Name: The Basics of Construction Accounting
Uploaded: 2026-03-14T11:16:09.190Z
Duration: 1 h 12 s
Description: The Basics of Construction Accounting

Transcript for "The Basics of Construction Accounting": Hi, good afternoon or good morning, depending on what time zone you're joining us from, and welcome to today's webinar. Couple quick housekeeping notes before we get started. For the best experience, please use Google Chrome or Firefox. Please note that the audio for today's presentation is streamed through your computer as there is no dial in, so please make sure the volume is turned up on your speakers. You can download the slides in the resource widget up in the top right hand corner. As far as the layout of the screen, the widgets can be resized to fit your screen. And please note that a link to the on demand recording will be emailed to you within twenty four hours after presentation ends, so feel free to watch it back or share it with others within your company or the industry that may benefit from today's content. Please type in any questions in the Q and A box, throughout the presentation. We'll get to as many as we can at the end of the presentation. And if we don't get to, we'll certainly follow-up individually offline. So today's topic, the basics of construction accounting. Before we get started, do a quick introduction. I am your host for today's webinar, John Mibers. I'm the vice president general manager here at Deltek Computer Ease. I've thirty five plus years working in the construction industry. Started my career in construction, working in the industry for a large mechanical contractor, of various roles over my ten year career there, and I've spent the last twenty five plus years serving the over 6,000 contractors nationwide as the leader of the Deltek Computers team. You know, a lot of my role is to is to equip contractors with the tools they need to manage profitability, drive growth, and meet the ever changing construction requirements. Before we jump in and get started, I'd like to take a quick poll here and just get a feel for who we have in the audience. If you could please check the appropriate box for what is your current accounting or construction ERP system. Maybe you're a current Deltek Computers user. Maybe you're using Foundation, Jonas, QuickBooks, Sage, Viewpoint, or other. We'll leave that open for about twenty five or thirty seconds, give everybody a chance to answer, and we'll share the results, then we'll dive in. Give it about another five or ten seconds here. Looks like the majority have answered. I'm gonna go ahead and close the poll. Let's take a look at the results. So got about half of you, a little over half, are using Delta ComputeE. So we certainly appreciate that. Appreciate your business, and thank you for that. And now we're spread across, the other various solutions, foundation, a good number of you on QuickBooks, Sage, Viewpoint, and others. So thank you for that information. So let's jump in. So, you know, I think a lot of us start with, standard accounting methods or standard accounting solutions such as QuickBooks, what I'll refer to as a generic solution. And a lot of times, that's the typical story. The construction industry is very entrepreneurial by nature. Many construction workers spend years working in construction, working for someone else. They eventually decide they're capable and ready to run their own business. When you start, a lot of times, easiest place to start is with a software tool like QuickBooks, a very generic, low cost solution. And and those tools can adequately serve you for a period of time. But at a certain point in the business life cycle, it makes sense to consider construction specific methods and tools such as the Deltek Computary solution. Standard accounting, those solutions, solutions like, once again, not a knock on QuickBooks, it's just the fact that it is a standard accounting solution, is is built for all types of businesses, and it's typically best for businesses that sell goods and conduct business in a fixed location. You don't have multiple sales categories. You don't have need for robust job costing. Your expenses are are are minimal as far as, you know, overhead and other expenses. And you're not doing a lot of forecasting. We're in construction, we get into it, we talk about the work in progress report and things like that. We're asked to forecast the percent of work complete for the dollar spent, where if you're selling widgets off the shelf, the accounting of that is much, much simpler. The variances in labor and payroll are minimal and not all that complex. I think payroll's complex no matter what business you're in, but construction takes complexity to a whole another level. When you think about multiple pay rates, you know, think about, you whether it's, know, managing union payroll, managing nonunion prevailing wage payroll, producing certified payroll reports, properly withholding state and local tax based on where the work is performed. You know, if you're if you're a non construction company working in a fixed location, once you understand the rules for that location, it doesn't change. Contractor, every new job could potentially have new payroll tax withholding rules, and it's our responsibility as contractors to properly withhold and remit to the proper agencies. Once again, with a solution like Computerese, we give you the ability to manage that and help with that whole process. You know, a lot of times, you know, I think it's pretty obvious why contractors start with QuickBooks. It's easy to use and implement. There's a whole lot of people that have QuickBooks experience, and it can manage your basic needs in construction for a period of time. It offers some entry level job costing. And, you know, and it does certainly have a cloud based option like we do here at Computerease. So it's easy to see why contractors start there, but a lot of times, contractors have long ago outgrown the generic solution like QuickBooks and haven't made that move to a construction specific solution like computers. I mean, they're in you know, computers are certainly not the only one, but we are a solution that is built specifically for the construction industry. So we're gonna manage all the things that we're gonna talk about here in a little bit, work in progress, retain each, you know, accurate job costing, whip forecasting, etcetera. So what makes construction accounting different? Why is this a different animal? And I tell people all the time, I could have never learned what I've learned working in a contractor's office for ten years. I couldn't have read it in a book. I could have read it in a book, certainly, but I wouldn't have fully understood the uniqueness of construction accounting if I hadn't lived in that world and done that real time for ten years and did it in the real world. There are so many things that are different, and it's hard to explain. You can try to explain to others, but sometimes when I try to explain to people some of the uniqueness about construction accounting, they look at me like I'm crazy, you know, and and it's and maybe I am, but probably not for that reason. But it's just, you know, there's some things that are very unique and and they are unique to our industry, and we have to make sure that we that we handle that. I mean, the complexity, you know, involved in construction than any other business. You