WHAT EVERY SUBCONTRACTOR NEEDS PART 3
By Ron Pestone
Today I will discuss the other essential software package a subcontractor needs, the accounting package. No subcontractor can surive for long without a good bookkeeping system. It would be like driving a car blindfolded. In the age we live in it only makes sense that any system that you decide to use should be computer driven.
Today computers as well as software are inexpensive and user friendly. They allow an individual with a modest budget to employ a system with enormous capabilities. For the larger contractor they are an absolute must.
Now you can have at your fingertips the labor hours spent on a job, the material and equipment costs, what change orders have been added to the contract, what has been billed, what has been paid, what is being held in retention and what is left to pay to suppliers. The detail you can derive from some basis input is simply amazing and it is all available at a reasonable price.
Before I go any further let me make it perfectly clear I am not an accountant, I am strictly a construction guy who knows what I want to look at when I am looking at the numbers for any particular job.
I have had the good fortune of working with some of the smartest construction controllers in the business and I, like the companies I worked for profited from their wisdom and choices.
I hope to share some of that with you in this article. As in my previous posts WHAT EVERY SUBCONTRACTOR NEEDS PART 1 and 2 there are excerpts from my book, which will be out this fall, COMMON SENSE SUBCONTRACTING WITH ELM JOB COSTING & MORE as well as this article.
In setting up your books equipment and material need to be charged to each specific project. No matter how small or big, weather daily, weekly or monthly each and every piece of material and equipment purchased must be charged to a single job.
When you start out in business this is relatively easy as you only have one job so any material or equipment purchased is charged to that job. As your work load increases and your company is doing multiple projects this can become a nightmare as vendor monthly bills start running into the dozens mixing and mingling all your jobs in large confusing bills.
Suddenly you have monthly vendor bills from thousands to tens of thousands of dollars that must be paid and due dates that must be honored. Now you are in an impossible position; whom do you pay, for what job and how much. And one of the cardinal rules of contracting is never and I mean never alienate your vendors. Without them you have no material and equipment to install and if you can’t install you can’t build or bill.
From a project management and job costing perspective it is really beneficial to have every job stand on its own. If you mingle everything, how do you know how you are doing on your projects.
Over-all you might be making money but you have no idea what type of projects you excel at and the ones you should stay away from. In today’s computer age there is no reason any vendor cannot bill you monthly by specific project.
It can be done by separate monthly bills for each project or by one large bill broken down by specific jobs. But this will only happen if you make it clear to your vendors that this is the way you want your account to he handled. And it is a lot easier if you start on day one demanding it.
After all what do your vendors really want, they want to be paid in a timely manner, and if you make it perfectly clear to them on day one that the surest way for that to happen is to bill each job separately they will be more than happy to oblige.
An additional bonus is this method eases the burden of auditing. If you are contracting you are going to be audited. No exceptions, there are going to be audits. In public work contracting there are endless audits.
While some might consider audits a nuisance they are an everyday part of life. Agencies do not change and if you want to stay in their good graces you need to handle their audits as a team member not as an adversary.
If your vendor invoices and payments are clear and simple to follow audits become much easier and faster for the agency. For that to happen you need your vendor invoices and your payments broken down into separate jobs. In the end owners, subcontractors and vendors all profit from a system where the costs for each project are clearly identified and summarized.
Like material and equipment, labor hours and costs need to be charged to individual projects. Each journeyman and foreman working on a project must be charged against that project. This includes punch list. Each week’s payroll must be identified by project. Regular time and overtime hours must be identified as well as their associated costs.
There can be no deviation from this. In any project labor is the biggest gamble and as a result demands more scrutiny than any other part of the work. The accounting package must be able to break out the weekly summery showing how labor hours were spent up to any given date.
Disregard any program that cannot perform this function. During the duration of the project it is essential to know how your labor is deployed. You want to see if you are being spiked or compressed and are being forced to work in an unproductive manner. You always want to see you labor totals by the week.
Unless you know what you’ve already committed to labor and what you need to commit to get to the project’s end date there is no way you can make an intelligent decision on manpower and explain it the owner or his representatiive.. Not to belabor the issue, but, if you do not control your labor and how you deploy it you are going to go out of business. It’s only a matter of time. So go the smart route, track it. Hours and dollars.
For each project the system needs to be able to tell you the original contract price, and the revised contract price after the approved change orders have been added to it. How your original estimate was broken down; equipment,labor, material and subcontract if there is one and that the revised estimate is broken down in the same manner after the approved change orders have been added to it.
Also, what has been purchased to date and what has been invoiced to date by your suppliers. Your system needs to be able to tell you what you have billed to date, the retainage held to date, the payments to date and the balance due.
In my book, COMMON SENSE SUBCONTRACTING WITH ELM JOB COSTING & MORE there is a report titled PROJECT STATUS REPORT which shows each of these main areas plus others I consider important for job costing. A signifant amount of time is spent in the book on this report going over each item of the report describing how is was ascertained and its importance in developing a job costing report.
When all is said and done you need to find an accounting software package that will accomplish all this. Like project management software packages there are many of them and they all have their good and not so good points. I have experienced great luck with Timberline.
It was the choice of one of the smartest controllers in the business at the company I worked for and it proved to be very successful. As I said when I was writing about Primavera I am not employed by Timberline, do not receive any remuneration from them for any reason, I simply am an individual who has used their system for years and really appreciates what it does for a subcontractor. In my opinion it is a great accounting software package.
There are many benefits to using Timberline in addition to the ease of inputting data. It can be customized for your special needs. The single input of data can be used in many different ways. Timberline understands contracting and its system demonstrates that.
Finally Primavera systems has announced the release of Primavera [R] TGIF version 2.0 which will provide enhanced integration between Primavera Expedition Project Control software and Timberline Gold Collection [R] accounting software. I have never used Primavera[R] TGIF version 2.0 so I cannot make any comment on it except its out there and it could prove helpful.
Again, remember this, no matter what the promises are, start by sticking with the basics. Stick with the accounting, do not go down the road of cost coding by man. If you start with a bookkeeping system and the system contains all the above you are on the right road and will immediately start realizing the benefits from its use.
When fall comes and my book comes out on job costing it should help you make the right decision on what road to take when it comes to how you want to approach job costing.
Related Blog Posts: