Do you know whether your business is winning or losing the home services game? Do you even know the score? To keep your finger on the pulse of both, company owners and managers need accurate accounting processes and timely reporting to grow profitability.
“The goal of the bookkeepers, controllers, and accounting teams should be to produce reports for owners and managers so they can use them to drive the business forward, to make a profit,” says Kasey Stanley, BDR Accounting Coach Team Lead and Trainer.
If you think of building those reports—profit and loss and balance sheet—like scorecards, Stanley says, then you can easily keep score by maintaining accurate financial records to know whether you’re pulling ahead or falling behind.
“Timely and accurate financials is our focus. Our goal is to empower owners with the tools to earn 20%-plus net profit,” says Stanley, whose business provides coaching and training for owners, accountants, service managers, and more in the skilled trades.
To win the home services game, companies must follow a clearly defined accounting month-end closing process. BDR’s working definition of an accounting month-end closing process is “a process used by the accounting team to close out the financials at the end of the month.”
“Much like technicians in the field have a maintenance checklist or a startup checklist, we as bookkeepers, controllers, and the accounting team also should be following a well-defined checklist to ensure continuity for our owners and managers,” Stanley explains. “We need to make sure we’re doing the same thing consistently every single month.”
In a recent webinar, Stanley guides participants through the accounting month-end closing process, outlines best practices for ensuring smooth and efficient closings, and highlights essential ServiceTitan tools designed to streamline accounting tasks, reduce errors, and enhance report accuracy.
Configuring month-end closing reports helps owners know whether the business is succeeding, and the accuracy of those reports is directly tied to the daily tasks completed by your accounting team.
“The daily tasks we do—accounts receivable, customer invoicing, entering and paying vendor bills, making payroll—all those things are functions of our job, for sure. But our No. 1 goal is to produce these [financial closing] reports monthly,” Stanley says. “So, it's important to keep that in mind as you're going through your daily tasks.”
The Month-End Checklist
Start by creating a month-end checklist or building upon the one you already have. “You've got to start where you're at. Wherever you are, start there,” Stanley says.
The BDR Month-End Checklist includes:
Reviewing for accuracy
Reconciling balance sheet accounts
Adjusting entries
Preparing reports
Review for accuracy
As you prepare to close financials for the month, check to make sure all of your customer invoices and vendor bills have been entered into ServiceTitan correctly, and also exported over to your accounting software. BDR recommends exporting invoices and vendor bills daily.
"If I'm an owner or a manager, I’ve got to know when I break even,” Stanley says. “If I've done the calculations and the formulas, and I know I break even when I hit $80,000 a month, I need to know every day where I'm at. I need to know my score every day. It also makes your month-end close faster.”
Did you properly departmentalize your revenue and cost of goods items? Check to make sure all revenue and cost of goods are placed in the proper business unit inside ServiceTitan and then exported to your accounting software.
If you’re using QuickBooks Online or Sage Intacct as your accounting software, run a trial balance to see where things stand.
“Before I start closing a month, the first thing I want to do is run a trial balance and make sure that my debits equal my credits,” Stanley advises. “There's no kind of glitches, there's nothing in there... I'm working with good information.”
Reconcile balance sheet accounts
While most businesses reconcile their checking and savings accounts on a regular basis, they also need to pay attention to reconciling balances on credit cards as well as liability accounts for down payments, deferred revenue, and payroll.
For checking, savings, and credit cards, check to make sure all debits and credits are accounted for. With down payments and deferred revenue, the process gets a bit trickier.
“If we’re posting down payments properly, then that down payment is a liability,” Stanley explains. “And then whenever we do that job, we're going to move that over to revenue in the month that we do it.”
For instance, if you took a down payment on a job on Nov. 28, the payment would be posted as a liability for November. When you do the job in December, that liability down payment moves into the revenue column for December.
“Our goal for our scorecard, our P&L, is that our revenue and our costs are all lined up in the same month,” she says. “If we put that down payment as revenue in November, then November's going to look really good because we don't have any costs under it, but then we're going to get to December, we're not going to have any revenue, and we're going to have a ton of costs underneath it. So, now both months are wrong. We want to put that down payment as a liability and then we want to move that over to revenue so that we can line those up.”
Deferred revenue from maintenance or membership agreements gets posted into a deferred general ledger account, and then whenever the work is performed, the deferred revenue moves into the main revenue column.