know, construction is project or job based. It's not just the the sale of goods. Not that we're not we're not selling things off the shelf. You know, con construction jobs take place wherever the customer's job is versus a fixed location. And that could even mean multiple locations. You could have a job where some of the work is being done, maybe the prefab work is done in the shop, which might be in one tax locality, and the work out in the field is done, at the job site, which is in a different locality. Or maybe I'm a nonunion contractor, and I'm doing a prevailing wage job, and but I'm also doing prefab. So when I'm working in the shop on that prevailing wage job, you know, there's certain situations where I don't have to pay the prevailing wage rate, but when I get on the job site, I do. And there are many construction requirements for for payroll that need to be taken into account to stay compliant. We talked about the, you know, prevailing wage rates, making sure that if you're a nonunion contractor, as an example, on a non prevailing wage job, I can pay you the standard rate. You go to a prevailing wage job, I need to pay the prevailing wage rate. There's all kinds of overtime rules that come along with that, so I need to make sure I'm paying the right rate. It could be on the same job and the same day I'm required to pay a worker different rate. An example might be, I'm up on a piece of equipment, so I'm an equipment operator for part of the day, and the second half of the day, I'm a laborer because I'm off the piece of equipment and there's two different rates. Or, I'm an equipment operator on one type of equipment for part of the day and another type of equipment which requires a different rate for a different part of the day. These are just some of the many unique things that go on in the construction industry. Those are things that we need to handle. A lot of us may take some of that for granted, but it took us a while to get to to the place where we can handle all that. And ideally, you have a system like computers in place to assist you with that. You know, so, you know, some of the key differences in construction versus generic accounting, obviously, job costing is at the center of what we do. With the with the generic solution, you know, such as QuickBooks, job costing at best is an afterthought. With computer ease, it's at the center of our universe. It's at it's at the center of what we do. Everything revolves around that. When I When I enter an invoice, it gets job cost. When I invoice my customer, it goes to the job. When I write a purchase order or a subcontract, the committee cost gets recorded on the job. These are things we need to do, and we need to be able to do this in real time. We'll We'll talk about that here in just a minute. And even that, even the definition of real time job costing has changed my career because of technology. Revenue recognition. Revenue is recognized you know, when the work is completed or parts of the work are completed, not just when it's billed. So, you know, billed billings do not equal revenue. Mobile workforce, our workforce is mobile. A lot of the work is conducted at the job site, and we need a way to easily communicate between the field and the office. Everything from, certainly from time, time entry, expenses, reporting, productivity reports, daily field reports, pictures of incidents that happen out on the job site. All this, we need to be able to do very easily between field and office. Talk about the the the time for a minute, and that's really part of when, you when I said the definition of real time job costing has changed. You know, back if I go back to my early days in construction, you know, obviously, we didn't have mobile devices out in the field, and and at the end of the week, people brought their time sheets in, or on Monday, they called them in. If we were lucky, at some point when we had a job big enough where we had a job trailer and we had a landline installed, it was going to be a long duration job. And then when the great invention of the fax machine came out, we could actually fax the time sheets in once a week. But at the end of the day, it was quite a cumbersome task to collect all the time, and we typically were doing it once a week for the week prior, doing it starting at the end of the day Friday or on Monday morning for the previous week. And that by the middle of that week, when we ran payroll and updated and posted payroll, that's when job costs got updated. So in that example, we're we're up to ten days behind on job costing. Today, if your field workers are turning time in daily, which they should be because we have many great options for them to do that, those hours are reflected on the job cost. Hours and pending cost are reflected immediately. I can look at the job cost report at the end of today or first thing tomorrow morning and see Monday's hours on there, and it's only Tuesday. And I'm and those hours aren't gonna be paid until the following Wednesday, but I see that reflected on my job cost report in real time. That's critical to a lot of contractors, especially the labor intensive contractors. As I mentioned, the payroll requirements of construction, union payroll, prevailing wage, producing certified payroll reports, local taxes, and I can't stress enough that especially for those of you who work in the parts of the country that have local taxes, you have federal withholding, you have state withholding, there are some exceptions where some states do not have state withholding, Then you have a number of states that have local withholding, and that can get really complicated really quick. And it's your responsibility as the employer to properly withhold and remit those taxes. The excuse can't be that I didn't know about it, I didn't know I was supposed to, more and more of the municipalities, the localities, they will find you and find, if you got a crew working out on a job and you're not properly withholding or remitting tax, chances are they're gonna they're gonna they're gonna that. They're gonna track you. And, you know, I always tell people, it's not that you can't do it, but know about it before you go there. If you're going into an area that you've never worked in before, a a geographic location you've never worked in before, make sure you understand the rules. You know, it's and I'm I happen to be in the the greater Cincinnati area, so I sit in the I sit on the border of three states, Ohio, Kentucky, Indiana. And if a contractor comes in from out of town, they've never worked in this area before, they are in for a rude awakening when it comes to managing local withholding taxes. It's not difficult to do once you understand it, but if you don't understand it and and don't take the time to understand it, it can be it can be a problem. You know, we have to have job costing. You know, it it we have direct costs. We have indirect costs. We have different cost categories. It's not just labor, material, subcontract, and equipment costs. I mean, that that's certainly part of it, but we need to track the cost at an appropriate level so we can evaluate our productivity, our ability to work against the budget in different areas of work. Depending on what type of contractor you are, those certainly are going to vary. And then retainage, very common in construction. Outside of construction, people are like, what were you talking about? But