HVAC contractors learned the importance of organized financial statements when they had to apply for the Payroll Protection Program (PPP) loans, with the loans frequently going to those whose statements were the best-organized. Since contractors’ skills are typically in HVAC installation/maintenance and business management, accounting may be a skill they are not confident handling on their own. Here’s a guide to what HVAC companies should be looking for in accountants.
The Importance of Accountants
James Leichter, founding faculty member at EGIA Contractor University, said that the best accountants may feel nosy to HVAC contractors.
“If you've never gotten a phone call out of the blue from your accountant who asks you questions that make you think, ‘why do they want to know that?’, then you don't have an accountant,” he said. “You just have a tax preparer.”
He gave the example of accountants asking why inventory numbers haven’t been changing as they would expect or why accounts receivable are piling up.
He said that a good accountant might point out something like, “I noticed that you don't have a lot of cash on hand, and some of your financial ratios that are important are out of line with a company like yours.”
Leichter explained that contractors should have an accountant that they speak to on a regular basis, which will help the company take advantage of government programs (like the PPP and SBA incentives) and deadlines for filing certain forms. If all of the work is done at the last minute in preparation for tax season, it could become too late to fix any problems.
In addition to this, Leichter believes that contractors should try to diversify the services their companies offer to open up new streams of profit. But they won’t be able to do this effectively if they can’t effectively price, and effective pricing requires good bookkeeping.
Leichter said that the ideal way of finding a quality accountant is through a referral. If that isn’t possible, then contractors should research accountants and look at online reviews before choosing one for their company. Many offer initial consultations for free, offering the contractor the chance to ask them about services they provide and what it will be like to work with them. He reminded contractors that with online communication, the accountant does not need to be located locally.
Hiring Accountants and Business Success
Tiffany Wheat, managing partner at RA Tax & Accounting Inc., said that business owners want to make sure they are running their businesses by the book, maintaining positive cash flow and building something that will last, which requires the work of someone that specializes in accounting.
“It allows a business [owner] to focus on their own skill set rather than having to try and tackle everything on their own,” she said.
Wheat explained that the accurate bookkeeping that accountants are responsible for is critical for business success.
“Financials give accountants key indicators that allow us to see into the future of a business's stability and growth,” she said. “So having accurate financials gives us the ability to create budgets, project realistic increases in profit for a given timeframe, plan for a company's slow season, and calculate gross profit margins for growth.”
When HVAC companies do not accurately record transactions into a proper chart of accounts (COA), the owners lose the ability to clearly grasp what is happening financially at their company. Companies can end up with overstated or understated net profit, and that misunderstanding could break a business. When companies with unorganized financial reports attempt to get a loan, they could be denied a loan, since the bank will be able to tell that the reports are not accurate. In other scenarios, companies may not realize an employee is stealing from them, since the company bank account and credit cards have not been properly reconciled.
This is why Wheat believes hiring a skilled accountant, or working with an accounting firm, is an important step for HVAC business owners to take.
“One of the most important things to look for in an applicant is a background with a variety of accounting software and is tech savvy,” she said. “There's a lot of different software applications out there, especially for the contracting industry. So it's important to have an accountant that can work with any one of those systems fearlessly.”
Most software applications have certification programs, often with basic or advanced certifications, that corroborates accountants’ software skills.
During an interview with an accountant, Wheat recommends asking them what sets them apart from other prospective candidates. This could be the length of time they’ve been doing their line of work, what they know about the contracting industry, and how many clients they already have who are in the contracting industry.
“If you have a basic conversation with someone who claims to know a lot about accounting, usually you can just talk with them for about 30 minutes or 45 minutes to gauge whether or not they actually know what they're talking about,” she said.
If a contractor wants to outsource to an accounting firm, Wheat said the contractor should look for someone that has familiarity with their specific industry, and then familiarity with their specific software. If the company isn’t already using a software application, they should look for someone with a background in implementation.
“Having a conversation with them for a while gives you the ability to determine whether or not they're going to be able to do what you need them to,” she said. “Ask about what services they provide, because you might have an accountant that doesn't provide as many services as another one.”
She explained that people can do taxes without knowing accounting and vice versa. But companies should look for a person who can do both.
“A simple tax person isn't going to be able to advise a company on whether or not they need to change the entity type of their business in order to save on their individual tax liability,” she said. “They wouldn't be able to advise on when or if they need to purchase more vehicles, which could result in bonus depreciation, or make recommendations on maxing out an IRA or 401(k) which can often be extremely beneficial.”