General Contractors using QuickBooks will have by far the most complex job costing needs. Tracking the cost of specialized equipment, subcontracts, multiple prevailing wage rates, and retainage in addition to overhead costs, employees, materials and labor charges.
Estimating and Job Costing needs will vary depending on the type of contractor you will be dealing with, so if anyone dares to suggest that one “Chart of Accounts or bookkeeping method” will work for all contractors – well you just shouldn’t listen to them
Meet Gerry the General Contractor:
“Gerry’s” usually have the same basic philosophy as Sam the Subcontractor; however, because they have more employees, subcontractors, and bigger “operations” they realize that they need to consider more things when they go out to bid on a job; but they do not always realize all of what they need to take into consideration nor do they always know how to use QuickBooks efficiently.
Gerry has overhead costs, employees, specialized equipment, company vehicles, materials, subcontractors, retainage, percentage of completion billing, and more that he needs to take into consideration when estimating. He works mostly on prevailing wage jobs, where he has to pay his employees a much higher rate of pay plus fringe benefits with a few private jobs – he isn’t a union shop; so he is paying the prevailing wage fringe benefits in cash to his employees. Billing requirements for his jobs include Time & Materials and Percentage of Completion, where he needs to submit AIA billing forms and track retainage that he is owed and retainage he owes his subcontractors.
Gerry tells you that he was just awarded several contracts on an ARRA funded construction – in some instances he will be the General Contractor and on other jobs he will be a subcontractor, these jobs will last anywhere from 1 to 3 years, and he has to submit certified payroll reports, monthly ARRA reports, and AIA format billings. Gerry will need to hire 25 additional employees – including 2 project manages/estimators, is working with 10 new subcontractors, 3 new project owners, and will be required to submit his certified payroll reports electronically for 3 of the new jobs. He is nervous about how he and his bookkeeper will manage. He offers his employees health insurance – with the company paying a portion of the monthly premiums and contributes to a pension plan on their behalf. His workers’ comp and general liability insurance premiums are outrageous, because he is paying his prevailing wage fringes in cash, and with new employees, he wants to be prepared.
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TIP: Investigate to see if Gerry is able to take credit against the entire prevailing wage fringe benefit package for company contributions made to employee health insurance and pension plans. If he is able to take credit, make sure that he is actually taking the credit and therefore reducing the full cash fringe amount. This will help to reduce his General Liability and Worker’s Compensation costs, especially if they are based on gross payroll instead of gross sales. Request our free eBook on 4 Ways Contractors Pay Prevailing Wage Fringe Benefits. |
Gerry has QuickBooks Pro 2009 and a full-time bookkeeper. They use QuickBooks to run payroll, do Estimates, and job costing. They have been using the QuickBooks built-in certified payroll report – but they have to do a lot of manual adjustments to make them meet requirements, and Excel to do his ARRA reports, AIA Billings, and to track subcontracts and equipment costs. He knows that they could be using QuickBooks more efficiently – but do not know how to make changes – he is also not positive that the reports he is getting from QuickBooks are accurate or include “everything”.
As Gerry’s ProAdvisor or CPA, you should first do a general review of their QuickBooks file and help him identify areas for improvement and then implement new procedures.
You will find that Gerry is going to be more than willing to make changes; his bookkeeper on the other hand could present another problem.
A basic plan of action for Gerry and his bookkeeper would be to:
- Move his Excel based tasks into QuickBooks
- Review the QuickBooks Item List and make any necessary changes
- Review the existing Job Costing methods
- Review their existing Time & Materials Billing methods
- Run existing Estimate vs. Actual Reports and drill down into the details to find potentially missing costs
- Review Payroll methods, making sure that payroll is being job costed correctly
- Teach Gerry and his bookkeeper to use Purchase Orders to track material purchases and Subcontracts
- Implement Workers Comp and General Liability tracking
- Implement Vehicle and Equipment Costing procedures
- Implement a Retainage Tracking system
- Research ways in which to lower General Liability and Worker’s Compensation costs
- Implement QuickBooks integrated applications to deal with AIA Billing and all aspects of Certified Payroll, ARRA Reporting, and electronic submission
Gerry is very concerned and is becoming increasingly agitated and his bookkeeper is feeling very overwhelmed and out of her element – but will not admit it. Gerry will probably want to hire you for on-going review of his QuickBooks file and to provide training for his bookkeeper, just to make sure that “things” are being done right. The bookkeeper on the other hand, knows that she is over her head and needs training – but is resentful.
