Close Calls & Cashflow: How Bookkeeping Saves Tradies from Financial Disaster!

Ange
Yeah, so true. But no matter how tough or confusing or maybe even boring we may find this stuff, understanding your finances and doing the books properly is essential to having a truly profitable trade business.

Andy
Actually, Ange, that sentence right there was super important. You just said understanding your finances and doing the books properly is essential to having a truly profitable trade business and it definitely is. But to add to that, understanding your finances and doing the books properly can potentially save you from financial disaster.

Ange
Oh, isn’t that true? We cannot harp on this enough because the majority of tradies that come to us for help definitely need help in this specific area. 

Andy
And that’s actually one of the First things we help them fix. And you know why? 

Ange
Why? 

Andy
Because it’s one of those things that when you get right at the foundation level, you can scale much quicker and easier.

Ange
Well, I think for a lot of tradies, it’s a bit of a, you don’t know what you don’t know. 

Andy
Yeah, I agree. But bookkeeping is one of those things, isn’t it? Where you either try and do it yourself or you try and make the missus do it.  

Ange
That’s so true. And it’s actually a really common scenario. And to be honest, I actually feel really sorry for the tradie wives and partners, because while some of them really are happy to help, bookkeeping is often not their profession. You know, they’ve come from a career in like, Marketing or childcare or medicine or whatever, and they’ve ended up being handed a job that they know nothing about. And truth be known, some of them actually hate it, but they just keep doing it because I don’t know if someone has to do it, right? 

Andy
Right. But the interesting thing here, and luckily for me, I didn’t give you our bookkeeping in the early days. This is one of those jobs that I got rid of very early in the piece. So even if you’re like me and you have outsourced your bookkeeping, I want you to still listen to today’s episode because I want to make sure you’ve hired not just a good bookkeeper, but a freaking great bookkeeper. Because the thing is, how do you really know If they are doing a good job.

Ange
Well, that’s a great question. So we’re going to share with you some real life stories of books gone bad. I know one couple almost lost a house over it and another missed out on $28, 000 that was meant to go in their pocket. 

Andy
Yeah. Can’t wait to share these.

Ange
In today’s episode, we’re going to cover all of this and more and help you understand bookkeeping for tradies properly so that you’re set up for maximum profit and scalability.

Andy
Okay, let’s get into it.  You’re listening to The Tradie Show. This is the podcast for trade business and contracting bosses like you who want to lead with confidence, make more profit and create a better lifestyle. 

Ange
We’re your hosts, Andy and Angela Smith, husband & wife team and co-founders of Lifestyle Tradie. Are you ready to have some fun? 

Andy
Hell yeah!  Good  day legends, Andy here, taking a breather by the fire and thinking about how our trade businesses can sometimes just burn us out. Missed kids footy games, late dinners, feeling absolutely knackered, does this all sound familiar? I found a way out of that hot mess and I’m keen to share the roadmap with you. How about we sit down for a catch up on the phone? It’s no bullshit, just two tradies talking shop, finding the way to move forward. Jump onto lifestyletradie.com.au and let’s set up a call. It’s time to stop blowing smoke and start living again. Chat soon.  

Ange
So Andy, let’s dive into today’s topic that’s crucial for all tradies. We’re talking bookkeeping sounds fun, right? 

Andy
Oh yeah. Maybe not fun, but definitely important to lighten the mood a bit. Let’s start with a joke.

Ange
Uh, that’s a little rogue, but okay. 

Andy
Why did the bookkeeper divorce the plumber?

Ange
I don’t know. Why?

Andy
Because they couldn’t reconcile the differences. But boom!

Ange
Oh my god, Andy, that’s such a dad joke. 

Andy
Yeah, that’s terrible. 

Ange
But maybe there’s a little bit of truth in it, so you better get your books in order. Don’t you reckon? 

Andy
Yep, that’s right. We are here to save the trade industry, Ange. One marriage at a time. 

Ange
Yes. So true. But in all seriousness, I’d love to help people not feel so alone in the struggles they have with bookkeeping. So I think we need to go back to some basics. I want to talk about what exactly bookkeeping is, who should be doing your bookkeeping, what you or maybe your bookkeeper need to do on a regular basis, and why bookkeeping is more important to the success of a business than you might think. 

