Avoiding Financial Surprises

Contractors are notorious for poor paperwork and not taking an interest in accounting. Having good numbers and using the data to make decisions regarding your business can be exciting and eliminate much of your stress. I know accounting and financial information is not always that interesting to contractors and I am not trying to bore you, but each and every month we hear from contractors who are surprised by poor bookkeeping and misleading financial information.

Start by making sure your accounting is set up in a format that makes sense for a contractor. Most contractors let the accountant set up records for the IRS or just haphazardly pick a chart of accounts. Your accounts should be tabulated into a format that matches how you estimate. In addition to sales, you only really need two categories — overhead and direct costs. There are six types of accounts within those two main categories. You can make as many subcategory accounts as you need, but they still fall within these six types.