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Gerry and his bookkeeper would benefit from automating certified payroll and AIA billing requirements. Request a FREE 30-day trial of Certified Payroll Solution and/or Construction Application for Payment Solution by Sunburst Software Solutions, Inc. |
Sam Subcontractor already uses QuickBooks, he has more complex job costing needs due to certified payroll reporting requirements, payments of prevailing wage fringe benefits and AIA billing. High overhead costs, specialized equipment, materials, labor charges are other things that must be taken into consideration.
QuickBooks Estimating, Job Costing, and payroll needs will vary depending on the type of contractor you will be dealing with, so if anyone dares to suggest that one “Chart of Accounts or bookkeeping method” will work for all contractors – well you just shouldn’t listen to them, and here’s why:
Meet Sam Subcontractor:
I have worked for a lot of “Sam’s” they are great people too. They usually have the same basic philosophy as Harry the Handyman; however, because they have employees and bigger “operations” they realize that they need to consider more things when they go out to bid on a job; but they do not always realize all of what they need to take into consideration.
Sam has overhead costs, employees, specialized equipment, company vehicles, materials, and more that he needs to take into consideration when estimating. He works on private and prevailing wage jobs. When he works on prevailing wage jobs he has to pay his employees a much higher rate of pay plus prevailing wage fringe benefits and submit weekly certified payroll reports. Billing requirements for his jobs include Time & Materials and Percentage of Completion, where he needs to submit AIA billing forms and track retainage.
Sam tells you that he was just awarded a contract on an ARRA funded construction, the job will last about 18 months and he has to pay prevailing wages to his employees, submit certified payroll reports, monthly ARRA reports, and AIA format billings and will need to hire 5 additional employees. He is nervous – his workers comp and general liability insurance premiums are killing him; he knows that part of his high overhead is due to the fact that he is paying the prevailing wage fringe benefit it cash to his employees.
Sam has QuickBooks Pro 2008 and he has used it to run payroll for his employees. He has been using Excel to do his bidding, billing, certified payroll reports, and his job costing. He knows that he has to make sure that he is bidding high enough to make a profit and stay in business; yet not so high that he is no longer competitive.
Let’s look at some of Sam’s costs that you as his bookkeeper, ProAdvisor, CPA should help him identify for estimating and job costing purposes.
- Overhead – rent, phone, electric, trash service, etc.
- Liability Insurance
- Worker’s Compensation Insurance
- Wages (private & prevailing wage jobs)
- Employee Benefits – health insurance (?)
- Tool Purchases
- Materials
- Prevailing Wage Fringe Benefit Costs
- Insurance for vehicles and equipment
- Registration for vehicles and possibly some equipment
- Repairs to vehicles and equipment
- General Maintenance for vehicles and equipment
- Gasoline and/or Diesel fuel to run vehicles and equipment
- Vehicle & Equipment costs on his jobs
As a bookkeeper, ProAdvisor, or CPA with a client like Sam, you are going to have to spend some extra time helping Sam set up his books.
You will find that Sam is going to be more than willing to make changes – but that he is NO bookkeeper! He also knows that he needs to make things easier because he is spending too much time in the office doing paperwork – when he needs to be on the jobsite.
One of your biggest challenges with Sam will be communication – he is going to talk construction and you are going to be talking accounting…..learn his language and help him learn yours.
A basic plan of action for Sam would be to:
- Move his Excel based tasks into QuickBooks
- Turn his Estimating Cost Code list into a QuickBooks Item List
- Teach him to use the QuickBooks Estimate function to do his bidding
- Teach him how to use QuickBooks for Job Costing
- To automate his Time & Materials Billing
- To run Estimate vs Actual Reports so he can tell how much money he’s making & if he is bidding accurately
- Teach him how to job cost his payroll by using Weekly Timesheets
- Teach him to use Purchase Orders to track material purchases
- Implement Workers Comp and General Liability tracking
- Implement Vehicle and Equipment Costing procedures
- Implement a Retainage Tracking system
- Research ways in which to lower General Liability and Worker’s Compensation costs
- Implement QuickBooks integrated applications to deal with AIA Billing, Certified Payroll, and the ARRA Reporting
Sam will feel very overwhelmed and out of his element, he will probably want to hire you for on-going review of his QuickBooks file, just to make sure that he is doing things right – he may even want to hire you to come in on a weekly basis to help him out.
TIP: Paying prevailing wage fringes in cash will increase Sam’s General Liability and Worker’s Compensation costs, especially if they are based on gross payroll instead of gross sales.
Request our free eBook on 4 Ways Contractors Pay Prevailing Wage Fringe Benefits.