there's a reason that a lot times retainage is withheld from your bill. One, we've got to make sure that we properly account for that. If I bill for $100,000 this month and they're gonna hold 10% retainage, I need to book $100,000 $90,000 to AR, and $10,000 to retainage AR. It may sound simple, but there's a lot of systems, non construction systems, that can't manage that. So it's important that we have good visibility and are tracking the unbilled retainage because as we all know, there's a reason that that retainage is being withheld, and that's so There's some leverage that can be used against us to make sure we come back and do all the work. We do the punch list items. We we produce all the closeout documents, the warranty documents, etcetera. That's all part of why that retainage is being withheld. And once again, similar to what I said, don't go into a new area and not understand the payroll rules. Don't sign a contract until you understand what the retainage rules are for that particular contract. The time to discuss that or understand that or negotiate that and negotiate reduction throughout the job, etcetera, is before you sign the contract, not after. But either way, we've got to make sure that we're managing that because a lot of times, we're working on pretty tight margins and a chunk of our profit is sitting in that final retain each payment. And I've seen contractors have those payments drag on forever, ultimately, just to never get it because they just didn't go back and do those one or two things that were holding up that last payment on the retainage side. Job costing, once again, is the center of what we do. Work in progress is a big part of that. As a contractor, know, we'll talk a little bit more about that in a minute, but I think work in progress is is to to me is at the heart of what we do when it comes to forecasting and reporting. You know, we're we're gonna make sure that we have, you know, we have good job cost structure, Even though we may have jobs that are similar, no two jobs are probably exactly the same. But we want to have some consistency in the way we set up our cost code structure. So cost code 105 should mean the same thing across all jobs. Not on this job, it means one thing. On another job, it means something else. Because that's going to make it very difficult for us to look at that particular cost code and how we performed across multiple jobs. So we wanna make sure that we're we're doing that. Work in progress reporting, once again, the non construction specific solution is not going to help you at all with the WIP schedule. I think the WIP schedule is so critical, not only not only some cases, certainly a lot of times, have to produce that. Your bonding agent, the surety underwriter, your banker, they wanna see not only your financial statement, they wanna see the work in progress report because without that, a contractor's financials are are pretty meaningless. I have to have a WIP schedule to support the financial statement. So we need to do that. And with a system like Computerease, that's once again all built into the process. And the work in progress is not as complicated as some would think. There's really five components, and four of them are very straightforward. Contract amount, what's the amount of the job? The budget. Well, hopefully, you did an estimate that you marked up to get to the contract amount, so we should know that. Cost to date, you have a good job costing solution like computers, you certainly know that. And bill to date, same goes with that. The only variable is percent complete or cost to finish. So in other words, if I've spent half of the budget, let's not assume that we've done half of the work. Matter of fact, always, that is incorrect. I mean, if I you know, I do a lot of these I do presentations just on WIP specifically, and I'll ask anybody if they've ever done a job for exactly what they estimated it was gonna cost in the beginning. And very rarely, if ever, does anybody raise their hand. So if I've got a $10,000 budget and I've spent $5,000 to assume that I'm 50% done is almost always, if not always, going to be wrong because, you know, we're not going to you know, the the percent spent should never be confused with the with the percent complete, and it's that one variable, percent complete, that drives the whole WIP process. I know I've spent half the budget, but I've only done 40% of the work. Based at that current spend rate, I'm going to project out what it's going to take me to finish. That's really the heart and soul of the whole WIP process. We won't go into all that today, but I know with our Construction Accounting University series, which this is certainly a part of, and there's many other good sessions out there, have some very good sessions just on WIP reporting alone that that certainly encourage everybody to take advantage of. Your revenue recognition, you know, for construction companies, you know, revenue is recognized when a performance obligation is met versus when you are paid. You know, that that that could be, you know, the job as a whole could be a performance obligation. Sometimes, especially with the new rev rec standards, you're required to maybe break one contract into multiple performance obligations. So you identify the contract, identify if there are multiple performance obligations in the contract. An example might be we're building a new high school along with football stadium. I'll use that as an example. It's one contract, but I'm going to deliver one before the other, so that makes it two performance obligations. They're two separate. I could deliver one without the other. I could deliver the building or the football stadium without without the other. So we have we'd have to break that out into multiple performance obligations. It can still be under one contract and and, you know, divvy up that contract between two for revenue recognition purposes. And once again, with a with a system like computers that has strong work in progress reporting, we have the ability to recognize revenue across a job or across multiple performance obligations within a job. So I mentioned earlier the mobile workforce. I mean, that is so critical that we have the ability to communicate between the field and the office, everything from capturing payroll to capturing expenses. And with today's mobile workforce, it's certainly important that we're able to communicate seamlessly and in real time between the field and the office. You remember, we're all on the same team, the field, the office, the project management, accounting, field, you know, production, we're all on the same team. So we need to be able to communicate, and that that's at the heart and soul of what we do. And, you know, the the better system you have in place to allow that collaboration and communication between the teams, the better off we're gonna be. So I mentioned the complexity in construction payroll, employees moving from job to job, different worker classes. I gave the example of an equipment operator for part of the day, a laborer for the other part of the day. Fringe benefits, whether it is making sure that when we talk about full job cost, fully burdened job cost, whatever term you want to use, it is the X per hour I pay the employee, It's the payroll burden, the employer tax portion, like if you were to sue the workers' comp, and the fringe benefits. If you're paying