Andy
I also think it’s important to share how we look at bookkeeping from a bit of a different perspective than most tradies out there.

Ange
Yeah. Good idea. So I know with absolute certainty that you will be thinking completely differently about bookkeeping once you’ve wrapped your head around this today. 

Andy
And it’s important that you feel confident about this topic and understand what you need to do in your trade business when it comes to bookkeeping. Now, Ange, I’m really quite passionate about this, but you know what, not the bookkeeping as such, but knowing your numbers and getting them right is absolutely critical. And business owners simply can not make great decisions without complete, accurate and Up to date information on how well or bad their business is performing.

Ange
Yeah, absolutely. You’re preaching to the converted here and that’s exactly where bookkeeping comes in. So let’s just take a step back for a second and look at the actual word bookkeeping. What does it really mean? In its most practical and logical way, it means keep the books because once upon a time, we used a ledger, like I’m talking about a pen and paper.

Andy
Yeah, back in the good old  days. 

Ange
We’re sounding super old now, aren’t we? But it’s all about making sure that the financial data of the business is kept in good order so that you know the health of the business at all times. So finance or money is literally like the heartbeat of your business. 

Andy
And if you didn’t keep up with the books, then quite clearly the information or financial data would be wrong. And what that does is it gives you a bum steer on understanding where your business is actually at. 

Ange
Yeah, exactly. So let’s bring this back to the modern day. Let’s think about different scenarios in business where you’re trying to make the decisions and you would need to understand your financial position of the business. Things like, hmm, can I hire a new team member or can we afford a new work vehicle or expensive piece of equipment or how about leasing a new warehouse? Can I afford that? 

Andy
Or do I give my tradie a pay rise? How much can I invest in marketing or maybe you’re deciding on whether to give Christmas bonuses and splash out on a big party.

Ange
Yeah. Exactly. So all perfect examples to ask you this single question. How can you make any of those decisions when you don’t really know how well the business is doing financially or how much money you have to play with? 

Andy
It’s absolutely mental. How many tradies I see operating their business with what seems like  Their eyes are closed, you know, and if you don’t have a proper handle on your books, you just don’t have a handle on your cash flow. You might think you have strong cash flow because lots of money is coming in, but you can’t bullshit me. I know that money is flowing out faster than a burst water main. 

Ange
What? Once a plumber, always a plumber, Andy. But the truth is, when you are not super clear on this, it really means you’re in the dark about how much money you really have, or whether you’re even making profit. So, Andy, I met this friend of a friend the other day, this beautiful couple who, on the outside, look like this beautiful, picture perfect family. They had this gorgeous home near the beach, four kids, nice cars. They were telling me about this small investment property they had up the coast, all the stuff that seemed like they were doing really well. This husband did a great job as a tradie, a really hard worker, but unfortunately, really shocking when it came to his finances and he was actually putting pressure on his partner to take over this part of the business.

Andy
I’ve heard a story like this before. 

Ange
And she’s got her own career and didn’t quite Want anything to do with the business, to be honest, anyway, so she finally relented and soon realized they were in so much trouble. There were also a few other things that raised alarm bells and he just wasn’t dealing with any of it. 

Andy
Yeah. It’s crazy, isn’t it? It’s just too common of a scenario these days and I keep hearing it, but anyway, what happens? 

Ange
Well, sadly, they now have this massive tax debt and they almost lost their investment property over it. Not to mention the tension you can actually still feel between them. He had his head stuck in the stand for such a dangerously long time that it literally has almost broken them.

Andy
Yeah, but this is the thing, and it’s a sad thing. When you can’t cross the books, like I’m talking about reports from your financial package, like Xero, the only numbers most trade business owners ever see are revenue numbers and basically money coming in through their job management system is different to money going out. So to them, they feel busy, they see the invoices and all of a sudden they think I must be killing it because I’m so busy. 

Ange
Yeah, it’s actually mental, right? So the thing is, you need to keep up with accurate bookkeeping so that you can see real time data and know that the report is showing you a true and holistic picture of the business. I’m talking about money coming in and money going out. So knowing your numbers is the foundation of a successful business. I literally can’t round this home enough. 

