Controlling Profits with QuickBooks - Builders' Show Profits with QuickBooks ® Diane C.O. Gilson...

39(+) Tips, Techniques, & Opinions

Controlling Profitswith QuickBooks®

Diane C.O. GilsonPresident, Info Plus(+) Accounting®, Inc.

Certified QuickBooks Advanced ProAdvisorCertified QuickBooks Enterprise ProAdvisor

© Info Plus Accounting PC, Ann Arbor, MI 48104(734) 544-7620 ♦ web: www.InfoPlusAcct.com ♦ e-mail: [email protected]

Diane C.O. Gilson President, Info Plus(+) Accounting®, Inc. Certified QuickBooks® Advanced Pro Advisor Certified QuickBooks® Enterprise ProAdvisor Info Plus(+) Accounting®, Inc. 2370 E. Stadium Blvd., #1020 Ann Arbor, MI 48104 E-mail: [email protected]

Phone: 734-544-7620 Fax: 734-544-7617 Toll-free: 866-244-2228 Website: www.InfoPlusAcct.com

BIOGRAPHY: Diane Gilson created the accounting firm of Info Plus(+) Accounting® in 1994 with the intent of providing current and future-oriented management accounting services to small and medium-sized businesses. Since the firm’s inception, Diane has worked exclusively in QuickBooks® – a powerful, flexible, multi-functional software accounting system currently used by 70-85% of small to medium-sized businesses in the United States. She is a Certified QuickBooks® Advanced Professional Advisor and Certified QuickBooks Enterprise ProAdvisor (through Intuit), and a Certified QuickBooks® consultant (through the Sleeter Group Consultants Network). Although the firm has a number of clients in the service, technology, retail and other industries, 80-90% of Info Plus Accounting’s clients are in the construction and manufacturing industries. Diane, and her accounting staff have chosen to provide enhanced services for these industries because QuickBooks® is especially suited to their needs for understandable, useful job costing and profitability reports. Background and credentials In addition to her various QuickBooks® certifications, Diane initially earned her CPA licensure in 1981, and has practiced as a licensed CPA for 15 years. While not currently performing public accountancy services, she is still registered as a CPA in Michigan. She also achieved the Certified Internal Auditor designation during her banking career, and earned her Intuit MasterBuilder Professional Advisor certification in 2002. She brings more than thirty years of varied auditing, tax, computer accounting systems, budgeting, training, and management accounting experience to her QuickBooks consulting practice. Before founding Info Plus(+) Accounting®, she worked for a national Honor Society, and as a licensed CPA for a regional CPA firm. She then spent fourteen years in banking first as Internal Audit Manager, and then as Manager of Management Accounting Systems, where she established Bank-wide planning, goal setting, and budgeting processes, accountability reporting, and activity-based-cost (ABC) profitability measurement systems. In addition to her firm’s daily, one-to-one QuickBooks support work with clients throughout the U.S., the company currently offers Internet-based “QuickBooks for Construction” webinars (seminars) for any business or individual with high-speed Internet connection. Diane is also an NAHB University of Housing Instructor for their “Business Accounting and Job Cost” and “Financial Management” courses and has authored a series of articles for various NAHB publications (including Nations’ Building News Online) relating to small-business anti-fraud protection techniques as well as another series, “The QuickBooks® Challenge”. She is the creator of various Excel-based accounting support calculators & checklists, developer of AccountingPRO™, a robust QuickBooks Pro template (file) and support system created especially for builders, developers, and remodelers, and is the author of Accounting with QuickBooks for Home Builders & Remodelers (originally published by BuilderBooks, a division of the National Association of Home Builders). Her techniques and products have also been featured in other industry publications as well as in Intuit’s QuickBooks® Pro Advisor Newsletter, Developer Network, and ProConnection Newsletters. Diane’s expertise and industry experience has earned her a variety of speaking engagements for various organizations including the Michigan Association of CPAs, CAP (Contractors’ Assistance Program), the (NARI) Remodel America (National) Show, the Dwyer Group, the Midwest Builders’ Shows, the Custom Builders Symposium, the National Remodelers’ Shows (six shows), the International Builders’ Show (seven shows) and various other national, regional, and local construction shows and training seminars.

