An infusion of federal infrastructure funding through the American Recovery and Reinvestment Act (ARRA) have had and will continue to put more contractors and their employees back to work. Federal investment in Public Works projects will create jobs throughout the country and not just construction jobs.
While additional public infrastructure projects will allow the construction industry to maintain their current workforce and will even necessitate hiring more workers. You will also see contractors who have previously worked on other types of construction projects (residential and/or commercial) begin bidding on newly created Public Works projects.
This will also encourage contractors to purchase equipment, thus preserving and creating manufacturing jobs.
As a Certified QuickBooks ProAdvisor or Accounting Professional who is working with construction clients – you are entering into a very challenging experience!
More demand for construction savvy accounting professionals.
Contractors who will perform work on these government funded public works construction projects will face new bookkeeping, accounting, and compliance issues that they may not have faced before, therefore, they will be seeking help and advice (aka consulting time) from construction savvy accounting professionals who support QuickBooks – specificically in the areas of improved job costing and the preparation and submission of certified payroll reports; which are required on government funded construction projects valued over $2,000.00.
The terms “construction and contractors” are vague and widely misused terms which cover everyone from the local handyman who makes repairs/improvements on your house to the contractor who is building or repairing a bridge on your local highway.
Let’s talk about construction projects
In general, there are three types of construction projects that contractors can be involved in, each having their own unique accounting and compliance issues:
- Non-Residential Building which includes the actual process of building, creating, or repairing commercial, manufacturing, educational, religious, administrative, recreational, hotel, dormitory, and other actual buildings. These types of project may require the submission of AIA format billings and/or certfied payroll reports – in order for the contractor to be paid.
- Residential Building which includes the actual process of building, creating, or repairing single family homes, multi-family homes, and apartments and other buildings of this nature. These types of projects may require the submission of AIA format billings – in order for the contractor to be paid.
- Heavy/Highway, Industrial, or Non Building construction which includes the building or repair of streets, highways, bridges, dams, reservoirs, river and harbor developments, sewage and water supply systems, missile and space facilities, airports, utilities, public works projects, and communication systems; just to name a few. These types of projects may require the submission of AIA format billings and/or certified payroll reports – in order for the contractor to be paid.
AIA format billing is a “standardized” method of billing developed by the American Institute of Architects.
As we all know, having an accounting system is a vital piece of any successful business. An accounting system provides an automated and easy way to track how much money is being made vs. how much money is being spent.
Creating proper accounts in an accounting system to track business Assets, Liabilities, Equity, Income, Cost of Goods Sold, and Expenses will allow your construction client to see an overall picture of their company’s worth or value from a financial standpoint – not only for themselves, but also when they apply for a loan, or have to be bonded.
A construction company, like any other company, has numerous responsibilities – to their employees, customers, vendors, subcontractors, investors, and even the government.
Contractor Business Needs:
The construction industry has some very specific accounting requirements. In addition to Payroll, Accounts Receivable, and Accounts Payable functions, they need to be able to have systems to handle Estimating, Job Costing, Overhead, Billing and/or Invoicing, Project Management, Scheduling, and Customer Management – just to name a few.
No two contractors will have the EXACT same need for functionality OR use the exact same cost coding system for billing. Even if two construction companies are similar (for example, two plumbing contractors), a bookkeeping system may need to be modified to meet the needs of each business. A bookkeeping system should be designed to meet the needs of each business, keeping in mind that it should not be overly complex and should take into consideration:
- the types of transactions the business enters into and how information about those transactions can be captured, and
- the type of financial information the business needs to efficiently manages its operations
So, do not let anyone tell you that every contractor uses a specific Chart of Accounts or Cost Coding system.
A typical construction specific accounting program (which carry a big price tag) includes:
- Accounts Payable
- Job Cost Management
- Accounts Receivable
- Payroll – including Union Payroll, Certified Payroll, Union Reports
- Detailed Job Budgets
- Flexible Billing modules – including Time & Materials billings, AIA billings, Over & Under Billings
- General Ledger
- Subcontract status
- Custom job reports
- Purchase Orders
- Inventory
- Equipment Tracking
- Work in Progress
- Retainage Receivable
- Retainage Payble
- Construction Loans
There are many software packages available for the construction industry – ranging from $5,000.00 to $50,000.00 in price with expensive annual updates, that do not include support. Because of this, especially in this tight economy, more and more contractors are switching to QuickBooks Pro, Premier, or Enterprise to fulfill their bookkeeping and accounting needs.
QuickBooks, while not specifically developed for the construction industry is:
- extremely user-frindly
- can provide a very strong accounting structure “backbone”
- can be operatoed by personnel who have little computer knowledge (bookkeeping and accounting knowledge, however, is important – you need to know your “debits from your credits”)
- with the use of reasonably-priced QuickBooks integrated applications to provide some of the higher level functionality
QuickBooks, when used in conjunction with 3rd party integrated applications, is a viable and cost-effective choice for contractors.