Andy
Now, one common thing that happens when we start having these conversations about finances and bookkeeping is that we often start talking about accountants, don’t we?

Ange
Yeah. 

Andy
Which is great because I want you to be talking about this stuff all the time. However, one of the common misconceptions I keep hearing, and I want to make this really clear about managing your finances in your business, is that the function of bookkeeping and the function of an accountant are not the same thing and they don’t do each other’s work.

Ange
Yeah, I agree. So lots of people don’t understand the difference. So to become an accountant here in Australia. You typically need a bachelor’s degree in accounting or a related field, and you’ll want to find someone who is also a chartered accountant, as opposed to a bookkeeper who could be self taught or could have completed a TAFE course as a base, for instance.

Andy
In simple terms, a bookkeeper takes care of the day to day financial records of a business, like recording transactions, managing invoices, and handling payroll. They make sure all the money coming in and going out is accurately documented and that outstanding money is being chased and they keep up with the debt collection. You know, your bookkeeper is checking that all the invoices charged from your job management system are now reflected in your financial program, just like a Xero. And it also includes all of your operating expenses as well. 

Ange
Yes, good point. They’re often the one that helps maybe set up your Xero dashboard. We talk about cash flow and basically keep you updated on a regular basis about the general financial health of the business. They are the ones that provide reports that you may need, especially if you don’t know how to move around Xero yourself. Or in our world, the bookkeeper would help with completing dashboard metrics to track jobs or, you know, marketing or supply the reports for you to analyze once you know exactly what you need to be reading.

Andy
And then an accountant, on the other hand, goes that step further. They’re using this information to prepare financial statements, offer tax advice and review reports with you to help make strategic business decisions. 

Ange
Yeah, that’s a really good point. So think of a bookkeeper as the one who keeps track of your daily business transactions while an accountant helps you understand what those numbers actually mean for your business’s health and future and strategically provides guidance.

Andy
And you know what? We actually recommend having a different bookkeeper to your accountant that doesn’t work together for the same business. 

Ange
Yeah, absolutely. And that way you don’t feel locked into them as an entire division of your business. If you don’t like one or if maybe they’re not doing a great job, you can actually really replace just one of them. And that way you’re not having to replace the whole finance department. You’re literally just replacing one. 

Andy
Yeah. The other point is they just keep each other accountable, like over the years, Ange, you know this, like having two separate, they’re always bouncing off saying, well, my figures say this. And then the accountant says, my figures say that. So it’s really important, we believe, to have a different bookkeeper to your account, if they keep each other accountable with the work that they’re doing. 

Ange
Yeah. Now, I guess it’s fair to say that one of the biggest problems for tradie bosses is after a long day on the tools, the last thing they want to do is go crunch numbers or do anything super detailed. I imagine all they ever want to do is just after a long day is chill on the couch, but the bookkeeping is always calling. 

Andy
Yeah. And what’s worse is the fact that you’re focusing on something that’s super important in your business for your financial health. But what could be considered your worst time of day to be going over this stuff, which leaves you wide open to human error and mistakes. And I don’t know about you, but my brain was always fried at the end of the day and certainly not a time slot to be doing my best work. And because of that, bookkeeping was actually one of the first things I outsourced. It was just not in my genius zone. 

Ange
Yeah. You know what? One of the absolute smartest decisions I think you’ve ever made.

Andy
Whoa, you’re calling me smart. 

Ange
I am. 

Andy
Whoa.

Ange
I know a lot of tradies feel the same way about bookkeeping, about the fact that it’s not their genius zone, but you know what? It’s not an excuse for not knowing your numbers. 

Andy
Absolutely not. And I’ve been saying, know your numbers, because one of the biggest strengths you have is knowing your data, making sure your reports are right. And that’s helping guide you on the way to success in your business.  

Ange
But Andy, not everyone wants to or thinks they should outsource their bookkeeping. So let’s talk about that for a minute. And often I find it’s because when you’re just starting out or you have a small team, I think it’s actually really manageable to keep track of everything themselves. What do you say about that? 

Andy
Yeah, that’s true. But once you start adding more jobs, more customers and taking on new team members, the complexity of your finances grow exponentially. 

