QuickBooks Tips – Contractor Needs – Part 3
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.
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.
Gerry and his bookkeeper would benefit from automating certified payroll and AIA billing requirements.