part of the health insurance, as an example, for your employee, that's part of the job cost. You know, The $20 an hour I'm paying someone ends up being $28 $29 $30 an hour when I combine all that, and that's important because, one, if we're not using a fully burdened rate properly when we're bidding jobs, we're going to find and I've seen that where contractors bid a job using a per hour labor rate that was far below their true cost of labor. So even though they were able to come in under budget on the hours, they were over budget on the dollars because the hourly rate lower than it should have been. We need to make sure we're on top of that. We need to be able to manage prevailing wage. Like I said, your system should know this job is prevailing wage job when when, you know, the employee field worker goes to work on this job. Maybe their normal rate is $20 an hour. This is a p w job where the rate is $30 an hour plus fringes. Need to be able to produce certified payroll reports. That's that's required. Union contractor need to be able to to do the union payroll, manage all the different union rates, deal with the fact that I may have workers from, you know, maybe on electrician, they're they're, you know, part of IBEW, but their home local is local five twenty five, but they're doing a job in local six twenty's jurisdiction. There's different rules that apply there. Certainly, as I mentioned before, it is the employer's responsibility to properly withhold federal, state, and local taxes based on the location of the job. We need to think about the cost categories. I get asked a lot from people, well, how many cost categories do I need? And I will say it's somewhere between labor and materials subcontract. That's not enough. But it can't be so detailed that it's not practical to submit accurate time. So in estimating, we can get very detailed. But a lot of times when we go into production, we need to combine multiple takeoff items into one cost category because I can't differentiate in the field. So I always tell people, I don't have there's no right or wrong answer. I have contractors I work with that may have a 100 different cost codes on a job, and they get labor reported down to that level of detail. I may have another contractor who has 50 cost codes on a job, but all the labor gets reported to 10 of them. So the budget is spread across 50, but the actual only goes into 10 because they can't differentiate between, you know, one category and another, so they they end up putting it all in one. So think about how detailed you can get and still get accurate reporting from the field without making this overly burdensome or cumbersome to do. So no right or wrong answer, but I think it's certainly more than just very high level labor material subcontract cost on a job, and there is some level where you could get too detailed and you're going to end up with bad information. And if you have a job that has the budget spread over, say, 50 categories, but all of your actuals ending up in 10 categories, you don't have the right job cost structure. Either, a, you need to do some education on how to if you really feel that you can report the time broken down into 50 different buckets, that's one thing. Or if not, you need to look at consolidating some of those. Retainage, as I said, this is something that challenge. Is It's there for a reason. It's there to make sure that everybody's accountable. If we are the contractor and they're withholding retainage on us, likewise, if we have subcontractors, we're most certainly probably holding retainage on them. And it's you know, no different than, you know, we're withholding it from our subs to make sure that they complete all their obligations, and it's being withheld on us to make sure we complete our obligation. Very common in construction, And as I said, but and and, you know, and we need to make sure we understand what it is, what the rules are, can it be reduced throughout the life of the job, and most importantly, at the end, what do we have to do to get the final retainage released? And and that will not go away. Not addressing a punch list item will not make it go away. Not delivering the closeout documents will not make that requirement go away. And I've seen that too often where just retainage sits there for years sometimes because there's one last thing that we didn't go do. That can be costly. I know people are on to the next job, and it's real easy to walk away from the job with a handful of punch list items or something left to do because we're now on to the new big job, and and it it's a pain to go back and do that. But that retainage is an important part of our financial structure, and we need to collect that. So what are some of the impacts that using construction accounting, a good construction accounting system can have for you? Certainly allows us to take control of our business by proactively managing jobs. The sooner you can know that you've already spent half the budget, half the hours, half the cost, and have only done 40% of the work, the better position you're gonna be in to to make a proactive decision or to address that job. You know, don't wait until the end to find out the bad news. I mean, not not not at the end of the day, to me, that's you know, people were very reluctant sometimes to share that information. I'm I'm more likely to tell you you asked me how I'm doing on the job, I'm the project manager. Yeah. We're doing fine. We we still got we've only spent half the budget. Well, I know that. I I'm looking at the job cost report. What I really want you to tell me is how much work have you done for the half that you spent? And a lot of times, if I know I've only done 40% of the work, but I've already spent half the budget, maybe I'm not going to share that piece because in my mind, I'm going to catch up. I don't want it to it's hard to share bad information. I'd like to hear good information, but I must hear the bad information. And we need to encourage that collaboration and that open line of communication. I mean, we we all know no job is ever gonna go exactly as planned. We know that. And, you know, so let let's get everybody, but we work together to communicate, you know, the the company will be much better off. Cash flow. We know what a challenge cash flow could be for us in construction. I want to easily see the cash position of each job, the company as a whole, certainly. But each job starts out almost, if not in every situation, in a negative cash position. We have to make payroll every week. That's not an option. We can pay ourselves on a pay when paid basis. When we get paid, we'll pay you. We can do, to some extent, the same with suppliers, although I would mention that a lot of times I see people ignore discounts from the supplier. When had they dipped into their line of credit and paid that supplier on time and took the early pay discount, they would have made money because the amount of the discount was far greater than the amount that they spent to use their line of credit to make that payment. So just something you want to certainly think about. I see a lot of people walk away from those discounts because they want to wait until they actually have cash in hand. Or if you have a good strong line of credit, you can you can use that for a short period of time to, you know, to make sure you're taking advantage of things like prompt pay discounts. You know, we