Estimating and Job Costing needs will vary depending on the type of contractor you will be dealing with, so if anyone dares to suggest that one “Chart of Accounts or bookkeeping method” will work for all contractors – well you just shouldn’t listen to them, and here’s why:
- Harry Handyman will have simple job costing needs, as he is usually a one-man operation with little to no overhead costs and will be charging his customers for materials and his time.
Meet Harry Handyman.
Harry is probably nearest and dearest to my heart. We have a “Harry” who comes and does a lot of work around our house for us; as a matter of fact a couple of years ago he was here installing some new windows, putting vinyl siding on our house, and replacing our existing deck with a bigger one. Harry is a great person, we think the world of him, he is very good at doing what he does, and he loves what he does; but I have to wonder just how much money “Harry” is really making. Here is why.
When Harry came to talk to us about this “project” of ours he arrives with his tape measure and sets out to “measuring” how much vinyl we’ll need for our house, window sizes, and deck dimensions while he leaves me with some color samples to look at.
He says “this is a pretty big project so I’ll get a buddy of mine to come work with me, it’ll take us 2 maybe 3 weeks to get the windows in, the insulation up, and the siding on and another couple of days to do the deck. I “figure” it’ll take us roughly X number of hours to do this, and this is what I’ll charge you to do the work” and away he goes.
A couple of days later he calls us with prices, we give him the go ahead, and a couple weeks later Harry shows up with his dump truck and trailer loaded to bear with the vinyl and the windows, he’ll have the decking for us in a couple of weeks.
Now we like to pay Harry right away, so we say, “How much do we owe you” and Harry kind of grumbles about “ah, you don’t need to pay me right now” but finally hands us his receipt and says ok, here you go. We ask “what about pick-up and delivery?” and Harry replies, “Ah I had to do down there anyway.” Now “down there” is a 100-mile round-trip in a 1-ton dump truck that “maybe” gets 10 miles to the gallon (going downhill with a good wind behind it).
Harry is a prime example of “Cost Plus” in its simplest form – cost of materials plus a fee for his labor. His Chart of Accounts and Item List would be very simple; in fact, he would probably consider his Materials a “Reimbursed Expense”. Oh, I almost forgot to mention – Harry’s idea of an invoice is one of those little 3 x 5” handwritten ones that comes from one of those “carbon Receipt books” that you can pick up in the grocery store for a couple of bucks.
Now let’s look at some of Harry’s costs that you as his bookkeeper, ProAdvisor, CPA should help him identify for estimating, job costing, and tax return purposes.
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As a bookkeeper, ProAdvisor, or CPA with a client like Harry, you are going to have a hard time. Harry is “set in his ways” and probably is not going to want to change the way that he does business. Do the best you can for Harry, realize that you probably won’t be able to “change” him, but do talk to him about changing his ways for his own good – even if you know that it will do no good – because Harry will probably never do any sort of “formal” estimating. However, people cannot make informed decisions without being presented with good facts.
Harry would be a good candidate for QuickBooks Simple Start, just to get him automated and away from pen and paper.
Tomorrow’s installment will discuss the needs of Sam the Subcontractor.
Congratulations, you have just picked up your first construction client!
As an Certified QuickBooks ProAdvisor, a “contractor” or a Bookkeeper/Office Manager has contacted you for a contractor because they need “help” with their QuickBooks file. The chances are good that you have completed one of the various “New Client Interviews” that are readily available, you arrive at the contractor’s office, and start to review their current QuickBooks setup only to find:
- A Chart of Accounts that is so long it could easily be considered a “book” OR one that is so short you wonder how they manage to keep accurate records.
- An Item List that is so long that it too could be considered a “book” OR one that consists of only a few items.
- A Payroll Item List that is so long that it too could be considered a “book” OR one that consists of only a few items
In the case of the Chart of Accounts, Item, and Payroll Item Lists feeling like “books” most ProAdvisors first thought is “oh what a mess, we need to clean this up!”
STOP!
This initial reaction may not be the best approach to dealing with a construction client, so let’s address some areas that most of the New Client Interviews I’ve ever seen – never take into consideration. Also, remember that your construction clients in-house management reporting needs do not, and probably will not, perfectly line up with financial-statement or tax return reporting requirements. However, you will find it worthwhile to help them retrieve the information that they desperately need – even if it means a bit more work from you or their Accountant on a periodic or year-end basis.
So, let’s talk about some of those questions that are not in the New Client Interviews, it is impossible to cover all of them, but you can certainly add these to your “list”:
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As you can see these questions will help you to zero in on their needs and you can then help them set up a QuickBooks file that will be a “workhorse” instead of one that “underperforms” and causes frustration.
