Starting a low voltage business, part 9: banking, bookkeeping, and financing

The previous post covered suppliers, manufacturer accounts, and the start of a business-credit file. This one covers the records those relationships depend on: where the company banks, who keeps the books, and how financing and equipment purchases are weighed against what they return.

Most technicians start a business because they are good at the work, not because they enjoy accounting. Yet nearly every topic in this series eventually comes back to the company's financial records. Licensing limits are set from financial statements. Bonding capacity depends on them. Lenders, sureties, and many general contractors review them. The overhead number from Part 5 is only as accurate as the books behind it. And when a tax authority comes asking questions, the records are the company's only defense.

What this post covers

• A bank. A local relationship versus a fintech account, and where the company's deposits are actually insured.
• An accountant and the books. A construction-savvy firm, QuickBooks used with restraint, and self-performed versus outsourced bookkeeping.
• A chart of accounts. Categories that separate service type, system, job cost, overhead, and retainage.
• Financing and equipment. Loans and leases, what lenders ask for, personal guarantees, and a purchase decision based on total cost of ownership, including used gear.

Banking

Choosing a bank

The choice of bank matters more to a contractor than many new owners realize. The bank holds the company's operating cash, and it can also become one of the company's most important relationships when the time comes to borrow.

Fintech banks and online banking platforms have become popular with small businesses, and they offer real advantages. They typically feature low or no monthly fees, modern online and mobile tools, fast account setup, and easy integration with accounting software such as QuickBooks.

Their disadvantage is that they do not know the company. There is no local banker who has watched the business grow, visited the shop, or understands the seasonality of construction work. Approvals and terms for credit are generally based on an automated review of the financials. For an established company with strong statements, that may work well. For a young contractor with a thin history and uneven cash flow, it often means a denial or unfavorable terms, with no one to make the case on the company's behalf.

Local banks and credit unions are generally more favorable for small contractors for that reason. A community bank or credit union offers the chance to build a relationship over time with people who know the owner and the business personally. A loan officer who has watched deposits grow, seen projects around town, and knows how the company handles its obligations can bring judgment to a lending decision that an automated system cannot. When the company needs its first line of credit, equipment loan, or vehicle financing, that relationship can make the difference between approval and rejection. Local institutions are also more likely to participate in programs such as SBA lending.

Traditional banks may carry higher fees and less polished technology, and some owners use both: a local bank or credit union as the primary relationship, supplemented by a fintech account for specific conveniences. Whichever path is chosen, confirm how deposits are protected. Banks are insured by the FDIC and credit unions by the NCUA, but many fintech platforms are technology companies that hold customer funds through partner banks rather than chartered banks themselves. Understand where the money is actually held and how it is insured before moving the company's operating cash.

Keep business and personal separate

The foundation of clean books is a clean separation between the business's money and the owner's money. As discussed in Part 2, commingling funds can undermine the liability protection of an LLC or corporation. It also makes bookkeeping far more difficult, weakens the company's financial statements, and creates problems in an audit.

At a minimum, open a dedicated business checking account and run every business transaction through it. Many owners also find it useful to maintain:

• A tax reserve account. Owners of pass-through businesses such as sole proprietorships, LLCs, and S corporations are often responsible for estimated tax payments throughout the year. Setting aside a percentage of every deposit in a separate account prevents a painful surprise when those payments come due. Sales tax collected from customers belongs in this category too. It is the state's money, not the company's.
• A payroll account, once the company has employees, to keep payroll funds and tax deposits clearly separated from operating cash.

Consistent, well-organized accounts also make the relationship with the bank stronger. A banker reviewing a loan request can see exactly how the business operates when its accounts are clean.

Choosing an accountant

If there is one point in this post worth emphasizing above the others, it is this: find an accounting firm that knows construction and contracting.

Construction accounting has requirements that general business accounting does not. A contractor's accountant understands job costing, retainage, progress billing, work-in-progress (WIP) schedules, revenue recognition on long-term projects, sales and use tax on materials, prevailing wage and certified payroll where applicable, and the financial statements that licensing boards and sureties require. An accountant who primarily serves restaurants, retail franchises, or individual tax clients may be excellent at that work and still be unfamiliar with the rules and reporting that apply to contractors.

