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.
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.