we have to have all the right reporting. When you go to the bank or when you go get a bond on a job, there's a reason they ask for the whip schedule along with the financial statement. And if you can if you have that, you don't have to say, well, let me go put one together. You're in a much better position. And and it's really I mean, those two go hand in hand. The, you know, the over under billing, which is the the key component that comes out of of the WIP schedule, it is is it needs to be reflected on the financial statements, and and we wanna make sure we do that. So it should be a standard process. The end of the month, you prepare the WIP schedule, you make the financial adjustments, and you you produce your P and L and balance sheet along WIP with schedule. And you need to make sure you stay in compliance with all the ever changing construction requirements. And like I said, we talked about a lot of them in payroll, but it's certainly important that we are on top of that and managing that and in a good position to not be caught in a noncompliant situation. And there are little things like, I'll go back to the prevailing wage example in a minute. So not only the proper pay rates, but, you know, as most of you probably know, a lot of times on prevailing wage job, there is a ratio component to that. In other words, you know, the the you know, it may spell out that you can only have one apprentice for every journeyman on the job site. Sounds pretty simple, but how easy is it to lose track of that? Maybe I had one journeyman, one apprentice today, but the journeyman had to leave halfway through the day and left the apprentice there on their own. Guess what? Per the per the rules in a lot of situations, that apprentice needed to be paid journeyman rate for that afternoon's work because you can't have an apprentice until you have a journeyman. So you can have one journeyman, no apprentices, but you can't have one journeyman and I'm sorry, one apprentice and no journeyman. So just things that you wanna think about, that all falls under that compliance umbrella. But with a system like Computerese, once again, you can run a report and says, okay, this job had three journeymen, three apprentices. You know, you're you're in compliance. This job had had three apprentices and two journeymen. Guess what? You're out of compliance. You need to make that correction. And and having gone through prevailing wage audits in the past, the time to make that correction is before you do payroll, not six months later when you're caught in a prevailing wage audit, and they come in and they and they find those things. So just little things that you wanna think about and and all part of the uniqueness of our great industry. And like I said, this is I mean, I've been in construction almost my entire life. This is a fantastic industry. It is a very unique industry and has some very unique requirements that we have to navigate. When should you consider a change? People ask me this all the time. As I mentioned, a lot of contractors start on QuickBooks because it is readily available, it's very inexpensive. And it can certainly manage your business for a period of time. Or maybe there's something that is construction specific, but it's just not the right solution for you. But if you have quick growth, you know, you wanna think about that. If if if you find that, you know, getting reports is very difficult, you know, preparing a whip schedule is difficult, if not impossible. You have you're having difficulty managing prevailing wage and certified payroll. You have diff you have difficulty doing construction specific billing, such as, you know, billing on an AIA form, the AIA g seven zero two, seven zero three, or similar type forms, producing a unit based bill. Maybe you're doing DOT work, you're getting paid by the unit. You're having trouble with construction specific billing, even T and M billing to some you know, it can be problematic in non construction specific solutions. So, you know, it's exciting that your business may be growing, but do you have the right tool in place? And and really, you know, this is a, you know, a construction specific solution like ComputeEase is a tool built for your business and is a tool to help your business, to help you manage your business and help it grow. It's not it's not a necessary expense. It is an investment in a tool that will help you get the job done. Just as you invest in hand tools for your field workers or equipment out in the field, investing in a construction specific business management system, job cost accounting system, is critical to your success, and certainly, especially as you're growing. It's no longer if you're using a lot of spreadsheets, you've got a lot of disconnected systems, probably time to think about making a change. With QuickBooks, a lot of times I find people are using a lot of different spreadsheets, they have some third party plug ins they are using, and they are trying to make it using it not how it was intended to be used. So if you find that to be a problem, once again, that was probably the I'm sure it was the right place to start, but it may be time to look and see if there's not a better solution out there for us. You know, it's like I said, you know, the the top considerations, you know, if if, rapid growth in in the amount of jobs or the size of jobs has become unmanageable, time to think about that. Job profitability is misunderstood and uncertain till after the job is over. I mean, it's one thing to add up everything after the job and see how we did. I should get that visibility when I'm doing that forecasting. I should know long before I get to the end that I'm headed headed to a problem or I'm headed to be over budget. You know, cash flow is poor. You don't have a good handle on cash flow. You know, maybe you have new jobs that that, you have union or prevailing wage certified payroll requirements that you haven't dealt with before. You need you know, you're getting bigger. You're getting maybe you're gonna do a, do a bonded job for the first time, and now they're asking you for a WIP report and they want it every month, having difficulty doing that? Time to think about that. You're moving into states that have local and state payroll complexities you haven't dealt with before, might be time to certainly take a look. And then maybe you're expanding your services. Maybe you're getting into service work in addition to new work. With a system like ComputeEase, we have not only the ability to manage new construction, but manage service work as well. And maybe, you know, once again, as I mentioned earlier, the different billing types, be it AIA, unit based billing, etcetera, we wanna make sure that you can, you know, you can bill properly. You know, the the the quickest way to make sure you have bad, poor cash flow is don't bill on time and bill it on the wrong form. And that will delay the process even more than it's already delayed. When you think about this, a lot of times people think, well, John, how do I get everybody to buy into this change? And think about why you're doing it. Why, as a company, are we doing this? And it's to improve our profit margins, meet new job requirements, give us better visibility into what's going on. Keep that front and center amongst your team, because a lot of us don't like change. I fall in that category certainly in a lot of ways. But if I