“So, now our revenue and our labor are lined up in the same month. When that happens, we've got to reconcile that liability account and make sure all those pluses and minuses are happening like they should,” Stanley explains.
To reconcile payroll liability accounts, simply check to make sure the proper amount of taxes were withheld for each paycheck and that the business paid the proper amount to the proper taxing authority.
Adjust entries
Once you’ve reconciled your balance sheets, some entries may need adjusting, such as depreciation, payroll accrual, interdepartmental billing, work in process, and physical inventory counts.
Depreciation
To offset taking a big hit on depreciation at the end of the year, Stanley suggests estimating your total depreciation costs for the year, dividing by 12, and posting that amount in your overhead account on a monthly basis to cover those costs.
“We definitely want to make sure we’re doing that monthly,” she says.
Payroll accrual
Most accounting software programs post payroll on the paycheck date, but that paycheck date doesn’t always land in the month the labor was performed.
“Payroll accrual is an accounting process that allows us to properly account for those labor costs in the period that they actually occurred,” Stanley says. “That might be an entry you want to make and add to your month-end checklist.”
Interdepartmental billing
If you have an install and a service department, they may do work for one another. If so, you may need to verify interdepartmental billing before closing out the month.
Work in process
Stanley says work in process is similar to payroll accrual.
“With payroll accrual, you're moving the payroll into the proper month, but work in process, you're actually moving the revenue in the right months,” she explains.
For example, you have a job that’s going to take six months to complete. Throughout those six months, you're performing the work but your contract stipulates that you can only invoice the customer in the second, fourth, and sixth months.
“So what happens with your reports is, the month that you can bill it, it's really high, it looks great. The month you can't bill it, it's low, and then it goes up and down and up and down,” Stanley says. “In an effort to stabilize our reporting, what we would do then is an accounting process called work in process to move the revenue into the proper period.”
Physical inventory counts
Most service businesses list inventory on their balance sheets, but those numbers need to match the actual physical count of the inventory.
“The balance sheet and the P&L (Profit & Loss) are symbiotic. If your balance sheet's not right, then your P&L's not right. Your P&L's not right, your balance sheet's not right. Every single thing you do in accounting hits one of those two reports,” Stanley says. “So, it's important to make sure we’re looking at both of those at the end of each month.
“If you have inventory on your balance sheet, then we need to count it and true it up in our accounting software at a minimum once a year,” she adds. “What we like to see in coaching is do it once a year and then after that, we move to once a quarter, and then eventually we can get to where we can do it every single month. You’re matching your inventory on your balance sheet to the actual physical count of your inventory.”
Prepare reports
The final step on your checklist involves closing your monthly financials in ServiceTitan and also in your accounting software to make sure everyone understands no other changes or adjustments can be made.
“We have closed this. You are not allowed to go back into it and change it. We are producing a scorecard for our owner, and the scorecard needs to be accurate,” Stanley says. “We want to shut that software down and lock it down. And then we want to submit the P&L and the balance sheet to management by the 10th of the month.”
If the 10th of the month seems too aggressive, she adds, start with the 20th or 25th of the month, then work to refine your processes, improve your workflows, and eventually you’ll start meeting that earlier goal.
Announced during Pantheon, a new Accounting Periods feature on your accounting screen in ServiceTitan allows customers to see whether the month’s financials are open or closed and gives them the option to close that month in a specific accounting period.
Best Practices for Month-End Accounting
BDR recommends the following best practices for month-end accounting.
1. Create a month-end checklist for your accounting team to utilize each month.
“If you don’t have a checklist, start where you’re at,” Stanley says. “Create a list of all the things you do and then talk with your owners and managers. Find out what they need and add those things to that list.”
2. Establish a set date each month to close the books.
For a consistent and well-organized month-end process, it’s important for your accounting team to stay on top of those daily tasks outlined above, such as customer invoicing, vendor billing, and reconciling balance sheets. Then, set a recurring date each month to close the books.
“We want to do a final reconciliation at the end of the month so we know that we've got the month closed out. But there are some things we can do along the way to make that 10th of the month reporting not quite so hectic,” says Stanley, who provided a Best Practice Process list example in the graph below.
