Cash or Accrual Bookkeeping for a Seasonal Montana Business?
If your work runs hard from May to October and slows way down when the snow shows up, your books can tell two very different stories. Which story you get depends on one setting: cash or accrual. Here's what each one shows you and how to think about it.
Should a seasonal Montana business use cash or accrual bookkeeping?
Most small seasonal businesses do fine keeping day-to-day books on a cash basis. But if you want to know whether your summer actually paid for your winter, you also need an accrual view, at least a few times a year. The good news is you usually don't have to pick just one for your own reports.
What's the difference between cash and accrual?
Cash basis records money when it moves. A customer pays you, that's income. You pay a supplier, that's an expense. It works a lot like your bank account.
Accrual basis records money when it's earned or owed. You finish a job and send the invoice, that's income, even if the check shows up 6 weeks later. A supplier bill lands, that's an expense, even if you pay it next month.
Same business. Same jobs. Different timing.
Why timing matters more in the Gallatin Valley
A lot of Bozeman-area work gets packed into a short building season. Contractors, roofers, landscapers and exterior painters cram most of their year into a few months. Then things slow down or stop.
That squeeze creates timing gaps that a cash view can hide:
Deposits in spring. You collect deposits in March or April for jobs you won't build until July. On a cash basis, spring looks great, but the work hasn't happened yet.
Fall invoices paid in winter. You finish a big job in October and the customer pays in December. October looks weak and December looks strong, even though the crew was home in December.
Materials bought early. You stock up before the season starts. Cash basis puts that cost in the month you paid, not the month you used it.
Bills in the slow months. Insurance, equipment payments and loan payments don't care that it's January.
None of that is wrong on a cash basis. It just doesn't answer the question, "Did that job make money?"
Cash vs. accrual side by side
Cash basis | Accrual basis | |
Income shows up | When the customer pays | When you invoice or finish the work |
Costs show up | When you pay the bill | When you get the bill or use the material |
Best at showing | What's in the bank right now | Which months and jobs made money |
Where it fools you in a Montana season | Spring deposits look like profit. Busy summer months can look thin. | A strong month on paper can still leave the bank account low. |
Work to keep it up | Less | More. Invoices and bills need the right dates. |
A quick example
Here's a made-up example. Picture a small roofing company in Belgrade. It takes deposits in April, does most of its work June through September, and gets its last few payments after Thanksgiving.
On a cash report, April looks like one of its best months. August, the busiest month on the roofs, looks just okay because customers haven't paid yet. December gets a nice bump for work done months ago.
On an accrual report, the income lands in the months the roofs went on. The materials land in those months too. Now the owner can see which months actually made money and which jobs carried the year. That's the view you want when you're pricing next season.
So which view should you use?
Here's how we think about it for a service business with 1 to 20 people:
Cash works well if your jobs are short, you get paid at or near the end, and you mostly want to know what's in the bank.
Accrual helps if you take deposits, send invoices with terms, carry jobs across months, or buy materials well ahead of the work.
Accrual also helps if a bank or equipment lender is going to look at your numbers. A Bozeman business that's growing fast often gets there sooner than it expects.
Many accounting programs, including QuickBooks Online, let you run the same report either way with one setting. So you can keep one set of books and still look at your year both ways. That only works if invoices, bills and deposits are entered with the right dates. If everything gets entered when it hits the bank, the accrual view has nothing to work with.
If you want to see how this ties to profit on each job, our post on knowing which construction jobs actually made a profit walks through it.
What about your tax return?
The method used on your tax return is a separate question from how you look at your own reports. It has its own rules, and changing it later is its own process. That's a conversation to have with whoever prepares your return. If you're not sure who handles what, here's a plain look at the difference between a bookkeeper and an accountant.
Where to start this winter
The slow season is a good time to set this up. You don't have to rebuild anything. Start here:
Enter invoices when you send them, not when they're paid.
Record deposits as deposits, so they don't look like finished work.
Keep supplier bills with their real dates. Our guide to what records a Montana contractor should keep covers the paperwork side.
Once a quarter, pull a profit report both ways and see where the two stories split.
If you run a seasonal business in Bozeman, Belgrade, Four Corners or anywhere in the Gallatin Valley and want a hand setting this up, it's the kind of thing we do every day. Blackfin offers bookkeeping and tax services in Bozeman under one roof, built for service businesses, and we get back to you the same day. Give us a call at 406-404-8955.
Note: The roofing company in this post is a composite, illustrative example. It is not a specific Blackfin client.