Ange
Sure. 

Andy
And the issue with that is I don’t think you should be adding even one tradie to your team. If you haven’t outsource your bookkeeping, like I really do believe this is something that from the outset, get a good bookkeeper to take that pressure and give you the data you need before you grow your business.

Ange
I couldn’t agree more. This is actually one of the things we teach in Lifestyle Tradie that as a business owner that starts with you, the next person to employ is actually a bookkeeper. 

Andy
Do not pass go. Do not collect $200 or hire anyone else unless you’ve hired a bookkeeper, even part time for your business.

Ange
Yes, good point, part time. So, why don’t trade business owners hire a bookkeeper? 

Andy
Well, there’s a few reasons, aren’t there? But one of them is thinking they’re saving money by doing it themselves. And another one is they don’t want to lose control. 

Ange
Ooh, I want to tackle both of those issues.

Andy
Okay. 

Ange
All right. So we’ll get to saving money and the affordability of hiring a bookkeeper in a moment. But first, what we really need to highlight here, Andy, is that transitioning from doing it all yourself to involving a professional actually doesn’t mean you’re losing control. This is definitely an underlying problem for tradies, don’t you think?

Andy
What? Tradies not wanting to let go or give up control? No,  come on. 

Ange
We actually tackled this topic of letting go in a previous podcast, Season 12, Episode 6. That was very specific. It’s called Hooked on Doing It All and How to Finally Let Go. But you know what? I digress. 

Andy
I would say this is a task you want to let go. Wearing all the hats in your business and doing everything yourself is a fast track to burnout and not to mention you are not the expert about this stuff. And what you really need to do is get out there and find someone who is so you can spend your time on doing other important tasks in your business.

Ange
Yeah, exactly. Besides, having someone do your books is not just about managing transactions and processing payroll. It’s about gaining insights from your financial data that can drive strategic decisions. A good or great bookkeeper can help you identify Opportunities not just for efficiency, but also potential cost savings.

Andy
And you know what? They’re way quicker at it as well. 

Ange
I couldn’t agree more. Which brings me to the other point that you mentioned, which is about saving money and the affordability of hiring a bookkeeper. Tradies  actually want to do it all themselves because they think they’re saving money. But when it’s not their gig, like I’m talking about, they have no idea what they’re doing, or they have very little knowledge or skill set. Then the question needs to be asked, what is it actually costing you? 

Andy
Yeah, and it could be costing you valuable time with your family because this stuff is often happening at night, isn’t it? And it’s also costing you probably extra stress and pressure because it’s not something you love doing either.

Ange
Well, let’s be honest, you’re far more valuable on the tools. Aren’t you? 

Andy
Billable time, baby. 

Ange
Absolutely. I actually think this ties back to how you’re maximizing your time in the business. And we do actually have a free download available. If you want to dive into this topic specifically. 

Andy
Yeah, it’s actually a great resource. We show you how to gain back four to six hours per week, so you can better focus your time and energy on the important things that you have in your business. We’ll add it all in the show notes and also our podcast page on our website.

Ange
So Andy, I just want to highlight a point that we both just made about where your time is best spent. Let’s say you’re a Sparky running your own residential business, a one man band. If you do your own books, you’re probably spending maybe say six, ten hours a week on this, right? Whereas if you hired someone part time, because it’s only you, they could literally get this stuff done in two hours, maybe four at most.

Andy
And depending on where you’re based, because it does vary state to state and country to country, but you’re most likely to be billing yourself out at more per hour than a bookkeeper obviously costs you. Now, imagine you hire your first tradie and now you’re billing them out. The books get more complex, but you don’t have to worry because you have a professional doing that for you. It’s literally their specialty and it’s not yours. Let them have it.

Ange
Okay, I agree with what you’ve said, but let’s just shift gears here for a second. Andy, if someone did want to do the books themselves or at least keep it in house, so maybe their partner is doing it or they’ve employed someone internally to do their admin,  what advice would you give those guys?

Andy
Well, besides, outsource that sh*t! 

Ange
Yeah, besides that. 

