Let’s face it, we are woodworkers and not accountants, and who likes accounting anyhow? Luckily my tax guy does. But if we want to be successful, we need a working knowledge of managing the numbers. Having an easy and accurate system in place can make or break any business, especially a small woodshop.
In the old days I threw all my receipts into a shoe box and barely kept track of all the checks I wrote, which created days of headaches and stress at the end of the year and in the first two weeks of every April. Obviously, that isn’t the way to go, and with today’s apps and programs, it is much easier to keep your books precise and save you time, money, ulcers, and audits.
Believe me I get it — my shop has had from two to 20 employees over the years — it’s not easy to keep track of everything. Owners are juggling many tasks and accounting always seems to get pushed off. Don’t let this happen.
Here are a few key accounting tips that will help:
Keep accurate, up to date, real time records. Spending a few minutes every day or even once a week reviewing all receivable and payable accounts will save hours of frustration at the end of the tax year. This takes discipline and it is best to create a routine to allocate enough time for this critical administrative function. Morning coffee is my time of day to run through my accounting, before I get into the shop.
Use qualified people. It’s best if you can hire a qualified person to take care of the books. Consider a part-time or retired bookkeeper who comes in once a week or once a month to keep everything straight: it will be money well spent. I used a top shelf accountant who decided to stay home with her kids instead of having a full-time gig, and she always did a great job. My books were reviewed online every quarter and I was golden come April.
Don’t do it yourself. The tax laws are always changing, and a good accountant will keep up to date with them. They will often find enough deductions to pay for their services, and you’ll have the peace of mind they bring to the table come tax time.
Use technology to your advantage. There are many accounting programs and apps that are easy to use and can interface with your bank, accountant, and/or tax filing. Intuit QuickBooks is one of the most popular small business programs. It’s very important that whichever program you use, it must interface with your bank/checking accounts.
Let automation do the work. Use a standard template to chart your accounts. Bank transactions can be download directly into your books daily and linked to the proper account. All you have to do is review and accept the downloaded transactions.
Don’t write checks and avoid mailing anything. I found this tough to get used to at first, but even an old dog like me learned a new trick that saved me hours every week. Many banks now offer online bill pay and check writing services: you enter a vendor once, click on the amount to be paid, and the bank sends the payment.
Use a business credit card that has points or cash back. Using one card to buy your supplies makes it easier to keep track of your business expenses, and one that gives you points or cash back is even better. You have to buy nails and plywood anyway; why not make those purchases work in your favor? Just be sure to pay off the balance every month.
Estimate every job, no matter how large or small. Enter the total amount of a project and what will be included. No verbal agreement or handshakes deals! An estimate keeps everyone honest and prevents any misunderstanding or foggy memories on what the deal was.
Email your invoices. Most accounting programs can quickly convert an estimate into an invoice that can be edited for changes and extras. Paperless is the way to go; it just saves so much time.
Use the power of the purchased order. When I estimate a job, I call a supplier for pricing on material and send them a purchase order. When I call back, days or months later, I often don’t get the originally quoted price. But by creating a purchase order from the initial quote, I’ve got documentation. And if I get an invoice for a different price, I quickly see the error (I’ve saved hundreds this way). A purchase order also lets you quickly reorder materials and best of all, recall an item number to reorder an odd, specialty piece. After a few years, a database of everything you’ve ever ordered is collected and saved, which lets you estimate and order quickly and more efficiently.
Use a payroll service. Withholdings, fillings, taxes, W9s, and other paperwork is a nightmare and you don’t want to get it wrong. There are many companies that take care of all of this and keep you out of the loop. That’s a good thing. This process keeps your employees diligent about recording and turning in time cards. With a payroll service, all you have to do is approve the hours. The service will mail out W9s and 1099s on time and does all the withholdings and tax filling tasks.
Hire subcontractors, but make sure they have adequate insurance. It is important that you have a clear contract between you and the sub, a W9 and certificate of insurance before they start working for you. You will have to send them a 1099 at the end of the year and a good accounting program or payroll service will take care of this.
Scott Grove is an art furniture maker, sculptor, and YouTube personality who selectively teaches and lectures, most notably at the Marc Adams School of Woodworking and The Chippendale School of Furniture in Scotland.
This article originally appeared in the July 2018 issue.