keep the why in front of me, I can go back to my days in construction when we transitioned to Compute Reach many, many years ago now. And I remember it was you know, as we were going through that and and and implementing a new system, you know, we were very committed to our why. We knew why we were doing this. We had We didn't have good job costing. We didn't have the tool we needed. And if you stay committed to the why, you will get the whole team to buy in on that. One thing to think about, especially as you have growing companies, the construction companies, the structure, in a small company, somebody can wear multiple hats. I may be the owner, the estimator, the project manager. But as you get bigger, a lot of times these become individual people in this part. In a smaller company, the estimator may be also the person responsible for purchasing. But as you get bigger, I may have an estimating person and a purchasing person. Under under the office comes, you know, accounting, IT, HR, sales and marketing, under field, you know, project managers, site superintendents, project crews. So there's a lot of moving parts here, and there's a lot of collaboration needed between you know, amongst the, you know, the the the different players on the team. And whether you're wearing one of these hats or multiple hats, we need to work with everybody in the in the structure, and and that's what that's what, you know, builds a successful construction company and team. I think you wanna leverage key partners. I mean, you're not in this alone. Work with people that have construction experience, whether it's software technology providers like Delta Computers, your CPA. I know a lot of great CPAs that have no construction clients. Doesn't make them a bad CPA, but they're probably not the right CPA for a contractor because they don't understand the ins and outs of construction. That's the same with bankers. I know a lot of I know a lot of fine banks that maybe aren't what I'll call contractor friendly. I know others that are extremely contractor friendly because they work with a lot of contractors and they understand the uniqueness of the construction industry. Same with the legal team. Anybody you're using outside the business, make sure you're working with somebody that understands your business, insurance and surety. Certainly, surety folks are gonna understand construction, but there's a lot of insurance requirements that contractors need. And get with a good insurance company that has a surety component to it, but in general, sure they understand construction and the contractors' needs. Create and leverage a team of construction experienced advisers to help. Consult with your don't use your CPA just at tax time. You should be consulting with them. If anybody in that list is a true construction expert, you want to build a team of outside experts that can help you. You want to get involved with other organizations, national and regional trade organizations, software user groups, LinkedIn groups, c level or peer groups, etcetera. These are all things. And remember that your partner could be a competitor. You might be competing on bid day, but at the end of the day, we're in construction, and we're all after the same thing. I I've learned so much over the years by being part of, you know, national and regional trade organizations, by working with experts in the industry, CPAs that understand construction, bankers, legal teams, insurance folks. I mean, I love talking construction with others that are involved in construction as well. I think it's really important. As a contractor, you don't have to do all this on your own. Get involved with a lot of these people. And remember, to be successful in that partnership, engage with your partners consistently, not just when you need something. Don't overlook the competition as a potential partner. Remember, it's a two way street. You're getting you know, you need to provide, you know, value as well as receive value. So I think there's a lot of great, like I said, a lot of great organizations that you can become part of, you know, locally, regionally, nationally that can really benefit you in the construction industry. We can't do the basics of construction accounting without backing up the square one for a minute and just talking about the basics of debits and credits. If And we go back to one of our early slides and we talked about the entrepreneurial nature of construction, a lot of times, I'm starting a construction company and maybe I don't have a deep background in accounting. That's okay. That's okay. But, you know, we need to make sure that we have people on the team that understand the basics of construction accounting. They know how to look at a report. They understand, you know, simple things like in a T account, you know, the the debits and credits. You know, debits are on the left, credits are on the right. You know, assets equal liabilities plus owner's equity. You know, revenue minus expenses equal net income. These are a lot of basic things when it comes to construction accounting, but, you know and it it's somebody that doesn't understand this, that's not a bad thing. I mean, you know, there's people that are fantastic at construction, and but, you know, we it's always good to to take a step back and make sure we understand the financial reports we're looking at. And if you don't understand them, ask someone. Ask the team. No one is going say, well, what do you mean you don't understand that? I mean, that is not a bad thing at all. It's a bad thing if you don't understand and you don't ask somebody, hey, help me make sure I'm reading this right, I understand this. Let's talk about a couple of different accounting methods. You know, cash accounting is all based on when cash is paid and when it's received. And while this is a fine tax strategy, if you're if you're under the threshold where you can still file on a cash basis, it's not an effective way to run your business and manage profitability. You know, the fact that you haven't been paid yet doesn't mean that you're owed. And the fact that you haven't paid your vendor yet doesn't mean that you owe them, doesn't mean that you don't owe them. So, you know, we need to make sure because, essentially, you know, you're stripping out AP and AR, accounts payable and accounts receivable, and saying, okay. That doesn't matter until I actually collect or pay. And for tax purposes, once again, fantastic strategy. But day to day, we need to run our business on the accrual method. You know, that that we recognize things as they occur. Revenue is is recognized when it's when it's earned. Expenses recognized when it's billed, and it provides clear visibility into profitability. Income is taxed when earned versus received, and if you're over 25,000,000, you have to file on an accrual basis. So really important you understand that, and I have people tell me all the time that, well, know, I wanna I said, I I wanna be on a cash basis. Understand you are and and you are filing on a cash basis. That's great. But run your business on an accrual basis. And at tax time, you it's very simple to convert to a cash basis financial report from an accrual. But, you know, I there's no way I'm gonna wake up tomorrow even though I'm filing on a cash basis and and not understand that I have receivables and payables on the books. You know, there are different methods of revenue