Name: Mastering Construction Revenue Recognition: Boosting Compliance and Cash Flow
Uploaded: 2026-05-05T19:30:53.866Z
Duration: 59 min 28 s
Description: Mastering Construction Revenue Recognition: Boosting Compliance and Cash Flow

Transcript for "Mastering Construction Revenue Recognition: Boosting Compliance and Cash Flow": Hi. Good afternoon or good morning, depending on what time zone you're joining us from, and welcome to today's webinar. Today's topic, managing construction revenue recognition and boosting compliance and cash flow. This is part of our construction accounting university two point o series. You'll after today's recording, you'll get a link, where you can watch this back, and, certainly, you can also, view any of our other sessions from, you know, from the series. A couple quick housekeeping notes before we get started. For the best experience, please use Google Chrome or Firefox. The audio for today's presentation is streamed to your computer as there's no dial ins. Please make sure the volume is turned up on your speakers. You could download the slides via the resource widget up in the top right hand corner of your screen. For the layout of your screen, the widgets can all be resized to fit your screen, so feel free to to do that to make it the the most, you know, enjoyable viewing experience. And as I mentioned, you will receive a email with a link to the recording of today's presentation so you can watch it back, share it with others. Certainly, encourage all of you to go to the Construction Accounting University two point o landing page and view not only this session but any of the other sessions as well. So I wanna do a quick introduction. I'm John Ivers, vice president general manager with here at Deltek Computers. I've been in in the construction world for, gosh, thirty thirty plus years now. We'll go with that. The first 10 of those as an end user, I, ran the accounting department for a large contractor, you know, using the Computery solution, certainly managing revenue recognition, WIP process, all things we're gonna talk about today. But I've been leading the Computerease team here at Deltek for the last twenty five plus years. Very excited to have joining me today here, Cathy Barrington. So, Cathy, I'm gonna let you, introduce yourself and tell the audience a little bit about you and, your company. Sounds good. Hi. My name is Kathy Barrington. I own KBCPA accounting, and I've been doing construction for twenty plus years now. And I help smaller contractors that don't have a full time controller or CFO, with their accounting, their financials, and whatever they need in that aspect. Hey. Well, thank you, Kathy, for joining me today. I know you this is a topic that you and I like to talk about, quite often and we're both, very passionate about. So I think we'll get into good conversation and share some, hopefully, some helpful insight for today's audience. So what we're gonna talk about today, some of the, you know, the key principles of revenue recognition and their impact on cash flow, you know, how to align with the latest construction accounting standards like the ASC six zero six, best practices for recording and maintaining, you know, job schedules. And, certainly, you know, kind of at the heart of all this, I know, Kathy, you and I talk about this quite often, is the importance of the work in progress or the whip schedule and and the importance that plays in the overall revenue recognition process. So let's talk a little bit about revenue recognition. And, you know, I think, you know, it's it's really important to determine, you know, the progress on a job to you know, we you know, billings does not equal revenue necessarily. You know, we have to you you know, if we bill for half of the half of the work, but we've only done 40% of the work, we can't, you know, we can't recognize, you know, 50% of the of the contract as revenue. So it's really important, that that we you know, one, for, you know, proper accounting procedures, but two, you know, the whole process, the whip process, which drives all this, gives us visibility into where we're at. And I think I don't know. I know, Cathy, I think, you know, you and I have talked about this before, but, you know, too many times, contractors, you know, mistake the percent spent for percent complete. They've done they've spent half of the money, so they assume they're 50% complete. And I don't know about you, but that's the one thing that I see over and over is, well, I I've spent half the budget, so I must be halfway done. Yeah. I I see that. quite a bit. Yeah. And and I think that's you know, would you agree, Kathy? I think that that typically is the, you know, is the least likely scenario is that percent spent equals percent complete. It's very rare that you if you've spent half the money, you've done exactly half of the work. You know? Hopefully, you've done 60% of the work, but if you've only done 40, I need to know that sooner rather than later. Yes. And, you know, there's there's a lot of a lot of details in the revenue recognition rules have changed. You know, when the when the 06/2006 change came about, you know, gosh, it's been a number of years ago now. I know everybody was kinda freaking out thinking that this was gonna change, you know, that the the way they they recognize revenue. And then for some people, on some projects, it did. But for a lot of us, it's you know, the the revenue recognition process is still is still the same. I don't know. Would you find that to be true, Katie? It seemed to me everybody was freaking out that the 06/2006 was gonna completely change the way we had to