A construction-savvy accountant is the first line of defense in a tax audit and in any dispute over how the books were kept. The firm helps structure the business from the start, prepares the financial statements that support licensing and bonding, and identifies deductions and obligations that a generalist may miss.

There is an important catch. Hiring an accountant does not transfer legal responsibility. Tax authorities, both federal and state, hold the business and its owners responsible for the accuracy of their filings, even when an error was made by the person preparing them. If the accountant makes a mistake, the penalties, interest, and back taxes are still assessed to the company and its owners. That is why the accountant's experience with contractors matters so much: the owner is relying on that knowledge, and the owner is the one accountable for the result.

Accounting software: start with what you need

For most new low voltage contractors, QuickBooks is the practical choice. The majority of accountants know it, many require their clients to use it, and it does not demand the significant investment of construction-specific platforms such as Sage or Trimble's accounting products, which are powerful but generally better suited to larger companies with dedicated accounting staff.

The key with QuickBooks is restraint. The software is sold in tiers with optional add-ons, and costs rise quickly as features are added. Payroll, progress invoicing, more advanced plans, and additional users can easily push the monthly cost past $100. Add only what the company needs today, and upgrade when the business requires it. A company with no employees does not need a payroll subscription, and a company that bills small service jobs does not need advanced project features.

Bookkeeping: self-performed or outsourced

Bookkeeping, the day-to-day recording and categorizing of transactions, can be performed by the owner or outsourced to a bookkeeper or the accounting firm.

Doing it in-house saves money, but only if the person keeping the books understands proper bookkeeping procedures. That means recording every transaction accurately, categorizing it correctly, reconciling bank and credit card accounts every month, and tracking receivables and payables. When the treatment of a transaction is unclear, ask the accountant rather than guessing. Mistakes that are small when made become expensive when they have to be untangled at the end of the year.

Outsourcing costs more, but it frees the owner's time for estimating, selling, and managing work, and it often produces more reliable results. Many companies begin by self-performing and outsource as transaction volume grows.

Why bookkeeping matters

Good bookkeeping does more than support the tax return. The books determine how accurate and detailed the financial statements are, and those statements feed nearly every important decision in the business:

• Overhead calculations, which set labor rates and pricing, as described in Part 5
• Profit and loss statements, which show whether the business is actually making money
• Tax deductions, which depend on expenses being properly recorded and documented
• Licensing limits and bonding capacity, which are set from financial statements, as discussed in Part 3 and Part 6
• Financing, since lenders base their decisions on the same statements
• Performance metrics, such as job profitability, billable percentage, and revenue by service type

Inaccurate books lead to inaccurate decisions. A company that believes it is profitable because its bank balance looks healthy may in fact be losing money on half of its jobs.

Set up the chart of accounts to answer real questions

The chart of accounts is the list of categories used to organize every transaction in the books. Most accounting software provides a generic default, and most new owners accept it without a second thought. That choice becomes more expensive with every passing month.

If the chart of accounts is not set up to track the information the owner wants, answering basic business questions becomes a time-consuming manual exercise. How much revenue did service calls produce last year compared with new installations? Which product lines are the most profitable? Is the access control work carrying the cabling work, or the other way around? If the books do not separate those categories, the answers require digging through individual invoices.

When setting up the books, work with the accountant to track:

• Revenue by service type, such as new installation, service and repair, maintenance agreements, and any recurring revenue
• Revenue and cost by product line or system, such as structured cabling, access control, video, and intrusion
• Job costs, including labor, material, subcontractors, equipment rentals, and permits for each project, so that the profitability of every job can be measured
• Overhead expenses, organized in categories that match the working overhead number described in Part 5
• Retainage receivable, so money held back by customers is visible and tracked until it is collected

If the company operates multiple divisions or verticals under one roof, such as a security division and a data division, this setup becomes even more important. QuickBooks and similar software allow transactions to be tagged by class or location so that each division's performance can be reported separately. Without that tracking, a struggling division can hide behind a successful one for years, and the owner will not know which part of the business needs attention.

Set this up at the beginning. Reorganizing the chart of accounts after a year or two of transactions means reclassifying historical records, and the older data may never be as clean as it would have been if it had been captured correctly from the start.

Financing

Part 8 covered supplier credit and business credit cards. Financing goes further, into the loans and leases that allow a company to purchase vehicles, equipment, and other assets it cannot pay for outright. This is where the separation of business and personal finances, and the banking relationship discussed above, become especially important.