recognition. Once again, depending on the size, if you're under the threshold, you could be on a completed contract method. You do not have to recognize revenue on the job until the job is complete. Once again, even if you qualify and you're under the threshold and you can file on a completed contract method, that's not the way you want to run your business. You want to run it based on percentage of completion. I want to know that I've done 40% of the work and already spent 50% of the budget. I don't want to wait till the job is over and and figure that out. So certainly important that you understand the strategy and when completed contract method could be applicable to you, but day to day, it's accrual and it's percentage of completion. We're going to recognize the work as it happens. Once again, same thing. Even if we're filing on a completed contract method, that's a simple conversion to a completed contract set of financial statements from percentage of completion. But percentage of completion gives us the ability to run our business effectively and see what's going on in real time. This is another one that, unfortunately, I see people. I just had a conversation within the last week with a contractor, and they were confused because they interchanged margin versus markup. They were confused why they weren't getting the 20% margin on the job that they had on their jobs, because that was their goal, a 20% margin. And margin shows the profit earned as a percentage of the revenue. Markup shows how much more your sale price is than your estimated cost. Well, if I wanna get 20% margin on the job, in this particular example I'm referring to, what they heard was 20%, and they said, well, markup is I'm gonna mark the job up 20%. Well, we marked the job up 20%, and guess what? We no longer get a 20% margin. So it's important. If I want to make 25% margin, I have to market the cost 33%. If I want to make 20% margin, have to market up 25%. So we need to understand that. And if we interchange those two, it can be a problem. We finally figured it out. It wasn't good news, but it was good news that we figured it out. I was like, okay. Wait a minute. Estimating her 20, and they marked the jobs up 20% when they when they should have been marking them up 25%. So really important, you know, if you that you understand the difference between the two, And they're both real things, but markup is how you're going to get from your estimate to the final contract. But typically, we want to look at the profit on the job as a percentage of the contract or the margin. So something we want to make sure, and don't run into the mistake of confusing margin and markup, or you'll end up in that situation where you wanted a 20% margin, but you only marked it up 20%, so you got a 16.7% margin. So if I want a 20% margin, I need to make sure I'm marking up my estimate 25 when I set the contract price. As I mentioned, job costing certainly is the way that we track cost on the job. It's the way that we track cost down at the activity level. We need to be detailed, but not too detailed, as I mentioned earlier. And it's really the way we keep score. At the end of the day, job costing is all about keeping score. And, you know, I need to understand the score of the game, of the job before the job is over. I know I you know, the the best analogy I can give is it's it's like a sporting event. Imagine if you went to a sporting event and you didn't know the score. Imagine if you were coaching, managing the team in that event and you didn't know the score. How would you make decisions? No different than in construction. I mean, I need to know the score of the game of the job so I can make decisions to give me the best chance to win the game in in the case of construction coming in ahead of schedule and under budget. You know, why do we do job costing? We need to understand the true cost of the job. As I mentioned, we're very rarely, if ever, gonna do a job for what we estimated it was gonna cost, so we need to know that. It provides visibility into future profitability. I can see before I get there where I'm going. Certainly, I'm gonna use it historically to to plan on the next job, but I'm gonna also use it during the job to plan on what's next on this particular job. It it helps us with cash flow, and it certainly, you know, allows us to leverage all the reporting we have to get the financial assistance, such as the loan or line of credit. And as I mentioned, job costing is at the center of your business. The generic solutions, it's, at best, maybe an afterthought. But in a system that's purposely built for the industry, everything revolves around job costing. When I write a purchase order, goes as a committed cost on the job. Imagine you have a $10,000 budget for material. You write a purchase order for $9,000, and I don't commit that to the job. I could go look at that job report and say, oh, I got a $10,000 budget. I haven't spent anything yet. So I got 10,000 left to spend. When in reality, I only have a thousand because I've already spent nine of it. Same with subcontracts. Accounts receivable, when I bill the customer for that job, I need to see the bill to date on the job. Accounts payable, when I'm billed for my subs or suppliers for that job, need to see it real time on the on the job. The general ledger and job cost need to be in sync. You know, the I need to if it's going to job, it needs to go to the direct cost of goods section of the of the job cost section of the GL. Mentioned earlier a little bit about service management. If you're a contractor, especially maybe in one of the in the MEP trades, you're most likely, in addition to new work, have a service component to your business, and you could many other trades as well. But I need I need a system that allows me to manage both the new work as well as the service work. Project management, managing things like submittals, RFIs, change orders, you you know, you know, drawings, etcetera. That's all part of the project management component. Tool and equipment tracking, not only managing location of tools and equipment, whether it's small hand tools to large pieces of equipment. And some would think it'd be much harder to lose sight, lose track of a large piece of equipment than a small hand tool, but I've seen it where it's just as easy to lose a, you know, sight of a bobcat as it is a a power drill. But we need to not only manage location, but especially on the larger equipment, we need to allocate cost to the job if we want true job costing for the use of our own equipment. Just because we own it doesn't mean it's free to use. You know, imagine you had two jobs, very similar, and they both needed a backhoe. And you went and rented one for one job because you only own one backhoe when you you sent the one you own to the other job. Invoice comes in for the one you rented, and you charge that to the job because you got an invoice. We use this backhoe on this job. I'm gonna charge the job. The job that you use, the one the backhoe that you own, you don't allocate any cost to that. And then you go compare those two reports, which one's gonna look better? And not not you know, probably not rightfully so, but it's gonna because it's didn't get the proper equipment cost allocated. So we need to do that. We need to manage, you know, how the use of the equipment. We need to manage maintenance and repair costs on the