Construction Accounting – Why You Should Outsource It
Why Outsource Your Construction Bookkeeping?
- It is probably the most difficult and complex accounting system ever invented
- It is deceptively simple, it looks easy, like flying a plane 85% boring, 15% sheer terror
- At the auction every contractor learns the true cost of cheap accounting
EXTERNAL Accounting is all about things going on OUTSIDE your business:
- Financial Statements for bank loans, lines of credit, investors and bonding requirements
- Tax returns for local, state and Federal tax returns
- Bankruptcy court filings, some firms do not generate financial statements until they are here
- All of these reports and forms are of limited use to the contractor
INTERNAL Accounting is all about things going on INSIDE your business:
- Current bank balances reconciled every month or more often
- Reports showing Cash, Money Coming In, Money Going Out, Profit & Loss, Net Worth
- Job Profitability Reports…which jobs made and lost money
- Financial Statements for you to know how well your business is performing as a whole
RETAIL Accounting is all about customers COMING to the business:
- These businesses have fixed locations for their stores, offices, workshops and websites
- Customers shop at the BUSINESS LOCATIONS and make purchases
- Inventory usually has (1) Account and (1,000s) of Items in QuickBooks
- Cost of Goods Sold usually has (1) Account and (50+) of Items in QuickBooks
- Sales usually has (1) Account in QuickBooks and (10+) Items in QuickBooks
- Sales Tax Codes usually has (1) Account in QuickBooks and (1) Item in QuickBooks
CONSTRUCTION Accounting is all about the business GOING to the customers:
- These businesses move their stores, offices and workshops to their customers location
- Customers shop at THEIR LOCATIONS and make purchases
- Inventory usually has (0) Accounts and (0) Items in QuickBooks
- Cost of Goods Sold usually has (100+) Accounts and (1,000s) of Items in QuickBooks
- Sales usually has (20+) lines in QuickBooks and (1,000s) of Items in QuickBooks
- Sales Tax Codes usually has (1) Account in QuickBooks and (100s) of Items in QuickBooks
Construction Accounting is a very tiny fraction of the accounting industry which why so little time is spent on covering it in most colleges and universities. The only way to really understand construction accounting is to actually spend time on a construction site and experience firsthand what construction is, what it does and how it works.
There Are Nine Steps To Good Construction Accounting
- Sort Paper
- Data Entry
- Tax Reporting
- Financial Review
- Generate Reports
- Contractor Makes Decisions Based On Reports
Who Will Do It?
- The owner can; however do you really want to learn it and do it all yourself?
- Your spouse, roommate, sibling, neighbor kid or anyone else to do it for FREE?
- You could get a cheap bookkeeper
- You could get a good Bookkeeper that understands construction accounting
Let’s Examine Two Types Of Bookkeepers, Good And Cheap
What are your childhood memories of regarding anything related to Bookkeeping? For most people it was overhearing grownups gripe and growl about money, tax returns, balancing the checkbooks and how it was so boring.
Some of us grew up and learned what it meant not to balance our checkbook and make involuntary contributions to the stores and the banks in the form of “overdraft fees”. How insane it that? Not only are you are low on funds, you just got lower. In some case you hit rock bottom and started drilling.
There is a lot of negative energy attached to bookkeeping and no super hero bookkeepers to admire and look up to…go figure, it just doesn’t add up!
Most bookkeepers drifted into it and without realizing the ramifications of not having the foundational skillsets required because it may have been an entry level position. Being self-taught lead they to develop a collection of bad habits and paradigms and they sank slowly into quagmire of quiet desperation to become cheap bookkeepers.
They dare not attend classes, seminars, lectures or seek continuing education because the lack the proper foundation in the principles of accounting let alone the complexities of construction accounting. So over time they devolve deeper into even cheaper bookkeepers bouncing from one job to the next and in some cases opening their own firms. They are hired by contractors searching for the lowest price because they do not understand the true cost of hiring professionals until it is too late. As for the bookkeepers themselves they often wind not being paid because the contractor went bankrupt before paying them along with a number of other suppliers.
A few people make a conscious decision to pursue bookkeeping as a profession and they do it with a passion. These folks acquire a proper foundation in the principles of accounting and then add the skill sets to master the complexities of construction accounting. They continue attending classes, seminars, lectures and continually seek education and knowledge. They are passionate about their profession and live their vision of being a part of a team that works together to build and maintain civilization for future generations because some of the homes, buildings, roads, bridges and other projects will continue to serve long after the builder and the bookkeeper are gone.
What Kind Of Bookkeeper Do You Have?