1

Overview – Today’s Session

Adding Accuracy & Control w/Purchase OrdersControlling Costs w/Estimates & Change OrdersItem List Secrets

Time Tracking, Payroll & Labor BurdenPromoting Profits with Variance Reports

In-house Accounting – Pros & Cons

Q & A

Faster, Bigger Bank Draws & Cleaner ClosingsTips & Techniques for getting started

In-house Accounting - Pros

A smart, tight, reliable, timely financial reporting system can:

Keep you in touch with the financial side of your business

Guide you in setting achievable goals

Give you confidence in your pricing

Help you to spot and avoid losers

#1 - Opinion

In-house Accounting - Pros

A smart, tight, reliable, timely financial reporting system can:

Provide feedback to managers and supervisors

Control operations

Minimize surprises

Make you wealthier!

#1 - Opinion

In-house Accounting - Cons

A poorly-designed, inadequate, uncontrolledin-house accounting system (or bookkeeper) can or will:

Drive you away from the financial side of your business

Limit your ability to achieve goals and/or grow your company

Leave you in the dark regarding the adequacy of your pricing

Reduce your ability to spot and course-correct problems

#2 - Observation

In-house Accounting - Cons

A poorly-designed, inadequate, uncontrolled in-house accounting system (or bookkeeper) can or will:

Provide no objective feedback to managers & supervisors

Encourage fraud and/or other costly behavior

Promote unpleasant surprises

Keep you financially strangled!

#2 - Observation

Lists – Dimensions of Info

Think of information in “structural dimensions” :

Accounts (1) – “Rows”

Customers: jobs (2) – “Columns”

Job process (3) – “Depth”

Locations, product lines, or divisions (4) – “Filters”

#3 - Tip

2

Lists – Accounts & Items

Lists drive reports and are very flexible

Chart of Accounts

Items List

#4 – QB Feature

Lists – Critical to Success

“Begin with the end in mind.”Carefully design lettering, numbering,and rollup systems for your lists

These LISTS are the first key to successful results!

- Chart of Accounts- Item List (linked to Chart of Accounts)- Customer:job List- Payroll Items List (linked to COA)

#5 - Technique

Lists

Some lists (e.g., chart of accounts, items, customer:jobs) allow “sub” elements which create groups & subtotals within reports

Understanding how lists and sub-systems fit together, and interact, is critical!!!

#6 - Technique

Lists – General Notes

Items: Use service items (vs. accounts or classes) to build “process” and “standard” reports. (We learned this lesson the hard way!)

Payroll Items: Use payroll items to allocate labor burden rates

#7 - Tips

General: Use SUBTOTALS and SUMMARIESto provide additional, valuable management information

Bonus – Roadmap!

Lists - Item List Secrets

For T&M application: Create two-sided “smart” Items

Add codes to your Items(ordering of Items, easier entry)

Group & sort your Items in job-stage order

Understand Item types and when to use each(Tip: Use “Service” Items for job phases)

#8-#11 - Techniques

3

Lists - Item List Secrets

Use titles and descriptions effectively

Include default descriptions in Items(easier entry, confirms correct selection)

Code income/costs to Income Statement(temporary “home” before WIP entry)

Create additional Items for: deposits, multiple “draws“ and "extras"

#12-#15 - Techniques

Estimate – T&M or Cost Plus

#16 – T&M Technique

Estimate – Fixed Price

#17 – FP Technique

Estimate – Change Order

#18 – CO Technique

Improve your bottom line

Example:Change orders & allowances

If your annual gross income = $1,200,000

Just a 0.5% improvement =

Use better information to increase collections on change orders and allowances —

$ 6,000 per year


Example:Pricing your jobs

Use better info to price jobs more accurately —


Just a 2% improvement = $ 24,000 per year

4

Creating Invoices

Prepare invoices converted from estimates – including Percentage of completion (line-by-line or in total)

Other Invoices & Statements

Prepare Stand-alone invoices (e.g., for fixed-price jobs)

Assess finance charges(enhance cash flow)

Create Statements (history and aging of invoices & payments received)

Control & Accuracy w/PO’s

Utilize purchase orders (P.O.'s)

PO Technique – Part 1:1. Create “Internal Use Only” Estimate

(include anticipated vendors) and print2. Create PO’s from Estimate using identical Items

(additional detail on PO’s is OK!)

