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QuickBooks For Contractors
Instructor: Denise Chew, Loupe ConsultingTeaching Assistants: Nathan Bernard, Jacob Geller, Derrick Kwan
Agenda
1. Profitability & Cash Flow (where is the money)?1. Idealism vs. the reality of QB2. Suggested changes to QB3. The numbers you really want to see (& use)
2. Timing & Control (systems that impact your ability to “see”)1. Cash vs. Accrual accounting; methods of data entry and QB’s default
parameters2. WHAT and WHEN you want to see about/in your business
determines the needed QB configuration and supporting system.
3. Business and Job level metric reporting1. Again, WHAT and WHEN are enabled (or disabled) by QB.2. Identify your specific needs, configure reports, make a “change
later” list to be implemented by your bookkeeper(s).
Profitability & Cash Flow
Profitability Frequency of assessment Formality of assessment Quality of assessment Usefulness of assessment
Cash Flow Frequency of assessment Formality of assessment Quality of assessment Usefulness of assessment
Company Example
15 year old contracting entity, ~4mm/year in sales Specializes in single room of the home Materials are purchased Subcontractors for all phases of build and they are paid by
the hour for each job Installers Plumbers Electricians
Jobs last 1-4 weeks
The ICF statement for this company is going to look very different from the “Text-
Book” Version
The ICF – Textbook vs. QB Reality (a Quality issue)
What do you notice in the example co. ICF? Look at the Balance Sheet as well.
QuickBooks can generate a cash-flow statement for you through the report center
Change QB Settings (must be logged in as Admin)
The FCF – Textbook vs. Reality (a Usefulness issue)
What you choose to do with that “free” cash is up to you!
Money coming into your business
- (Money going out of business as expenses) (Money locked up in “Working Capital Cycle”)(Investment in business)(Debt Service)
= Free Cash Flow to “Shareholder”
FCF Math
EBIAT
+
Depreciation Expense
- CAPEX
- Increase in Working Capital
- Debt Service after Tax
= Free Cash Flow
FCF for ExampleCo (real data, formatted to tell the story)
Example Co. Income Statement
Using worksheet for Example Co Balance Sheet Differences Articulation of Impact on Cash Categorization to tell the story
Now do your own (with assistance as needed) What do you see?
Don’t forget to error check yourself, your cash balance from the math has to match the cash balance on the balance sheet.
FCF Practice
Reminder of why you care….
Free Cash Flow is the: Money I can take home Money I can pump back in
Revenue= $500,000, WC= $50,000, so WC/Sales= 10% If FCF= $30,000, What Percentage of Growth can be self
funded? What is the level of sales that can be generated? Money I can service additional debt and use
someone else’s money to grow EBITDA
(Principal + Interest Payment) = 1.25
ExampleCO system
Issues & Resolutions Moving of the system driver/control point (using QB better) Changing the QB processes used Rethinking the order of workflow operations Reassignment of labor
Timing & Control (Getting to both Quality & Usefulness)
WHAT and WHEN
What reports would you look at? When would you want to see these reports? What are the barriers to understanding these
reports? How did you choose these reports?
Time for Work Sheet on Reports
Enabling the WHAT and WHEN
What do I want to be able to see
Range of Reports
Cash vs. Accrual
1 2
Income Statement – WHAT YOU DID
Cash Flows – WHERE ALL THE MONEY WENT
Accrual
Cash
The Processes in QB
Reporting is Conditional
Reporting is conditional
How much ($)
What/WhyTo/From Whom
How
When
All Possible Reports
Some,not all reports
ITEM
CONFIGURATION & IMPLEMENTATION
• Follow the money AND the generation of data
• Balance– # process steps– Usefulness of detail
obtained (i.e. level of detail in tracked items)
– Consistency of method (less things to master)
– Users & Permissions
• Consider all three gears (or layers) inherent in a system. (as taught by Professor Marty Anderson @ Babson in Extended Enterprise Management)
What are some of the pain points from your work sheets?
Budget vs. Actual cost per Job
QB Process & Settings Using Estimates Assigning Customer:Job Treatment of Labor/Payroll
Accounting Process Accrual
Timing & Control Is all the data present
Reports to Run Estimate vs. Actual > Modify > Filter
Common Problems/Errors Missing Data Unallocated Data (unassigned)
0/1 {null} thinking
Bad vs. Good (Budget vs. Actual)
Cash Need to Finish Job? (Open PO’s per Job)
QB Process & Settings Using Purchase Orders Assigning Customer:Job
Accounting Process Accrual All things get PO’s or just some? “Units” to use for items ordered What about partial pay on subcontractors?
Timing & Control Is all the data present? Including the non-posting PO information? Are the person
who order and who enters data the same? Reports to Run
Open PO by Job> Modify > Filter Common Problems/Errors (resulting in different answers on different reports)
Mis-Timed Data, Mis-Entry of “expense” rather than “item” on a bill Unallocated Data (unassigned)
Next Steps
Ones from your lists QB Process issues Data methods issues Timing & Control Issues
Action Item Lists Translate wish list into action items
