Top 10 Bookkeeping Mistakes to Avoid

To say I was surprised that almost 80% of all small independent home builders, both site and offsite/modular, build less than 4 homes a year is an understatement. That means that only 20% of all small builders in the US build more than 4. Who knew!

If your business falls into the 80%, it’s almost a certainty you are making at least one of these bookkeeping mistakes and probably a lot more. And, if you’re in the 20%, some of these may be affecting your bottom line, too. This is real money out of your pocket.

Here are the Top 10 bookkeeping mistakes made by small home builders:

1. Not saving receipts of less than $75. While such receipts may not be required by the IRS, they provide backup documentation for the many deductions you may claim. It is very simple to have a folder for such receipts, which can prove valuable at tax time. How many trips to Lowe’s do you make a week where the amount is so small, under $40, that you simply pay cash or throw away the receipt? Five trips a week at $20 each is over $10,000 in unreported expenses. You do the math.
2. Doing it yourself. No matter how much they hate it, many small modular home builder owners insist upon handling the books themselves. Having a competent bookkeeper coming in to handle the books can be extremely beneficial in that they have the skills to do the job quickly and efficiently and will provide a second pair of eyes to find errors and make suggestions.
3. Forgetting to track reimbursable expenses. Small business owners often pay for expenses out of pocket or with their own personal credit card, then make the mistakes of failing to track these expenses or submit them to the company for reimbursement. This goes hand in hand with not saving receipts of less than $75.
4. Not properly classifying employees. The proliferation of independent subcontractors you need on your jobsite has made it difficult to determine who is on staff and who is not. This results in misfiling when it comes to filing taxes, because there are different rules and regulations for employees and non-employees. Don’t assume just because a subcontractor is licensed to work for anyone, they may do so much work for you they are technically your employee. Again, you need a competent bookkeeper.
5. Lack of communication. Having someone handling bookkeeping is only effective if they are informed and kept up to date on all financial transactions. Frequent mistakes include paying someone a bonus and not reporting it or buying supplies and not providing the bookkeeper with the information or receipts. Bookkeepers are not mind readers.
6. Not reconciling the books with the bank statement each month. One of the fundamental aspects of bookkeeping is reconciling the books and bank statements every month. Nonetheless, there are many small modular home builders that do not do this and others where errors are made by not doing it properly. Again, this is a good reason for hiring an experienced bookkeeper.
7. No backup. The paperless office does not exist in the real world, where audits do still exist. A paper trail, documentation, or verification in the form of backup documents should be available, especially if all files are on the computer system, which could be prone to technical problems.
8. Not deducting sales tax. A common mistake a modular home builder can make is not deducting the sales tax from the total sales. This results in a higher total sales amount and does not lower the amount of taxes due.
9. Petty cash nonchalance. A system should be set up whereby a set amount of money is in petty cash and, each time money is taken out for any purpose, a petty cash slip is filled out. When the fund is exhausted, the slips will total the original amount and a check can be written to cash to set up the full amount again. Many builders are nonchalant about using the petty cash fund without keeping accurate records. Grabbing $40 from petty cash to buy pizzas for “the boys” at the job and not putting in the receipt in the petty cash box just cost you additional state and federal taxes.
10. Mis-categorization or over-categorization. Even though there are fairly standard categories for expenses, often expenses are entered into the wrong categories or too many categories are created. Use general bookkeeping guidelines for standard categorization and create as few new categories as possible. Try to follow generally accepted accounting practices.

Whether you are a modular builder or a component manufacturer, keeping these 10 traps in mind could save your business money you don’t need to lose.

Gary Fleisher, the Modcoach, is a housing veteran, the editor/writer of the Modular Home Builder blog, and an industry speaker/consultant.