Will QuickBooks Online work for my Construction Business?

I was originally asked to write this article for QBOChat where it was published back on March 8th. I wanted to share it here for our readership as well (with a few minor changes.)

Have you heard it won’t?

If you are a construction company owner who has been told that QuickBooks Online won’t work for your construction business, you may want to take a second look. There are still quite a few accounting professionals who tend to think of QuickBooks Online in the same way as they view the QuickBooks Desktop software package. Don’t get me wrong, QuickBooks Desktop is still a powerful piece of software and it is still being improved upon by the great folks at Intuit. However, to truly understand QuickBooks Online you must understand the idea of SaaS, cloud computing, and app integrations.

So, what is SaaS? No, it’s not the lip that you used to give your mom and for which you were sent to bed without your supper. SaaS stands for Software as a Service. QuickBooks Online is designed to be run from the cloud and one of the major benefits of this cloud computing model is the ability for QuickBooks Online to integrate fairly seamlessly with other cloud based apps. Cloud computing and SaaS programs – “apps” – are really the future of small business management.

OK, so what?

Why, you may be asking, does this matter to me in terms of my construction business. Back to our original proposition – if anyone has ever told you that QuickBooks Online just doesn’t have enough features for you to properly manage your construction business then you should know that they’re right.

Gulp. They’re right. As a Construction Accounting Specialist, I would say that the majority of construction companies (of any size) should not attempt to manage their construction business accounting solely through QuickBooks Online. Yet, the beauty of app integrations with other cloud based software is that now you can take your accounting software – QuickBooks Online – and link it directly to your project management software – for instance, Knowify – and have all the integrated project management and accounting data be magically imported into QuickBooks Online without having to do any manual data entry from one program to the other.

Just think

Think about the ramifications of that for a second. Just a few short years ago, the various aspects of running a construction company were broken up into various parts – estimating had their software tools, project managers had their software tools and accounting had their software tools. These various software systems operated independently of one another. So, estimating would work on an estimate (say they put that together in a spreadsheet program.) Then, they had to communicate that information to the project manager and to accounting – both of whom enter the same data all over again into their respective project management and accounting platforms. As the project progresses, the project manager had to communicate with accounting information about project costs, time and materials, what portion of the job is complete, and so on and so forth.

Let’s take a walk in the cloud

Now, step into the world of cloud computing, Knowify and QuickBooks Online. With these two powerful tools integrated nearly every step of a project (no matter how complicated) can now be managed in one simple tool. Accounting still has the ‘back end’ system of QuickBooks Online for maintaining non-project related items such as payroll and bank reconciliations, but everything pertaining to the projects is now flowing through the one, easy to use system of Knowify and the accountant never needs to do double data entry work to make sense of the numbers because Knowify pushes that information into QuickBooks Online without even having to click a button. Estimating enters their estimate directly into Knowify using as much or as little detail as necessary. The project manager can manage every piece of the project from scheduling to materials invoices to billing right within Knowify. All along the way, every detail that needs to post to QuickBooks is posting to QuickBooks. The accounting department (or your knowledgeable QuickBooks ProAdvisor or Construction Company Network Advisor) can see every piece of the accounting puzzle as it pushes into QuickBooks. Financials, job costing, and other reporting tools can be accessed much more quickly because there is much less time spent between when something happens out on the jobsite and when it is accounted for in the books.

Not only that, but if you need to prepare AIA type billings on a regular basis and they give you headaches trying to figure out what the exact percentage of completion will be for that month, then you will really fall in love with Knowify’s AIA billing capabilities. Not only does Knowify track your costs and progress on the job so that you can have a very accurate picture of percentage of job completion, it even has built in AIA style forms that most general contractors will accept. (Does your QuickBooks Desktop do that?)

Now you know – and,

The next time someone tells you to stay away from QuickBooks Online because it isn’t the right tool for the job, remind them that a drill with no bits is never the right tool forthe job either!

Job Close Out – Map a superior customer journey

This is the second in a three-part series about using a Job Close Out system to enhance your construction contracting business. If you missed the first part, you can go here. You’ll find the third part here.

Start at the finish line

Rather than getting close to the end of your project and finding you have an Easter egg hunt for what’s incomplete or unacceptable (including the dreaded punch list) working from the beginning of the project through the completion with Job Close Out in mind makes better sense for both you and your customer.

Speaking of punch lists: There has been a lot of talk lately about striving for a zero item punch list. When I first heard of the idea, my reaction was “that’s impossible.” Then I began researching the ideas and thoughts associated with the concept and discovered it is not only possible, but actually the industry as a whole is moving toward that reality rather rapidly.

So, whether your particular segment of the construction industry typically relies on a punch list or not, there is still that moment in time when you reach the finish line at each of your jobs and you close out with your customer.

