Word and Excel for Projects? I’ve lost count of how many times I’ve been asked to do the bookkeeping for mom-and-pop contractors, only to find that they’ve been making their estimates in Excel, their invoices in Word, and tracking their accounts receivable... on a whiteboard.
Moving to QuickBooks allows them to maintain a consolidated history of their work, keep track of Accounts Receivable, organize customer documentation, and analyze spending on a project-by-project basis.
QBDT or QBO for Projects?
In years past, conventional wisdom said that QuickBooks ® Desktop (QBDT) was better suited to construction, while QuickBooks ® Online (QBO ® ) was best used for service-based businesses. While that used to be true, the latest enhancements to QBO Plus and Advanced have almost eliminated that distinction.
If you haven’t explored these new features, now is your chance!
In this 2-part series, I’ll start with QBO’s basic workflow for managing multi-step jobs. In the second article, we’ll expand our view to look at the Projects Center. On December 8, join me in my webinar and see these features in action!
The Mobile App
One benefit to using QBO over Desktop is the mobile app. Estimates can be signed for approvals. Before-and-after photos can be attached to the Project. Credit cards can be swiped on the spot. T-Sheets can check workers in and out as they arrive on site.
None of these efficiency strategies can be done with QuickBooks Desktop!
Estimates and Progress Invoicing
For jobs with multiple phases, make use of Estimates and Progress Invoicing. Use the Estimate to track the scope of the project, and Progress Invoicing to bill the client in stages.
When it’s time to convert one into an Invoice for billing,QBO asks if you want to Invoice for an entire Estimate, a percentage of it, or for specific line items.
Continue to generate periodic invoices off of the original Estimate until it's complete.
Open the original Estimate to see the remaining portion to be invoiced.
There is also an Estimates & Progress Invoicing Summary Report in the Reports Center. Click the triangles to expand and collapse each Customer. Customize the report to just include active clients.
Time Tracking
QBO’s Timesheets populate labor costing in the Project Center.
Both the Single Time Activity and Weekly Timesheets feed directly into QuickBooks Payroll, so you won’t have to enter the hours manually.
In addition, T-Sheets integrates directly into QBO so that workers can clock in and out using their smartphones, and you can see where they are via GPS.
Job Costing
Job Costing means to compare the income from a job to its associated expenses. While you may think you got paid a bundle for a project, you may be surprised at how little profit you made. It’s important to include not just your direct expenses like materials and subcontractors, but also your payroll expenses, overhead, and the owner’s time.
Turn on the Job Costing Settings under Gear > Account and Settings > Expenses > Bills andExpenses.
To pay for Products and Services that will be listed on a Customer Invoice, choose "Show Items table on expense and purchase forms." These include both tangible materials and subcontracted services.
To mark Expenses as part of a Project for Job Costing, turn on "Track expenses and items by customer."
To pass these expenses on to a customer for reimbursement, with or without markup, choose "Make expenses and items billable." You can set a default markup rate, which can be changed on a case-by-case basis.
The Elements of Job Costing
Using Products & Services vs. Account Categories
Every time you create a bill, check, or expense, you have the option of using a Category (top grid), or a Product/Service (bottom grid).
If you don’t care about service profit margins and product sales reports, you can just assign all expenses to their cost of goods or expense account category, which is pulled from the Chart of Accounts, and call it a day.
But if you would like to analyze your company’s sales to see what Products and Services are your most popular, or have your greatest margin, be sure to use the bottom grid (remember, if you don’t see it, you have to first turn the setting on in step 1 above!).
The benefit is detailed reporting and analysis to help you understand your business and guide your company’s growth. The drawback is that you need to enter these expenses by hand. The Banking Feed doesn’t allow you to assign Products & Services through its interface, so the workflow takes more effort.
Assign Expenses to a Customer for Job Costing
All expenses can be assigned to a Customer Project. This is what creates the Job Costing reports.
If a purchase needs to be allocated to several Projects, simply repeat the same Account or Product/Service on each line item, and designate the proper proportion to each Customer/Project.
Mark Expenses as Billable to the Customer for Reimbursement
Any expenses incurred on a job can easily be reimbursed by the customer. When recording the expense, mark it as Billable and assign it to a Customer/Project. If you mark up your expenses, you can turn on that option and set a default % in Account and Settings.
The next time you create an invoice, be sure to add the Billable Expenses from the drawer that appears on the right.
Another way to group your transactions is by using Classes. Before the Projects Center existed,Classes was the go-to method for Job Costing. By using each of your Jobs as a Class, you could assign the Job to every Income and Expense transaction.
The disadvantage is that this list frequently becomes unwieldy over time. QBO Plus has a limit of40 classes, which is why using the Projects Center is a vast improvement and Classes have essentially turned into a workaround!
Budgets
Another way of tracking your spending is by using Budgets. Create a budget at the beginning of each Customer project. You can even break it down into monthly or quarterly increments.
Most construction companies still have to use a spreadsheet to compile the costs for each of the expenses in the budget. Use the spreadsheet for the detail, and include just the category totals in the budget and on estimates.
As you progress through each job, run Budget vs Actual reports to see how you're doing on a line-item basis.
Additional Reports
Income by Customer Summary Report
This report gives you an overall profitability report on each job.
Project Costing - P&L Report
View how much profit you made from one Project.
Go to Projects, and click on one of your jobs. Click on the Job Profitability Report.
Conclusion
For small construction companies, these features may be all they need to track basic job costing. As they grow, though, adding third party apps like Knowify or Buildertrend add tools like resource allocation.
While QuickBooks Desktop may have more detailed reporting, the convenience of multiple users, field apps, accountant access, and the Project Center makes QuickBooks Online worthy of a careful look.
In part 2 of this series, we’ll look at QBO’s innovative Project Center and how it brings A/R andA/P together under one roof.
Please join me on December 8 in QBO For Contractors, my free webinar sponsored by Divvy. We’ll look to see if QuickBooks Online and the Project Center is right for you!
I also have a 2.5-hour course at Royalwise.com, a deep dive into QBO’s Projects Center. Check it out by clicking here, and use coupon code IA10 for 10% off.