- Arrive on time and leave on time
- Care about you as a person, your company, your staff, your suppliers
- Cheerful, thinking, responsible adults
- Continually learning new skill sets because they take pride in their work
- Embrace processes and procedures that allow everyone to succeed
- Produce reliable results early and often
- Take a lunch break to recharge their minds and bodies
- Take reasonable breaks during the day to clear their mind
- Team players working to maintain the integrity of your QuickBooks
What Is Required To Find And Keep A Skilled Bookkeeper?
- A living wage with benefits
- Air Conditioning in the summer and heat in the winter
- Company paid training to continually update their skill sets
- Do not expect them to ANSWER THE PHONE
- Good lighting in their office and the building in general
- Kitchenette with free beverages, snacks, frozen foods and a microwave
- Knowledge base available only to qualified Accountants
- Lots of room to spread out paper and assorted files
- Private office with a door so they can work in quiet and think
- Provide them with 24-7 technical English speaking U.S. based phone support
- The latest in computer hardware and software with lots of power
- Two large flat screen dual monitors with DVI inputs and high resolution
- Understand and implement Deming’s 14 points, Covey’s 7 Habits and Good To Great
- Your QuickBooks continually backed up so there is no worry about losing data
- Arrive late and leave early to make up for it
- Are Time and Effort Driven / Not Results Driven like selfish, greedy, rich, business owners
- Avoid learning new skill sets because there is nobody to check the books and look for problems
- Change jobs while the tax return is being prepared since the books are a mess; and the jig is up
- Come in a little bit late and leaving a little bit early to make up for it to find your tolerance limit
- Do not care about you, your company or anyone else associated with your company
- Get even with the boss for every perceived injustice against themselves and society as a whole
- If you insult them it is like insulting the cook; use your imagination, and be very afraid
- Keep the boss busy with lots of mindless crap to divert attention from why the books are a mess
- Let the boss think they are in control of the bookkeeper and the Accounting until it is too late
- Make the boss think they are looking out the best interest of the company, LOL!
- Make work expand to fill whatever time you are willing to pay them to get it done
- Most popular parting comment: “Chaos, panic and disorder…my work here is done”
- Negotiate for additional perks, benefits, changes, and elimination of personal accountability
- Network for a better job with your clients, suppliers, vendors, and competitors
- Represent themselves to outsiders as the owner or manager with decision making authority
- Spend company time on texting, messaging, e-mailing, web surfing, cell phones, and socializing
- Take lots of long breaks to waste time, grumble and complain about everything under the sun
- Train the boss to leave them alone by getting upset or angry whenever the boss wants anything
- Want the business to be fair— a place where the owners do not earn more than Bookkeepers
- When the business closes its doors they proudly declare the boss was incompetent and stupid
- Work in a chaotic, neurotic, psychotic, selfish, disorganized, blame game environment
- Work through lunch to leave early (Be at the office for 7 hours and get paid for 8)
What Is Required To Attract And Keep A Cheap Bookkeeper?
- A cramped little space for the bookkeeper to work
- A miserable, overworked, untrained, underpaid, Bookkeeper waking up every day hating life
- A substandard wage
- An antique computer with one monitor and a slow printer
- Bad lighting in their workspace
- Have them answer the phone, run errands and run errands
- Little or no continuing education in accounting or QuickBooks
- Nobody to ask for help with complex Accounting and accounting issues
- Put them in a public noisy environment with lots of interruptions
- QuickBooks tech support coming from someone who barely understands English
- You pay for their training because all learning is by experience
- You wonder if they are trying to run you out of business; in most cases yes
- You wonder what is wrong with them, where are the reports you need to run your company
High Tech Offices Are Now Standard Operating Procedure
They are more critical than having a cell phone and if you think otherwise it may be time to polish up your resume and get ready to look for a job with one of your competitors. Either invest $250,000+ to setup an accounting office and staff it with qualified people or outsource it to a qualified construction accounting firm for less money than what you are spending now and use only the parts you need when you need them
At minimum you need to be able to access from anywhere in the world:
- QuickBooks desktop version not a cheap version with 100’s of advertisements
- Your important documents within a paperless environment
- Your project management system
- Your Customer Relationship Management system
The great obstacle to discovering the value of Construction Bookkeeping which generates good reports and being informed in time to seize opportunities and avoid disasters is not ignorance; but the illusion of trying to save money doing it yourself or hiring cheap bookkeepers because good bookkeeping like good construction is not cheap.
I have been involved with Construction and Construction Accounting for over thirty years. All of the examples of Good and Cheap Bookkeepers in this article are from my personal observations and discussions with bookkeepers in contractor’s offices, exit interviews conducted when bookkeepers are leaving a company and from classes and seminars.
If you have a Good Bookkeeper treat them like the precious asset they are