Common types of financing

• Equipment financing, for test equipment, fusion splicers, lifts, and other tools, typically secured by the equipment itself
• Vehicle loans and leases, for work vans and trucks
• Term loans, which provide a lump sum repaid over a set period
• Lines of credit, which provide flexible access to funds for working capital
• Government-backed programs, such as SBA loans, which are made through participating lenders

What lenders will ask for

Lenders want evidence that the business can repay what it borrows. For equipment financing, vehicle loans and leases, term loans, and most other lending programs, expect to provide:

• Business tax returns for the last two years
• Financial statements for the current year, often prepared or reviewed by a CPA
• Business bank statements
• A list of existing debts

This is one more reason clean books matter. A business with disorganized records may be turned down for financing it could otherwise afford. It is also where a relationship with a local bank or credit union can help most, since a lender who knows the business can weigh its circumstances alongside the numbers.

Depending on the business structure and the number of owners, a lender may also require a business plan or supporting documents that outline:

• Ownership percentages
• How profits are distributed
• Who is responsible for which functions of the business
• How disagreements between owners are resolved
• What happens if an owner wants to leave the business

Most of these questions are answered by the operating or partnership agreement discussed in Part 2. Companies with multiple owners that never put a written agreement in place often discover the gap for the first time when a lender asks for it.

Personal guarantees and the goal of separation

As discussed in Part 2, personal guarantees are common in the early years, and most new businesses cannot obtain financing without one. Accept them when necessary, and treat them as temporary. As the business builds its credit history, financial strength, and relationships with lenders, work toward financing that qualifies on the business's own merits. Every guarantee the owner no longer has to sign is another step toward a clear separation between the business and personal finances, and toward a company that can stand on its own.

QuickBooks Capital and similar offers

After a business has used QuickBooks for a period of time, commonly around six months, it may begin receiving financing offers through QuickBooks Capital. Because the lender can see the company's actual financial activity, approval may be easier than with a traditional bank.

That convenience comes with conditions worth understanding. These are typically short-term loans, often with terms of two years or less. Repayments are withdrawn automatically from the business bank account on a weekly or monthly schedule, and if the account cannot cover a payment, the business may face late fees and collection activity. Some of these loans also require a personal guarantee. Read the terms carefully, and treat any easy offer with the same scrutiny applied to a traditional loan.

Making financing decisions based on ROI

Every financing decision rests on a clear expectation of return on investment (ROI). It is a term many new owners use without a full picture of what it measures.

In simple terms, ROI asks whether an investment will generate enough value to justify its full cost. When a company buys a fusion splicer or a cable certifier, the question is not whether it can afford the monthly payment. The question is how much work the equipment will allow the company to perform, what that work is worth, and whether it offsets the total cost of owning the equipment.

Calculate the total cost of ownership

The purchase price and financing costs are only part of the picture. A complete calculation includes:

• Purchase price
• Financing costs, including interest and fees
• Depreciation, the loss of value over the equipment's useful life
• Maintenance and repairs
• Calibration, which is required for many test instruments
• Downtime, and how the work will be covered while the equipment is out for service
• Training, if the equipment requires it
• Insurance for the equipment

Test equipment illustrates the point well. Cable certifiers, for example, require annual calibration to produce results that manufacturers will accept for warranties. While the unit is out for calibration, the company either needs a rental or a support plan that provides a loaner. Fluke Networks Gold Support plans, for example, include an annual factory calibration and, when calibration is scheduled in advance, a loaner unit to avoid downtime. Whichever approach the company chooses, the cost of calibration and coverage belongs in the ROI calculation.

Compare it to the alternatives

Once the total cost of ownership is known, compare it to the alternatives: renting when needed, subcontracting the work, or using less expensive equipment where customers will accept it, as discussed in Part 5.

Example (illustrative figures only):

If renting a comparable certifier costs roughly $1,000 each time it is needed, once shipping and rental days are included, ownership in this example begins to pay off at about four to five uses per year. A company that certifies ten projects a year would be well served by owning the equipment. A company that certifies two projects a year may be better off renting or using a qualifier where customers accept it, and investing that capital elsewhere.