equipment, equipment, vehicles, whatever it might be. You know, I've seen many times when contractors put a system in place, all of sudden, they find out, wow. I'm not using this equipment enough to justify it, or, you know what? I'm spending more per month to service this pickup truck than it would be to buy a new one. So you can make intelligent decisions based on the information. HR and payroll, we talked a lot about payroll already. It's really important that we're managing the payroll and all the HR components that come with it. And then reporting, you need to be able to get real time reports based on the information that you need. You know, I talked about this already, you know, work in progress. You know, we kind of focused on this. You know, what is work in progress? You know, there's, As I mentioned, there's five values. The first four of them, very straightforward: contract, estimate, cost and billings to date. The projected cost to finish is the key variable, and that's where, remember, percent spent does not equal percent complete. All right, so I'm going to just real quick take just a couple minutes and show just a few key reports in the computer system. And then we'll come back and we'll wrap things up, get into some questions here. I know there's a lot of questions that have come in, and we'll get to as many as we can. Any we don't get to, we'll certainly follow-up, individually offline. So, you know, not gonna go through, you know, a whole lot here other than I wanna just talk at a high level, some of the key reports. When we talk about job cost and job cost being at the center of our universe, well, you imagine you go to one place, you go to your job dashboard, and you see everything about this job. Contract change orders, approved change orders. Click on the detail, I can see not only approved but pending change orders, you know, cost to date, billings to date, profit to date over under billing, cash flow, committed cost. I wanna see what's the detail of the committed, drill down and see the purchase orders, drill down, see the subcontracts. I want to go in and I want to look at other things. We talk about document management. I want to go in and see things like the status of all of my submittals or all of my RFIs. This is something where everything is integrated, so everything is in one place, And this is really important that we're able to do this. Maybe I want to assign resources to the job. So I want to look at the schedule, and I want to assign resources. So these are just a couple of the things that we need to be able to do very quickly and easily. We talked about the importance of the work in progress. Well, I wanna look at my work in progress dashboard. I wanna see every job, but then I wanna go job to job, and I wanna see the over under billing. I wanna see which jobs are negative or positive cash flow, which jobs are ahead or behind as far as projected profit. So these are just a couple of very high level examples of reports. I want to be able to look at a report, but very quickly and easily modify that report to give me exactly what I'm looking for. Well, here's a quick high level view. But you know what? Maybe I just want to see which jobs have had equipment cost over the life of their existence. And I want to filter that and see just the jobs that have actual equipment costs. So that would just be a couple of quick examples. I won't go into a lot of detail here because I know we're just about at time. But these are just some of the things. And I'm going to launch a polling question here in a minute. If you'd like to be contacted to learn more about ComputerEase, we'd be more than happy to get with any of you individually to see how the system may fit your needs. Alright. So, you know, in addition to that, we certainly looked at the WIP. We talked about trial balance, balance sheet, profit and loss. So I think those are, you know, certainly some good examples of what we can do. So before I take a couple questions here, I will launch a quick polling question. If you'd like to be contacted to learn more, please check the yes box. If you type in a question that we don't get to, we'll certainly follow-up as well. So with that, I'm gonna take a couple questions while I leave that polling question go for a minute. How do the over under billings in the WIP affect the P and L? So, yeah, so the over under billing is recorded in the financial statements. The, you know, the over billing is a is a reduction in revenue on the P and L and a and a increase in the overbilling liability on the balance sheet because that's what that's what overbilling is. It you that's great that you were able to overbill, and it maybe helped with cash flow and you got paid, but you have a liability now to go back and do the work that you've already been paid for. Does ComputeEase produce reports in the accrual method? Yeah, absolutely. Yes, yes. That is the standard method of operating within ComputeEase. So these are great questions. We're interested in moving from QuickBooks to ComputeEase. Can you give me an idea on price and how long that would take? So great question. I do have a couple of questions for you, so we'll reach out and see if we can get some answers to that. So I appreciate you asking that question, but I need a little bit more we need to know on how to configure the system and number of users, etcetera. So we will certainly reach out and talk to you about that. Let's see what else we got here. I want to adjust my budget. Do need to enter a change order for that? So, yeah, even certainly if it's an external change, yes. But within computers, you also have the concept of an internal change order because you don't ever want to just change the budget after the job starts without any audit trail. So the internal change order is a very good way to to do that, and we that way, we can see that we shifted budget from one category to another. Doesn't have to be an owner facing change order. Just looking through the questions here. Got a couple more about pricing and timing on moving. Yeah. I think, can you talk about revenue recognition in computer use? Yeah. I think we already covered that. We talked about WIP, and we talked about the ability to to do rev rec on multiple components of, of the same job. Should we do a WIP schedule on all jobs? It you know, that a very, very short duration job is probably not. Although I have people that will will, you know, do a whip schedule for a job even if it's even if it's gonna last, you know, a week or two. But but, you but you have the ability, and certainly in computers, you have the ability to to, you know, to to do a whip schedule for longer duration jobs and maybe another whip schedule for shorter duration or, you know, or even exclude their shorter duration in in total, if it makes sense. So great, great question. Why don't we got some general contact information up on the screen? So please, take advantage of that and reach out if you have any further questions. Like I said, anybody whose question we did not get to, we will follow-up individually offline. And just remember, you will be getting a link to this recording after today's webinar ends. So feel free to watch this one back or certainly encourage you to check out any of our other sessions in our Construction Accounting University series. So once again, I thank you all for attending today's session, and hope everybody has a great day.