QuickBooks will not automatically provide some of the solutions to the needs of contractors, for example: tracking Retainage, equipment costs, union or bona-fide plan fringe benefits – but properly setup QuickBooks “can be made” to do so; and of course, there are always third-party applications that will help with the “tough stuff”.
Now that you have some more information about the client’s needs – your first step should be to help them (and yourself) get organized by making a list of their needs! However, before you begin implementing new procedures – you should review their current QuickBooks file to make sure it will provide them with the desired results.
How contractors view business management covers a wide range of emotions; from a “necessary evil” to those who want and need their information “NOW” (or yesterday) in order to be able to make better day-to-day operating and financial decisions.
For the most part, contractors are NOT “business people” – they are highly skilled craftspeople who prefer to work in the field doing what they do best….building things. They hate being stuck in an office in front of a computer faced with a pile of paperwork; and while they may recognize that their current accounting method isn’t optimal, if it’s working well enough (in their opinion) they simply leave it alone.
Although this group of contractors may not be actively looking to solve their financial pain, they can and do strongly identify with pain points – such as losing money on a job – which makes them open to solutions, as long as they are fairly simple to implement.
Contractors, who feel that business management is a necessary evil, tend to keep accounting, project management, inventory, estimating and job costing details in their head, on paper, in spreadsheets or even sometimes with an accountant. They are simply too busy with other things – like making sure that their employees show up on the job site, that materials arrive on time, and that they get the job completed in their allotted timeframe. That is, until there business grows to a point where keeping these details in their “head” becomes too much and they find that they not only want, but need, information NOW in order to be able to make better day-to-day operating and financial decisions. For the construction industry, this critical “need-it-now’ information turns into a need for instant access to detailed estimating, purchasing, job costing, and cash flow information.
Initially, many contractors will purchase QuickBooks because they hear it’s drop dead simple to use or another contractor suggests they purchase it to help them keep track of their accounting needs – so off they go to the local office supply store and come home with their QuickBooks software, they get the program installed and crack open the manual………only to discover that while they can read a set of blueprints the QuickBooks manual is like reading Greek! As contractors they tend to think in terms of cost codes and QuickBooks speaks of items – quite a difference. Some manage to get it up and running…sort of…and still keep doing things manually because they just can’t figure out how to do it in QuickBooks or they find that QuickBooks simply cannot do what they need it to by itself, and they are still left with keeping stuff in their heads or in spreadsheets.
As a ProAdvisor working with a client in the construction industry, one of your first tasks is to find out what type of construction activities they are involved in as well as any special reporting requirements they might have.
- They can perform work on Residential, Commercial, or Government funded projects
- Their jobs may be Fixed Price, Fee only, Time & Materials (also known as Cost Plus), or Purchase Agreement – Sale at Closing
- They may be a Union Shop
- They may need to submit Certified Payroll Reports
- They may need to submit billing using the standard AIA (American Institute of Architects) format
- They may need to track work to be completed by a single subcontractor or several
- They may need to track the expiration dates of their subcontractors Worker’s Comp and General Liability insurances
- Their jobs may last a few weeks, a few months or even a few years
We all know that QuickBooks®, properly set up, will give you the ability to provide valuable job costing and management reports for your clients, so it is important that you take the time to find out exactly what each client would like to see, what special requirements they must track and report, and above all……what information they would find to be most useful on a day-to-day basis. The answers you receive will determine how you will then proceed to:
- Set up the accounts they will need in their Chart of Accounts
- Set up the various items they will need in their Item List and how they are linked to accounts
- Set up special items they will need in their Payroll Item List and how they are linked to accounts
- How Estimates and Invoices will be structured and used
- How Purchase Orders will be structured and used
You will undoubtedly find that your clients in-house management reporting needs do not perfectly line up with financial-statement or tax return reporting requirements – but you will find it worthwhile to help them retrieve the information that they desperately need – even if it means a bit more work from you on a periodic or year-end basis.
Thinking that every contractor you come in contact with will need to track the exact same things in the exact same manner is a common mistake that I see a lot of Advisors and CPA’s make. This mistake usually leads to a QuickBooks® file that “under performs”, tracking of a lot of things in complicated Excel spreadsheets, and frustration for the contractor.
Now don’t get me wrong, I have nothing against complicated Excel spreadsheets; I’ve created and used them myself for many years because I had no other choice. But let’s face it, we all know that the more times the same data has to be entered in different programs, the higher the risk of costly transposition errors – with some of these transposition errors causing the contractor to not be paid or payment being delayed.