Andy
Well, if for some reason you must do your books in house for the moment, well, what you do want to do is use some easy financial software so you can go across the data. Hopefully you’re doing this already. I believe most people should, but if not, Xero is an absolute cracker and get onto that. But whatever software you’re using, it’s just got to integrate seamlessly with your job management system. You know, this seems so simple, but it’s a game changer in saving you time, in creating greater efficiency and automation in your business. You know, we use Xero in our business, don’t we? And many of our Lifestyle Tradie members are using it too. And everyone Loves it. 

Ange
Yeah. Look, there are some other ones, of course, Myob, Reckon, there’s QuickBooks, just to name a few. But the point here is it’s a cloud based software that works. And what’s cool about that, it means it’s internet based, so you can access it from anywhere, like your phone or even your laptop.

Andy
Okay, let’s go over how we can make your bookkeeping process a little bit easier on a regular basis. I want you to have regular meetings with your bookkeeper. I need you to be clear about what you want them to do.

Ange
Okay, but if you were doing this role before handing it over, I would suggest start listing out everything you did versus perhaps what an accountant did and highlight the list of activities you want the new bookkeeper to take over.

Andy
Yes. Delegate baby. It’s definitely one of my favorite words. This is truly one of the secrets to scaling your business. You need to be able to delegate. 

Ange

Absolutely. So the beauty about using software and delegating it is that that person doesn’t have to work in your office. They can literally log in from anywhere. And the beauty of this means you no longer need a bookkeeper that lives literally down the street in your local area. 

Andy
And what I would suggest, if you do live here in Australia, make sure you get someone in Australia to do your bookkeeping and accounting so they understand the Australian tax laws, for example, but apply this rule to whatever country that you live in.

Ange
Yeah, true. You also want to make sure your bookkeeper has at least a Cert for accounting and bookkeeping. Plus, you want to make sure they’re registered with the Tax Practitioners Board. 

Andy
And guess what? This will save you a hell of a lot of time in the long run.

Ange
Choosing someone who knows what they’re doing will save you so many headaches. 

Andy
I want to stop you right there because that’s a great point. I would say pretty much. Every trade business owner I’ve ever met who does have a bookkeeper or an accountant for that matter, when I ask them how they found them, do you want to know what they said? 

Ange
I bet I can guess, but tell me what they say.

Andy
I found mine through a friend or my parents had an accountant and I’m using him. Come on people. When you want a kick ass tradie, do you just employ a friend of a friend or should you interview a few?  And pick the best based on their attitude and skill set. 

Ange
We know the answer is you should interview, right?

Andy
Okay. Okay. Then. Okay. So why don’t we interview like three different bookkeepers or accountants? Because, before you choose who you want to work with, you should interview them because tradies once we find a bookkeeper or an accountant, we tend to never leave. And now you’re stuck with an average bookkeeper or accountant, but you could have had the best if you just took the time and effort.

Ange
Oh, what a tragic story. 

Andy
You need to know the questions to ask though, don’t you? And that is one of the things that we do with our members of Lifestyle Tradie. 

Ange
Well, I have a story about that. I was actually talking to Jason, one of our Lifestyle Tradie members. He owns a plumbing company in the Gold Coast and recently they used our list of questions to interview a new accountant. And these guys did an audit on their last financial year data and found that the previous accountant had missed claiming $28, 000  on tax. 

Andy
You know, what a shocker and 28, 000 sounds a lot, but I’m telling you, I’ve heard worse than that. One’s that are in the hundreds of thousands of dollars that are virtually buried businesses. So the moral of the story is it pays to know what to ask. 

Ange

And maybe your current bookkeeper and accountant are actually great, but because you don’t ask the right questions or you actually aren’t clear about what you want, they will simply just do the basics. They are way more capable than you think. You’ve just never shown interest and you’ve never known what you actually wanted or needed. 

Andy
Yeah, we certainly ask for things from our bookkeeper, don’t we, that most companies don’t. 

Ange
Yeah, true. Well, from a basic bookkeeping perspective, let me share with you a few things that you should be checking. So for starters, you need to ensure that your profit and loss statements are built right. This one we see time and time again, the chart of accounts literally does not make sense for a trade business. It’s very specific. And you know what? None of these random line items called others where you stick these receipts because you don’t know what to do with them. It’s meaningless guys. Every line item needs to make sense. Don’t make it war and peace, but it does need to be detailed enough for you to be able to analyze what the report even means. 

