Dan Heelan of Heelan Associates is a business accounting specialist who helps trade professionals in the UK. He recently joined us for a live Q&A in our Facebook group, Self-Made Toolkit, and shared 5 ways your construction business can make more money faster starting today. Watch the video replay for tips on how to:
- Legally reduce how much you pay in taxes
- Improve your pricing, cost control, and cash flow
- Learn how cloud invoicing can help you get paid faster
2020 has had many ups and downs. Ensuring that you’re not overpaying on taxes, pricing yourself fairly, and correctly managing cashflow are more crucial than ever.
Dan’s tips are simple and actionable. While some of the advice may sound like common sense, it serves as a useful reminder to keep up on the business side even when you’re on the tools all day long. In Dan’s work over the years, these are the most common problems, and they often have simple fixes.
Here are 5 ways your construction business can make more money faster:
1. Expand your tax knowledge
Many construction company owners think that getting more jobs is the best way to increase your income. But as an accountant, Dan often sees that it’s common to work harder and make less money.
The easiest and quickest way to increase your income is to pay less tax. Simple advice and strategies are all you need to do this legally.
Here are 2 quick tips:
- Trivial benefits allow you to write off gifts and staff parties as tax-deductible expenses. You can do this even as a sole trader or one-person company. You can buy yourself gifts of £50 and spend up to £300 per director for each tax year.
- In limited companies, you’re allowed an annual tax-deductible staff party for up to £150 per person.
Knowing rules like this can save you thousands over the years. However, Dan cautions not to spend money to save tax. Also, be careful of advice on forums. Make sure you check your sources and only take tips from real professionals. Dan has some other useful videos on his YouTube channel that are worth checking out.
2. Keep better accounting records
Good records mean paying less tax. Make sure your construction business takes advantage of tax deductions by keeping track of your receipts – whether you’re VAT registered or not. Your accountant may not include deductions that have no record. Especially if you pay with cash, you need a document to write it off. And even if £15 may not seem like a big deal at the time, these expenses add up.
Dan recommends using an app to keep track of your spending. You can save physical receipts in a folder, or if you’re an Invoice2go subscriber, you can snap photos of your log your documents into the app. Also, keep in mind that you can email receipts directly to your accountant.
Remember: This isn’t just a legal obligation. If you want a loan or buy a house, you have to have a decent income on your tax return.
3. Control your costs
Knowing your budget is key to saving money. Every month you likely have a ton of cash coming in and out of your construction business. You probably know what you’re spending on materials and jobs. However, do you also carefully track software subscriptions or the extra bit of cash you pay for sub-contractor expenses? Over six months or a year, it adds up.
Dan recommends taking time each month you look at what came in and what came out. Know your car payment and other bills. This evaluation often opens up opportunities to save or set aside money for emergency car or van repairs.
You want to make sure you’re spending money in the right areas. Make sure you know how much you need to earn to break even.
4. Increase your margins
Suppose your labor is £1,000 a day, and your subcontractor costs per day are £600. In this case, you have a 40% margin (which is massive, but this is just a simple example). Growing your margins is one of the simplest ways to make more.
Dan explains that a business can make £500,000 in some cases, but only take £12,000 at the end of the year after all taxes and expenses.
There are 2 main ways your construction business can increase its margins:
- Buy better. Switch wholesalers or buy in more significant quantities to get the cheapest cost.
- Look at your pricing. Dan explains that price is a myth – a perception based on the value you’re giving. Don’t race to the bottom. Sometimes a small price increase can mean taking on less work and make more money. Continually review and test your prices.
5. Improve your cashflow
Cashflow is the lifeblood of your business. Let’s say you get a new contract as a housing contractor for £200,000, but you’re not going to get paid for 120 days. You have to pay your subcontractors every week and could still run out of cash quickly. Should you get credit? How long can you wait to pay suppliers? How long can you stretch your subcontractors out?
If you’re not paying attention to the full picture of your cash flow – including VAT – you may find you don’t have enough money.
The best way to improve cash flow is to always be on top of your invoices. So many contractors finish a job and then think they’ll send out the paperwork on the weekend. Then they dread sitting in front of the computer, typing up the document, and even have trouble remembering what materials they used.
Dan supports using tools like Invoice2go because they allow you to send off the invoice from your truck before you even leave the site. Getting paid faster is one of the best ways to avoid financial struggles.
Keep an eye on your unpaid invoices. New software makes it easy to see what’s been paid and allows you to follow up quickly on outstanding invoices. Even if the invoice is just for a small amount of money, it all adds up over time.
The bottom line
Educatiucate yourself on legal tax deductions and consider talking to a tax professional for help. Keep track of all financial records, even when you pay with cash. Stay on top of your budget each money and get a clearer idea of where your money goes. Look for ways to increase your margins and consider a slight increase to your pricing. Finally, improve your cash flow by staying on top of your invoices.
If you do all 5 of these things, you’ll be in a much stronger position with your business.
Go to Heelan Associates for more information for blue-collar businesses. Also, join our Invoice2go Facebook group for trades professionals to get more useful content like this.