Who benefits from a well-planned, systematic Job Close Out process?

Your customer

Your team

Your bottom line

Whether or not your particular customer has ever heard of the language found in the American Institute of Architects’ AIA A201-2007 document is beside the point.

“Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use (2007).”

Think like your customer

The fact that your customer can “move in” isn’t enough. No matter how much they’ve enjoyed your company for the past few hours, months or years they wish to fully occupy and fully use whatever you’ve built, installed, or repaired for them.

No matter where you are in the contractor, subcontractor chain you still answer to your particular “customer.” Your ability to scale your contracting business is greatly enhanced when your reputation is for closing out your job without repeat call backs, for monitoring even the “little things,” and for finishing your project with no loose ends.

A well designed Job Close Out system will keep your team from missing vital yet routine tasks which can sometimes slip through the cracks because you or someone else on the team assumes they’ve already been carried out. Another important benefit of using a good system is that by assigning close out tasks to a specific person and having the tasks verified by different team members sets up a communication path which often leads to more information, therefore better close out.

Your Job Close Out system is an internal checklist which in reality is a customer service tool.

Jeff Bezos, CEO of Amazon, makes an excellent point when he says, “We’re not competitor-obsessed, we’re customer-obsessed. We start with what the customer needs and we work backwards.” Making your Job Close Out system customer-centric is a wise investment of your time and is important to scaling your construction contracting business.

The next article in this series will discuss how to create a useful Job Close Out system which will serve you, your customers, and the members of your team.

Construction Progress Billings – How and Why?

G-702 AIA Official Construction Progress Billing Form
G-702 AIA Official Construction Progress Billing Form
G-702 – AIA Official Billing Form

What is Progress Billing?

A progress billing, simply defined, is work done under contract which is billed in phases. Rather than submitting one invoice, either before a project begins or upon completion of a project, the contractor will submit a number of billings to the owner of the project over the course of work as various items are completed.

 

When should a Progress Bill be submitted?

As often as agreed upon between the sub-contractor and general and/or general contractor and owner. On a typical large commercial project, the owner along with the project architect, lender and sometimes a third party inspection company will set a payment application schedule which must be strictly followed by all parties submitting invoices in order for payment to be received timely. On smaller projects the progress billing cycle should be established in the contract that you sign with your customer.

 

Start with a Schedule of Values

A good schedule of values is essential for proper progress billing. The schedule of values should be submitted as part of the original project proposal. A schedule of values is a list with the dollar amount assigned to each area of work that will be completed on the project. On large projects the scope of work is often broken out according to the Construction Specifications Institute (CSI) Divisions. Examples of those divisions are General Conditions, Sitework, Utilities, Concrete, Steel, etc. Once you have defined the areas of the scope of work, a value is assigned to each one so that a percentage complete can be established for each item as progress is made on the project. In the United States the industry standard format for progress billing according to a schedule of values is per AIA forms G702 and G703.

 

Know the Rate of Retainage

Most construction contracts will require a retainage be withheld from each application for payment. This retention is established in order to protect the owner or lender from the contractor not completing the project. Typical retainage amounts are 5% or 10%. On larger commercial projects this amount will be set by the owner or lender and can be found in their submittal requirements. For smaller projects, this amount can be decided on between the owner and contractor in the original contract. The amount will be withheld from each payment to the contractor in a reserve until the punch list is complete and the project is finalized. Each progress billing must take this retainage into account on each line item and also at the bottom line of the application.

 

How Can I Avoid My Progress Billing Submittal Being Rejected?

Progress billings can be confusing. An improper progress billing can be (and often will be) rejected by the general contractor or by the owner or lender if they cannot understand your progress billing or if they find it to be incomplete or incorrect. If not rejected, they may still be held against you. Busy general contractors or owners don’t want to do your job for you. Even if they don’t outright reject your submittal, but decide to correct it, they may hold it against you when it comes to approving bids for future jobs. Reasons that a progress billing may be rejected include incorrect completion percentages, incorrect math or late submissions. Cash is KEY! If your submittal is rejected, you may have to wait until the next billing cycle to get paid! Be sure to review all vendor invoices and percentage completions to avoid over/under billings. Also be sure to double check all your math including math completed by billing software. And, always make sure to submit your billings timely! It is a best practice to submit your progress billings early so that project management has time to review your payment request.

What About Change Orders?

Approved contract Change Orders are listed separately, either on their own Continuation Sheet or at the end of the original Schedule of Values.

Attachments

Attached are some documents for informational purposes. Sample AIA G702 and G703 forms as well as sample Arizona lien forms. For more information on progress billing contact us at 480-442-4032.

 

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