Taking care of the finances as a contractor can be terrifying. Even if you’ve managed to secure some funding, it’s a scary thought to suddenly find yourself scrambling to stay afloat. Of course credit helps, but that too can snowball out of control and lead to more debt. That’s why it’s so important to know about finances and how to control them.
Below are some basic but very crucial tips to keep your finances in check, particularly when you’re early in your contractor career.
Keep track of everything
Take note of every expense and keep every receipt. If you don’t like the idea of holding on to a bunch of scraps of paper, you can always use your phone as a portable scanner and keep receipts saved on the cloud – it’s even safer that way.
If you prefer the papers, you can always keep a folder with you or in your car where you can safely store them for later.
Use financial software
Following the idea of keeping track, a financial app will be of great use here.
Many still prefer to use a spreadsheet, as it allows for a great deal of customization, meaning they can be adapted for whatever you need.
However, that requires knowledge and experience with a program like Excel, as some mistakes can be hard to notice and compromise your reports. For that reason, you can instead use software designed specifically for tracking your finances.
These allow you to easily log expenses (with the option to attach a receipt) and can automatically generate reports for time periods and much more. It’s a lot easier to use even on your phone, which is an extra layer of flexibility for your daily routine.
I’ve previously mentioned a finance software along with other free resources you can use for your contractor business!
Have clear payment terms
In most contractor businesses you need at least a deposit to acquire the materials for the job, so be sure to have a reasonable amount in your payment terms to ensure you’re never starting a job on the red. The recommended amount of payment can vary, but somewhere from 10% to 25% is usually acceptable.
For the latter end of the job, you can take a few steps to ensure payment on time. First, be sure to outline a fee in your contract in case of delays, and perhaps even a discount if the payment comes earlier – it’s a great way to encourage early payments and always have money in hand.
Credit is dangerous
Credit cards can be very useful just as much as they can snowball your finances out of control. Anyone who’s ever had a credit card can tell you that.
You should definitely have a credit card, but try to use it as a backup more than your main way of spending. It’s very easy to look at your limit and think that’s money you have, but remember that you do not have that money – but the moment you spend it, you NEED to have that money otherwise the snowball begins.
Have a financial pro on your team
Taking care of finances on top of everything else is very time-consuming and downright exhausting. Try to hire a finances pro as early as possible, maybe even as your first hire if you’re starting solo. If you can find someone with previous experience in the contractor business, even better.
This will free you up A LOT to perform your other functions while ensuring your finances are under control.
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