In addition to having your accounting team completing those daily and weekly tasks, you’ll also need input from your operations team before closing the books for the month. If you think of the business as a funnel, everything happening in operations—performing the job, invoicing customers, paying vendor bills, and allocating payroll—starts at the top of the funnel and ultimately works its way down to accounting.
“Every single thing that happens in the company eventually is going to hit accounting. So, it's important for your operations team to also establish processes,” Stanley explains. “They've got to sign off on monthly expenses, purchase order verification, completed invoices, etc. But they also need to establish their own deadlines so that information can come to the accounting team daily, weekly, monthly, or whatever that looks like.”
What Happens Without a Month-End Closing Process?
Stanley says business owners without an established month-end process get frustrated because they don’t really know where they stand and they’re just guessing at growing profitability.
“If our month-end process is not happening, our P&L, which is our scorecard, is not accurate. And if our scorecard is not accurate, then we don't know what the score is. We don't know whether we're winning or losing,” Stanley says. “We’re unable to use those key performance indicators (KPIs) to uncover opportunities.”
To provide a visual example, Stanley shared the following two graphs that show the ups and downs that happen without monthly payroll accrual as compared to more stable labor numbers with monthly payroll accrual.
“Our labor is all over the place [in the first graph]. Whereas, if every single month, we’re doing our payroll accrual entry, you can see now we’re putting payroll in the month where it was actually performed, where the labor was performed, and now our labor number is stable,” she says.
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Utilize 3 ServiceTitan Reports for Month-End Closing
To make sure your month-end closing process flows smoothly, Stanley suggests using the following three ServiceTitan reports for consistency:
Accounts Receivable Reconciliation
Open Jobs
Completed Jobs with Pending Invoices
AR Reconciliation Report
The goal of the AR Reconciliation report is to compare ServiceTitan to your accounting software to make sure the Accounts Receivable in your accounting system and the AR in ServiceTitan match, are accurate, and are tied to each other.
In this report, make sure you’re using the same date. Whatever date you're pulling in your accounting system should be the same date you’re pulling in ServiceTitan. Also, make sure your status is set to “Exported.” Once you run the AR Reconciliation report, check the total on both your accounting system and in ServiceTitan. If the totals match, you’re good to close the month. If they don’t match, you need to research what’s missing.
“Because if you don't, it just gets worse and worse and bigger and bigger. It's never going to match, if you don't make it match monthly,” Stanley advises. “You want to get to where you reconcile AR monthly.”
Open Jobs Report
The Open Jobs report shows you what jobs have been completed and how many jobs remain open for the month. It’s important for your operations team to mark completed jobs accurately so they can be exported over to your accounting system.
“Once you run that report, you want to filter out everything that was completed or canceled, and then what you'll be left with is jobs that are scheduled, that have not been completed, that have a date in the month that you're trying to close,” Stanley explains.
Your accounting team may schedule this report monthly, but the operations team should strive to update it daily or weekly for the most accurate information.
“We need to be working on this regularly,” she says.
Completed Jobs with Pending Invoices
For all completed jobs, you need to make sure all of those invoices that you pushed over to your accounting system have also been exported. The Completed Jobs with Pending Invoices report will show you everything that has not yet been exported.
Key Takeaways
In summary, Stanley suggests the following:
Remember the goal of the bookkeeper is to produce departmentalized, timely, and accurate financial reports that allow owners and managers to drive operations.
Pull and review three ServiceTitan reports: AR Reconciliation, Open Jobs, and Completed Jobs with Pending Invoices for the most accurate data.
Take action. Make a checklist, set month-end closing dates, and produce scorecards for owners and managers.
“As a small business, every single thing we do must produce fruit. So, we cannot afford to be chasing butterflies in center field while the game is going on,” Stanley says. “We need to make sure we have good communication. What does the owner need to drive that business, to make that business profitable? What are the key performance indicators that we need to make sure we’re giving them when we produce these management reports? It’s very important to have good communication between owners, managers, and the accounting team.”
>>Ready to learn more about mastering your month-end closing and streamlining accounting processes? Check out these additional resources:
Fine-tuning Your Month-end Process for Financials | BDR Prime Resources Podcast
Accounting Essentials: You Can't Fix What You Don't Know | Contracting Business Feature
Safeguarding Your Company From Embezzlement | BDR Prime Resources Podcast
>>Want to get started on improving your accounting systems and financial accuracy? Schedule a call with BDR!