Andy
Plus, you need to set a rule that your bookkeeper provides a report on the 10th of the month every single month so that you can see the latest up-to-date and true financial data.

Ange
Yes, and the only way this can happen is if all of your invoices are entered, the reconciliation of receipts and credit card transactions are finalized for the first week of the month. And whether it’s you or someone else doing this job, it’s actually better to do it weekly because that way you’re on top of it all the time. It’s one thing to say you have the report in your hand, but it’s quite another that the data that is within the report is actually correct. 

Andy
That is 100 percent true, Ange. And depending on your pay cycle, you’d want your bookkeeper around weekly just to close the gap on wages for your team and raise invoices for you to approve. But just set a specific day to get all this done. 

Ange
Exactly. You want them to help with populating weekly dashboard numbers anyway, so that you are on the pulse with what’s happening in the business every single week, especially if you’re a maintenance business, like we were. 

Andy
So at the end of the day, this topic is clearly more interesting right now, right? Well, when you realize how important it is to be able to press a button and spit out a financial report that is true and up to date. I tell you what, it takes a lot of pressure off because it’s going to make you way more confident about knowing the financial health of your trade business. 

Ange
Exactly. So let the professionals handle the details so that you can actually spend your time doing what you do best, building your dream business and life. 

Andy
It’s Tradie Dilemma Time and this is a Q&A segment where you let us know what you’re having trouble with in your business and we will give you the best advice. 

Ange
Okay, so today we have a question from Carl in Queensland. And he actually has a question related to our topic today. So that’s right. He writes, I’m looking to move my accountant and bookkeeper to a new accountant that will look after everything himself. I’ve been with my accountant and bookkeeper for seven years. My plan is to make the switch ASAP, but my partner’s trying to convince me it’s better to wait until the end of the financial year. Who’s right, me or her? And what would you do? 

Andy
Oh, great question, Carl. And the thing I want to point out is you both could be right or you both could be wrong. But let me just say this. We have a lot of Lifestyle Tradie members coming to us and they’re not that happy with their account and they’re going to change. But when they go through the list of questions that we get them to ask their accountant, all of a sudden they don’t know. They go, Oh my God, my accountant and bookkeeper are incredible.

Ange
Yes. 

Andy
But if you don’t ask the right questions, you don’t get the right results. 

Ange
Yes. And if you all of a sudden show interest in a subject matter that Perhaps you haven’t shown interest in, in the past. Your bookkeeper and accountant are actually going to love you and probably even give you extra attention.

Andy
Yeah. And if you want to make that change, then I’m more of making the change sooner rather than later. I mean, if you’re only a month away from the end of the financial year, then maybe you’ll wait. But apart from that, there’s no better time. If they’re not the right fit for you, make the change now. Catch up and interview three accountants and three bookkeepers, make sure they are separate. I prefer them to be separate. And if you do that, get the right person for you and your business, and you’ll never ever look back. That was a great question, Carl. Thanks, mate. And thanks for writing in and sharing your dilemma. Remember, if any of you out there have a dilemma in your business, then please reach out to us and let us know how we can help you.

Ange
Yeah, or alternatively, if you want some one on one time with Andy, then book in a free strategy call. We’ve just opened up some new spots so he can spend some one on one time just with you to give you some specific advice based on your current business situation. 

Andy
It’s time to stop winging it this year. Get the right advice to help you scale your business and free up more of your time. Now be warned, I’m not just going to fluff you up with some motivational bullsh*t. I want to give you the proper advice from someone who’s been there in the trenches. 

Ange
Yeah, we’ve been where you are. We’ve lived your journey and we’ve created a business that also gave us a lifestyle, not just headaches.

Andy
And if you want to grab one of those free spots, head over to our website at lifestyletradie.com.au  or check out the show notes for a link to schedule your call. Hell yeah!  

Subscribe to The Tradie Show wherever you get your favorite podcasts, rate and write us a review or for more information about Lifestyle Tradie, head to lifestyletradie.com.au.