The Contractor And The Black Box

A contractor’s work is tangible; it’s seen, touched, heard, smelled, and judged good or bad. Bookkeeping is intangible. Paperwork given to The “Keeper of the Books” is input into the “Black Box” and reports come out, eventually, someday.

accounting black boxIdeally, these reports tell contractors how much money they made or lost and where it all went. If the reports from Black Box match the bank’s records, the suppliers unpaid bills, and money their customers owe them then the Black Box has value.

However, in most cases Black Box reports do not agree with everyone else’s records the contractor becomes angry and distrustful because he is not in control of the Black Box.

The Keeper of the Books is in control of the Black Box and the reports it can generate which means they have the power to provide them or withhold them depending on a variety of circumstances, including their mood at that moment.

The Keeper of the Books also has the power to decide what reports are “needed” and therefore “possible” and which ones they have decided are not “needed” and are therefore “impossible” to generate.

Sometimes they tend to guard the reports and not provide them to the contractor because they know they are not accurate.

Eventually the contractor realizes his finances are in chaos so fear, masked in false bravado and manifesting as anger begins to take hold as the primeval “Fight or Flight” response kicks in and the blame game starts.

The contractor verbally attacks the Keeper of the Books saying, “Bookkeeping is only a few keystrokes, how hard can it be? I should be able to push a button and get the reports I need and they should be accurate. What is wrong with you?”

The Keeper of the Books will commonly reply with something to the effect of “When you start bringing me ALL the paperwork you will have your reports!”

After a while, the discussion ends with everyone losing faith and trust in each other and the Black Box accounting system.

The answer is to setup the accounting system similar to the dashboard on their truck or van. The dashboard has  Five Key Performance Indicators:

  1. Speedometer
  2. Tachometer
  3. Fuel Gauge
  4. Oil Temperature
  5. Water Temperature

The contractor surveys these Five Key Performance Indicators, reflects on past decisions and the outcomes that occurred; the effect that preceded the cause; running out of fuel meant wasting time. Based on the reports (gauges) the contractor makes decisions and takes action.

Setup the accounting system to make the Black Box operate like a dashboard by putting the reports where the contractor can easily and quickly access them with a few mouse clicks to display the Five Key Performance Indicators for their company:

  1. Cash on Hand (Cash is a fact & Profit is an opinion)
  2. Accounts Receivable (Cash coming in)
  3. Accounts Payable (Cash going out)
  4. Balance Sheet (The 3 “0’s” “Owned” – “Owed” = left “Over”)
  5. Profit & Loss (The opinion and accuracy depends on Bookkeeper)

A tremendous amount of the STD’s (Stress, Terror, Drama) in construction accounting can be resolved with a properly setup and maintained accounting system.

Thousands of accounting software programs for construction accounting exist and none of them work well out of the box. Every one of them have to be setup and customized to each individual business for the contractor to get good value from it.