The same approach applies to vehicles, lifts, software, and any other significant purchase. Buying equipment because it looks like what an established company would own is not a plan. Buying it because the numbers show it will support the growth the company is pursuing is.

Buying used equipment

Used equipment can be a genuine cost saver, and for a young company it can change the ROI calculation dramatically. A used certifier, splicer, or lift purchased at a fraction of the new price may pay for itself far sooner than new equipment would. It can also turn into an expensive mistake if the purchase is not researched carefully. Problems with used equipment often show up the first time the company needs to finance, calibrate, repair, or register it.

Buy from reputable sources. Manufacturer-certified refurbished programs and established test equipment dealers generally inspect, test, and calibrate equipment before resale, and many offer a limited warranty. Online marketplaces and private sellers can offer lower prices, but with far less protection if the equipment turns out to be damaged, incomplete, or not what it was represented to be.

Know how the purchase will be paid for. Not all used equipment can be financed using the equipment itself as collateral. Lenders may decline to finance older equipment, equipment purchased from a private seller, or equipment whose value they cannot easily verify. When equipment financing is not available, the purchase has to be covered by cash, a term loan, or a line of credit large enough to cover it, which means the company's credit, and often the owner's, has to be strong enough to qualify on its own. Unsecured financing also tends to carry higher rates than equipment-secured loans. Confirm how the purchase will be paid for before committing to a used unit, and include the actual cost of that financing in the ROI calculation.

Get the serial numbers before buying. If the plan is to place the equipment on a manufacturer support plan, such as Fluke Networks' Gold Support, obtain the serial numbers from the seller before completing the purchase, and contact the manufacturer to verify that the unit can be added to the plan. Two issues in particular can cause serious problems:

• Existing plans registered to the previous owner. If a support plan is still attached to the unit under the previous owner's account, it may prevent the buyer from adding coverage until the registration is resolved. A seller who is unwilling or unable to help transfer or release the registration is a warning sign.
• International models. Some equipment is built with different parts or configurations for international markets. A unit originally sold outside the United States may not be serviceable at a domestic service center, and calibration or repair may require shipping it to a manufacturer location overseas. That adds cost, time, and downtime every year, and can erase the savings of buying used.

Confirm what is included. Test equipment often depends on modules, adapters, and software licenses that are sold separately. Verify that the unit includes everything needed to perform the work, that its firmware and software licenses are current and transferable, and that its calibration status is documented.

Account for the differences in the ROI. A used unit may have a shorter remaining life, no warranty, higher repair costs, and more expensive financing than a new one. Include those factors in the calculation. The purchase price is one part of the comparison, the same as with new equipment.

A few phone calls to the manufacturer and the lender before the purchase can prevent a bargain from becoming a liability.

Tax considerations

The accountant can also advise on the tax treatment of equipment purchases, new or used, which may affect the timing of the decision. Tax benefits improve the math. They are not the reason for a purchase the business does not otherwise need.

Bringing it together

Banking, bookkeeping, and financing are the plumbing of a business. When they are set up correctly, they are nearly invisible, quietly producing the information the owner needs to price work, measure performance, qualify for licenses and bonds, and borrow when the time is right. When they are set up poorly, they become a constant source of problems, and fixing them later costs far more than setting them up correctly at the start.

Choose a bank with the long term in mind, and give real weight to the value of a local relationship. Keep business and personal finances separate. Hire an accountant who knows contracting, and remember that the owner remains responsible for what is filed. Start with the accounting software features the company needs and add more only as the business requires them. Build a chart of accounts that answers the questions the owner will want answered. Make every financing and equipment decision from a complete picture of what the investment will cost and what it will return, and when buying used, verify both the equipment and the financing before buying.

Next in this series: assembling your prequalification package.

Planning and device counts are numbers. Those live on the calculators. Office takeoff, proposal files, and Bluebeam chests are a later storefront. The rest of this series is on the business setup page.

Sources

• Fluke Networks Support Plans
• Fluke Networks: Authorized Calibration
• QuickBooks Community: Repaying a QuickBooks Capital Loan
• Merchant Maverick: QuickBooks Capital Review

Related on this site

• Starting a low voltage business, part 10: assembling your prequalification package
• Starting a low voltage business, part 8: suppliers, manufacturer accounts, and credit
• Starting a low voltage business, part 5: building a working number for startup costs and overhead