A plumbers set of accounts must represent the companies activities and the size of the business.
As with all construction accounting, when designing a set of accounts for a plumbing company we need to identify the revenue streams that have direct costs associated to them. We can get this information from your quotes and past jobs. We also need to identify any other major revenue streams that we would like to identify separately.
Once we have set up your income accounts we then create the accounts for the direct costs associated with deriving revenue. This is a great way to ensures all of your business operations are individually profitable. For example, you may be adding a margin to materials, having the income and costs identifiable will allow you to check at the end of the month whether or not these margins are actually being recognised as your business goes about it's operations.
Lastly we want to ensure that no other variable costs are sitting in our overheads section and vice versa. Commonly we find that management salaries have not been pulled apart from the operating wages. This must be done to ensure a correct reading of the accounts. Having your management costs separated is key when exploring or forecasting growth and the growing of your plumbing companies management.
This completes the top half of the income statement and the gross profit, this will give you some good insights into the company.
A key metric for plumbers and any other business that operates fairly often with an hourly rate id billable hours vs total hours. This should be tracked outside of your accounting system, through your payroll and job management software.
Different forms of profit, tracking categories, and timing are discussed below.
We like to show different levels of profit, typically most statements might have net profit and profit after tax. However another good figure is you operating profit or EBITDA. This shows the plumbing companies performance before the current ownership structures costs, this can have better comparability over time as the companies capital structure changes.
Timing is the last key issue for plumbers, we must do our best, sometimes creatively, to align the revenue streams with the costs otherwise we risk throwing out our gross profit. Typically what happens is a plumber would receive an invoice from their supplier but not be at a stage to invoice their client. In most cases we can get around this even if you have to create a separate expense account for these situations.
Further breakdown of the income statement can also be achieved through tracking categories, most accounting systems have this extended feature. This is not represented in the above example as it is even more company specific. We do however believe that most construction companies should be utilising this feature.
If you have any further questions or need assistance with Construction Accounting's services, feel free to reach out to us anytime
If you have any further questions or need assistance with Akaunt, feel free to reach out to us anytime