#19 – Technique


Convert P.O.’s to bills……When a vendor with a PO is entered

to a bill, check or credit card,…….

Voila! Data is copied from PO to bill,….Control: If incoming bill is greater than amount copied from PO, there is a problem to be resolved BEFORE the bill is paid! (Overcharge? Unrecorded Change Order?)

#20 – Control


Utilize purchase orders (P.O.'s)

PO Technique – Part 1:RESULTS:

When PO is converted to a bill or check, the identical Items, amounts, and job are copied into the transaction.Estimate vs. Actual reports will show actual costs on same line Items as Estimate!“Pre-entry” is easy, accurate and painless

#21 – Accuracy


Utilize P.O.'s (continued)

PO Technique – Part 2:For vendors with multi-billings:

Put the total $ in the QTY columnUse $1.00 in the “per unit” column

E.g., 5000 QTY x $1 = $5,000 Total cost

RESULT: Each bill entered will “DRAW DOWN”the total shown in the PO (vs. closing the PO aswould normally happen with a partial bill).

#22 – “Workaround” for Tracking & Control

5


Example:

Control contractor costs

Use improved controls (e.g., Purchase Orders) to negotiate and control contractor costs —

If your annual gross cost = $400,000A modest 3% savings = $ 12,000 per year


Example :

Control materials costs

Use improved controls (e.g., Purchase Orders) to negotiate and control materials costs —

If your annual gross cost = $400,0002% savings = $ 8,000 per year

Time Tracking & Payroll System Time Tracking & Payroll System

Enter timesheets (by job & job phase):

#23 – Technique

Time Tracking & Payroll System

Various Time Reports are available (by name, job, service Item, etc.)

#24 – Control


Time can be accessed and copied to an invoice from the “Time & Costs” button

#25 – Technique

6


Create payrollfrom timesheets

(as needed, orafter-the-fact)

#26 – Tip


Two methods to use QB to automatically assign or allocate other employee-related costs to jobs:

1. Set the QB File Preference to auto assign Payroll taxes and specific benefits, e.g.:

- Social Security - Medicare - Unemployment - Union costs

#27 – Technique


2a. Use Excel to compute labor burden costs by employee:

Adjust hours DOWN to actual production hoursAdjust costs UP for other employee costs – e.g.:

Worker’s CompHealth insuranceCell phonesEquipment usage

#28 – Advanced Technique


Labor burden - Spreadsheet example:

Class Exercise


2b. To automatically assign additional labor burden costs to jobs:

2c. Make a monthly journal entry to move the “credit” side of theentries to your NJS (non-job specific) job

Establish an “Allocated Labor Burden” AccountEstablish an “Allocated Labor Burden” Payroll Item linked to that account (both debit and credit)For each Direct Labor employee record: Add that Payroll Item and specific “additional” LB percent

#29 – Advanced Technique


Example:

Increase employee productivitySet specific targets and goals for employees —

½ hr per day saved = 6.25% improvement

If your annual gross labor cost = $200,000Annual cost savings = $ 13,500

ORAnnual gross revenue increase of $18,000*

*Assuming a 35% markup on labor cost

7


Pay and track payroll-related liabilities

Create federal payroll reports (941, 940, W-2s) with certain Intuit payroll selections

Run detailed payroll reports for payroll audits

We often also recommend using an outsidepayroll service (for various other reasons)

Profits from Variance Reports


Estimate vs.Actual reportsprovide criticalday-to-dayControlInformation -

Use them !

#30 – Tip


Who reviews?

What should they see?

How oftenshould job costreports bereviewed?

