10 questions to evaluate your bookkeeper

Many contractors stay with the same person who keeps their books out of habit or fear of changing. But if you only see that person in April, they may not be giving you what your business needs.

This assessment is for construction business owners. With 10 questions, you can evaluate your bookkeeper (the person who keeps your books up to date) and decide whether to stay or look for someone else.

We prepared this list with guidance from Armando Ehrenzweig. It is informational and does not replace tax or legal advice.

In short

• Your bookkeeper should keep your records up to date all year long.
• They should explain your reports in plain words and answer you in a reasonable time.
• It does not decide legal or tax matters for you; it coordinates with your attorney or tax preparer.
• Be careful if they suggest hiding income or ignoring labor rules.

The 10 questions to evaluate your bookkeeper

1. How often do you talk? If you only see them during tax season, you have little support. Ideally, you talk several times a year.
2. Do they know construction? A construction company does not have the same costs as a restaurant. They must understand costs per job, subcontractors, materials, and progress payments.
3. Does it record everything, even cash payments? Recording only part of your income can get you in trouble with the IRS. If they suggest hiding income, that is a red flag.
4. Does it warn you about how you classify your workers? Review the section below.
5. Does it use modern tools? Cloud software (like QuickBooks or Xero) connects to your banks and gets rid of the receipt boxes.
6. Does he respond in a reasonable time? Define with him what "reasonable" means to you, for example one or two business days for urgent matters.
7. Does it explain your reports to you? A report full of numbers you don't understand is useless. It should tell you what they mean for your business.
8. Do you feel comfortable asking questions? A good relationship lets you ask without embarrassment.
9. Does he keep your numbers up to date during the year? He should not wait until April. The IRS asks you to keep records that support your income and expenses.
10. Does it help you see the future? Simple budgets and projections help you decide when to hire or buy equipment.

If a letter arrives from the IRS, your records must be organized and ready. Your bookkeeper can help you gather them, but representation before the IRS is done by a CPA, enrolled agent or attorney.

Watch the video on YouTube

Worker classification: employee or independent contractor

This is one of the areas where contractors make the most mistakes. The rules differ by agency and by state.

At the federal level, the IRS explains that it looks at the relationship between the business and the worker, and publishes a guide to tell an employee from an independent contractor.

In California, the "ABC test" (a list of conditions) is generally used. Special rules exist for construction subcontractors. The EDD guide says that a person or business that hires unlicensed workers is their employer. If the subcontractor has a CSLB license, the case is reviewed under specific conditions, such as a written contract and an independent business.

Penalties can be significant. For willful misclassification, California law (Labor Code 226.8) provides civil penalties of $5,000 to $15,000 per violation, and $10,000 to $25,000 if there is a pattern of violations. Whether it applies depends on the facts of each case.

That is why your bookkeeper can alert you when something in the payments looks like employment. But the final decision should be reviewed with a labor attorney or the EDD.

Warning signs

• It never looks for you or asks you questions.
• Doesn't give you monthly or quarterly reports.
• Their "strategy" is hiding income or paying "under the table."
• It lets you pay workers without checking their classification.
• Makes you feel bad for asking.

Before switching, talk to him and explain what you need. If nothing changes, then look for options.

What you can expect from a good bookkeeping service

These are ODC recommendations, not legal rules:

• Periodic review: quarterly meetings to review how the business is doing.
• Clear reports: a monthly income statement (P&L) with your real profit.
• Digital processes: less paperwork and less administrative time.
• Separate accounts: one for operations, one for taxes, and one for savings.

What to do now

• Answer the 10 questions with a rating from 1 to 5.
• Ask for a meeting and share what you are missing.
• Review how you classify your workers with an attorney or with the EDD.
• Define how often you want reports and meetings.

Also read 5 key points to determine whether someone is an employee and how to avoid fines with professional payroll.

When to talk to a professional

Consult an employment lawyer if you have questions about worker classification. Consult a tax preparer, CPA, or enrolled agent if you have a letter from the IRS or tax questions.

How ODC helps you

At Oficina del Contratista we keep your books up to date and explain your reports to you. Learn about our bookkeeping for contractors and business consulting. Payroll and taxes are handled by independent partners.

References

1. IRS: Recordkeeping — supports the importance of keeping business records.
2. IRS: Independent contractor (self-employed) or employee? — explains how to tell an employee from a contractor at the federal level.
3. California EDD: Information on independent contractors (DE 231G) — supports California rules for construction.
4. California Labor Code, section 226.8 — text of the penalties for willful misclassification.

This article is for information and education only. It is not legal, tax or bookkeeping advice. We are a bookkeeping service: for tax matters, consult a tax preparer, CPA or enrolled agent.