just to make sure you don’t forget everything. However, you can actually do bookkeeping weekly or monthly, depending on how many transactions you have.
Make sure you check, too, in case your tax authorities have any specific requirements.
What is the best way to handle late payments from customers?
Make sure your customers know the consequences of paying late, and the advantages of paying early, if you offer any. Clearly communicate payment terms in your service agreements, contracts, invoices, and other relevant documents.
Incentivize automatic payments and offer convenient options like online portals. Send gentle reminders before the due date so customers can prepare to pay on time.
Reach out to customers personally if they’re late to understand the reason for the delay. Be friendly and discuss payment options. Make sure late payment interest charges are reasonable.
If you have no other recourse, consider hiring a professional collection agency, but be aware of the potential damage to relationships and your reputation.
Can I do my own bookkeeping, or should I hire a professional from the start?
If you have the time and talent for bookkeeping, doing it yourself can be a cost-effective option. Just make sure it doesn;t take you away from more lucrative activities. Otherwise, hiring a professional might be better.
Consider the complexity of your business, too, that might warrant some professional experience. This ensures greater accuracy and timeliness, too, because bookkeepers are used to this type of work. They understand the requirements and the consequences of non-compliance.
What Is AccountsBalance?
AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
In Summary
Make sure you can do proper bookkeeping for handyman business compliance. When in doubt, don’t hesitate to consult a professional. You can get advice from a professional accountant, or hire an experienced bookkeeper to keep everything in order.