#31 – Opinions


Strengths of reports:Detailed “summary” by job stage(drill down to see detailed transactions)Course-correct quickly or “make up”over-runs in later stagesChange order income to date is visible$ Invoiced to date is visible

Weaknesses of reports:Estimates are not time sensitiveQuantity does not showActual costs may end up on wrong linesNeed to review “Open POs by Job” report to see remaining committed costs.

#32 – Opinions,…

Profitability & Work in Process

Take all direct costs to COGS firstCreate adjusting entries to move $ to balance sheet as necessary E.g., Use quarterly entries for:

Spec homesPercentage of completionOther work in process

Reverse balance sheet entries the following dayRepeat as needed

#33 – WIP Technique

8

Speeding up Bank Draws

Cash Flow Enhancement Technique :After POs are entered and “firm”:

Field supervisors report completion of workConvert POs to bills as of work-completion date(Tip: set a unique due date for bills not yet received)Include those costs in bank draw requestsMatch final bill from vendor against bill in system and revise due dateIf actual bill received is different from prior entry, enter additional bill or credit memo in subsequent period

#34 – Tip

Speeding up Bank Draws

Cash Flow Enhancement Technique :

RESULT:Costs and payables are entered more promptly:

More accurate reportsFaster cash flowFaster payments = happier contractors

Bank inspections will verify that work is completeOpen Purchase Orders by Job report shows remaining “committed” costs,…

#34 – Tip (results)

Closings - Collect your funds!

Collecting what is due to you:

BEFORE CLOSING –Carefully review all Job cost reports for amounts that may be “chargeable” and collectible from client e.g.:

Change ordersUpgrades/allowance overages or credits

Carefully review all open POs for amounts not yet entered as bills (“committed costs”) for the same issues

#35 – Tip

Closings - Collect your funds!

Collecting what is due to you:RESULTS:

Final accounting & problem resolution takes place before the deal is finalized

Funds are collected as part of the legal process“After-the-fact” surprises and losses are minimized

#35 – Tip (results)


Example:

Change orders & allowances


Just a 0.5% improvement =

Use better information to increase collections on change orders and allowances —

$ 5,000 per year


Example:

Increase production

With more effective and efficient operations in place, take on additional work — E.g.,

$200,000 additional work at a gross profit of 25%

= Additional income of $50,000 per year

9


Example:Decrease admin costs

Organized, accurate, records and profitable operations also create other possible savings such as reduced costs for:

Outside accounting servicesTax preparationTax penaltiesInterest (due to reduced debt)

(Savings depend on actual circumstances)

Installing and using a job-cost systemis not an EVENT

It is a PROCESS , . . . . .

WARNING:

Tips & Techniques

#36 – Observation

Tips & Techniques - Costs

Value and Investment options?

What do you need NOW? E.g.: - Timely information - Job cost info - Cost controls

What will you need in the FUTURE? Consider:

- Growth - Users- Profitability goals

#37 – Considerations

Tips & Techniques – Getting Started

Need a quick start? Use a QB construction industry template(pre-created file). Look for:

“Scalability”(Flexibility to meet your company’s ongoing info needs)

Memorized transactions(To help with difficult transactions)

Use of QBP’s advanced applications(e.g., Estimates, Purchase Orders, and construction-specific reports) to help enhance profitability

#38 – Tip

Start at a basic level and move on to more detail as your understanding grows

Give it time!

And consideration, …


#39 – Tip


Total annual impact ?$___________

10

Be diligent –Your rewards will

ultimately exceed your efforts!


#40 – Observation

Summary – Today’s Session

Adding Accuracy & Control w/Purchase OrdersControlling Costs w/Estimates & Change OrdersItem List Secrets

Time Tracking, Payroll & Labor BurdenPromoting Profits with Variance Reports

In-house Accounting – Pros & Cons

Q & A

Faster, Bigger Bank Draws & Cleaner ClosingsTips & Techniques for getting started

Controlling Profits with QuickBooks - Builders' Show Profits with QuickBooks ® Diane C.O. Gilson...

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