As a QuickBooks ProAdvisor and a bookkeeper who has worked with QuickBooks software in the construction industry for the last nearly 20 years, I am always surprised when I speak with people in the construction industry who use QuickBooks for their business, but don’t use it for job costing. Whether you subscribe to QuickBooks Online or have purchased a QuickBooks desktop version, there are many features inherent to the program that can be very useful for even the smallest of subs or handymen. Even more surprising are the larger scale contracting companies who aren’t using the robust features available to them in the QuickBooks program that they own.
Here are just three of the things that EVERY contractor who uses QuickBooks ought to be doing in their QuickBooks program:
Anyone who has ever created a bid for a job knows that it can be a very intimidating process – everything from stressing over whether or not you have the right projected costs, to anticipating material delivery times, to making sure you are properly accounting for overhead can contribute to an overwhelming process. Here is where it is good to let QuickBooks ease some of the burden. Just a few things that you can do with QuickBooks to take some of the mindless work of estimating off of your plate include:
- Create more than one estimate for a job to look at more than one possible scenario.
- Create a copy of an old estimate to save time on a new one.
- Memorize estimates if you frequently perform the same type of job. (Note: In QuickBooks Online transactions are called ‘recurring’ rather than memorized.)
When creating estimates in QuickBooks, the item list is your friend. If you haven’t already done so, you should create an item list before estimating any jobs. There is more than one way (depending on your particular specialty) to set up the item list – either as a straight inventory and services based list or as a phase accounting method list where each phase of the job is assigned an item number for proper tracking. Don’t forget that you also need to make some items double-sided. Anything that you purchase from someone else (including subcontracted labor) needs to be two-sided to work within QuickBooks properly. (Another note: In QuickBooks Online the Item List is renamed the Products & Services list, but it is still the place to start.) One more thing about estimating: in both QuickBooks desktop versions and in QuickBooks Online you can customize how your forms look for ease of customer understanding – which goes a long way in determining whether or not they will eventually accept your bid.
- Using Class Accounting
In QuickBooks Online Plus and in the desktop versions of QuickBooks you have the ability to turn on class tracking features that can make your job of understanding exactly where and how your business is making and/or losing money that much easier. For a general contractor this might come in handy keeping track of the difference between the homebuilding side of the business and the remodel side of the same company. Perhaps you want to see how well the residential part of your sub-contracting business compares to the commercial portion. Or, in a location such as the Phoenix valley, it may behoove you to sort your class tracking into geographical areas, either by city or by regions. Whatever classes will be most helpful to you and your bookkeeping professional in better understanding profit and loss is what you should use.
- Doing Proper Job Costing
Correct and useful job costing for contractors begins with the proper item list, followed by precise entry of job estimates and appropriate class tracking setup. It is also important to note here that job costing should include direct and indirect costs as well as labor burden. Any expense your business tracks can be assigned or allocated to jobs. You can job cost in both QuickBooks desktop versions and QuickBooks Online versions, but the terminology in the programs is different. In desktop versions, you will see that you can create new Customers and new Jobs. In QuickBooks Online, you’ll be doing something very similar when you create new Customers and new Sub-Customers. A sub-customer in QuickBooks Online functions very similarly to a Job in QuickBooks desktop, but there are some differences. It is worth knowing the differences when determining which version of the software would suit best for your business. Even so, you can do job costing and even a comparison of estimates to actuals using either program.At the end of the day, job costing can make or break a business. By keeping track of which jobs made or lost money and by how much is the first step in determining strengths and weaknesses within the company and/or understanding how outside factors are affecting the bottom line. Like any other financial tracking tool, job costing reports should be used regularly to help management understand the overall health of the company. Another thing to keep in mind is that, by properly tracking job costing regularly during the course of a job, management can see if perhaps a change order is necessary to offset any cost overruns.
Everything comes full circle. That daunting task of estimating mentioned at the beginning of this article can actually be made simpler once a proper job costing feedback loop has been integrated into the company’s systems. Suddenly you can see in black and white how estimating errors are coming into play and correct those errors on future estimates.