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Using QuickBooks Desktop for Contractors to serve niche construction clients

Would you turn down the opportunity to leave a boring job that was paying you? We QuickBooks ProAdvisors® know that it is not that easy. There is always a “catch.” But, what if the “catch” was something that benefited your business? Would you be curious? If so, then read on.

Let me back up a few years, specifically to year 2001. I was hired to work with my first QuickBooks® construction client. My job was to train the staff and help them get their processes in order. The working word there is “processes.” What did I know of a contractor’s processes? I recall a few of the processes they wanted help with:

  • Creating a WIP schedule
  • Submitting Draws to banks
  • Tracking Lien Waivers out for signature from vendors

I put on a smile, asked them to explain what these terms meant and promised the client I would research how best to meet their specific needs. I remember providing a discount for my time, and we formed a trusting relationship that day.

Fast forward to today: from that single appointment, I have formed a professional niche for myself, training on the proper use of QuickBooks for Contractors, as well as other construction software solutions. Simply stated, “I love the construction industry.”

You are probably asking, what does this have to do with leaving a boring job? Let me suggest that if you find yourself becoming bored with teaching QuickBooks users how to enter and pay a vendor bill, then begin working with contractors.

The construction industry has very specific work processes that need attention. Some of these processes are handled with QuickBooks Desktop add-ons, while other tasks can be managed with QuickBooks when the software is setup properly.

Common workflow processes unique to the construction industry include:

  • Estimating a project
  • Scheduling a project timeline
  • Collecting bids from vendors for trade work on the project
  • Tracking budget vs. actuals for the project
  • Managing change requests for the project

While QuickBooks for Contractors is not designed to manage each of these tasks, understanding how your client handles these will help you properly setup QuickBooks for their specific reporting needs.

To help you get started, here are my five simple steps to using QuickBooks Desktop for Contractors software effectively:

Step 1: Purposefully use all of the QuickBooks lists

Chart of Accounts

The Chart of Account list is what your client will use to document the company’s Assets, Liabilities, Income and Expenses on their business tax return. To modify or add to the chart of accounts, select Lists > Chart of Accounts from the menu bar. Review your client’s Chart of Accounts – do they have Cost of Goods Sold account types? These should be general named accounts, such as Material, Labor, Equipment, Subcontractor and others that represent typical Cost of Goods Sold accounts for a construction company. Do not use the Chart of Accounts list for the trades they hire to complete their projects, as those belong on the Item list discussed next.

Items list

For each project your client bids on, they likely have created a list of their estimated costs on paper, using Microsoft Excel or some other program. Typically, whatever items are on this list will also work well for them in QuickBooks. From the menu bar, select Lists > Items List. Most items created will be of a service type.

If your client purchases products that are shipped directly to the job site, they might also select non-inventory as the item type. Only use inventory items if they will be storing the materials and will later be placing those materials on a customer invoice when sold.

The item list should be as detailed as your client is willing to track actual costs to budgeted costs. If the budgeted list is too detailed, tracking actual to budget will be more time consuming. So, start out small and add to the list as you see your customer needing more detailed job reports.

Step 2: Customize customer and job settings

Customer and/or customer: Job?

I am often asked, "Do I need to setup Customers, or Customers and Jobs, in QuickBooks?" It really depends on the business. For example, if your client is the retail chain Target, and they are working at multiple store locations, then Target would be the Customer and Store #1 would be the job. Click on the Customer Center on the icon bar to create both Customers and Jobs of Customers. However, if they only provide services for one job site for a Customer, then they might just use the Customer.

Customer or job type

Does their business provide both New Construction and Remodel services? These are typical examples of using the Customer or Job Type fields to segment their QuickBooks reporting for management purposes. Create the Customer or Job Types from the Lists > Customer & Vendor Profile Lists menu. Then, select a Customer or Job in the Customer Center, and assign the type on the Additional Info tab.

Job details

With a Job selected on the Customer Center, select Edit Job. Optionally add Status, Start Date, Projected End and other details to the Job record on the Job Info tab. Some of this information assigned can be filtered for in reports.

Step 3: Assign job costs

Create an estimate

From the Home page, select Estimates. Enter the Customer or Customer:Job and row by row, assign costs to the items created earlier. Enter a Quantity and Rate, where the rate is the actual cost not including any markup, overhead or profit. The Markup column is important when viewing the Budget vs. Actual reports. Assign a dollar markup amount, such as $10, or a percent, such as 20 percent, in the Markup column. Your client can assign these on each row (preferred), or as separate rows, on the estimate.

Use items on expense transactions

When entering a Bill or a Write Check form, use the Items Tab. Expenses recorded on the Items Tab will be compared with the Amount column total on the Estimate form in the Job Estimates vs. Actual reports.

Step 4: Invoice workflow

Invoice from the estimate

There are several acceptable methods of invoicing a customer in QuickBooks. You will need to ask each of your clients what method they currently use. For the Job Estimates vs. Actual reports to provide accurate details, you need to create your invoices from the line details on the Estimate. Open an Estimate and select Create Invoice.

Progress Invoicing

Perhaps, your client’s business needs to invoice the customer in "stages," commonly referred to as Pay Applications or Draws. QuickBooks can also prepare these. From the EditPreferences menu, select Jobs & Estimates. On the Company Preferences tab, select the radial button "Yes" for Progress Invoicing.

When creating an invoice using Progress Invoicing, make sure to choose a Progress Invoicing Template (top right of the Create Invoices window).

Step 5: Submit timely & accurate reporting

To locate reports available for job reporting, select ReportsJobsTime & Mileage. In QuickBooks for Contractor Desktop, you will have 14 unique reports, including Job Profitability Summary and Detail, Job Estimates vs. Actual Summary and Detail, and Profit & Loss by Job. In QuickBooks Enterprise, you will have two more reports: Job WIP (Work in Process) Summary and Committed Costs by Job.

Are you now ready to leave “boring” behind and take on the challenge of working with contractors using QuickBooks? You will find the industry challenging and financially rewarding at the same time.

Click here to receive an email with a link to download your free QuickBooks for Contractors Report Sampler, including the addition of the QuickBooks Enterprise reports. While this document was prepared years ago, it does a good job of providing a detailed view of the available reports. 

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