do revenue recognition. And then and and while on some jobs, for some contractors, it you know, they did have to do something a little bit different. At the end of the day, the you know, for a lot of people, there was really no change at all. Yeah. It hasn't changed much as far as the clients that I've worked with and companies that I've worked with for the last twenty years. Yeah. Yeah. So the you know, and we'll we'll talk a little bit about the, you know, the specific six zero six rules where you may be required to, you know, to under one contract, separate performance obligations and recognize revenue separately. But at the end of the day, you know, revenue recognition has always been a part of our you know, of the construction business, and and properly recognizing revenue is something that is is very critical for all of us. And we're, you know, we're gonna talk about that and, you know, leads right into, you know, what is work in progress. And that is, you know, is is the the key component to all this. And at a at a at a high level, you know, work in progress to me is is very simple. They're they're you know, it's gonna allow us to identify the earned value of of the of the work that we've done, and it requires five things. You know, I need to know the sale price, the contract price. We certainly should should know that. We we got a contract. We know what we sold the job for. Our our estimated cost, I you know, hopefully, we had an estimate we started with. We marked it up to get to the sale price so we know what our original estimate was. The cost to date and the billing to date, we have a good job cost accounting system like Computerease, so I can certainly I think that certainly is one one example of that. We certainly should know our cost to date and build to date. So contract budget, cost, and build to date, those are very straightforward. The key component in all this is the projected cost to finish, and that is the variable. And that's what gets us away from saying, well, I've spent 50%, so I'm going to assume I'm 50% complete. And, you know, I think that is the the the one key variable. And and if you sometimes people, I think, get overwhelmed with the the concept of work in progress. And, really, if we can dial in and come up with the, you know, the, a method and understand the ways we can get to the projected cost to finish, it it you know, we the rest of it is all simple simple math. I mean, the the you know, as far as the the report itself goes, the over under billing calculations, all the things that come out of the work in progress are just calculations. There and there's just one variable, and it's very, very important variable. But, you know, how much work have we done for for the money we've spent or or and and based on that, project out what it's gonna cost us to finish. Yeah. I mean, I would say, John know you work with a lot of, you know, smaller contractors. I'm just curious what what you see as far as you know, I'm sure many of them are probably putting this process in place for the first time. Yeah. I mean, I I would say one of the other key variables that I find a lot of is, pending change orders. So verbally accepted, paperwork's not done, and the costs are in. So that's definitely, a pretty big variable that affects the job schedule as well. Yeah. That's that's a that's a great call, Kathy. Yes. And I think, you know, one of the things that that, you know, I I really like about the Computery's system as an example is that we can we have a way to account for change orders in the WIP process that haven't been approved yet. Because like you said, we've already done the work, So we know we need to include that in in the calculation. So, yeah, that is that is certainly a key, component to the to the whole process. What, you know, what do you see, Kathy, you know, when you're working with maybe a contractor that's struggling with this process? What is the what do you see are some of the the biggest obstacles that, you know, for them to over you know, overcoming that, you know, that getting that key component, that variable? You know, what what what are some of the things that you've seen and some advice you've given your clients to to help manage this process? I I think just breaking it down into more simplistic terms, I think, because usually the WIP is pretty big, and it it seems overwhelming. So there's a lot of data on there, but it's really down to these five key elements. And so if you can break it down to that and then break down your cost estimate down to your phase codes from there, then it's a pretty simple process to be able to figure out what your cost to complete is. Where I find a lot of issues is the timing issue between accounting and field and thinking that your costs are in more than they are, project managers not knowing physically versus accounting complete. And so those are kind of, like, the biggest hurdles that I find. Yeah. And I know, you know, Kathy, you mentioned, you know, getting it at the, you know, at the at the cost code level. And I know that was one of the questions that came in in advance of today's session was, you know, someone asked, you know, what level is best practice for WIP? They said, you know, they currently do it at the cost category level. And I think, you know, to to me, that I consider that best practice because, you know, you while you certainly could do it, the, you know, the the job as a whole, it's gonna be you're not really getting the full story there. And, you know, because they're, you know, like, as I say, the devil is in the details. And sometimes, you know, you're gonna you're gonna pick out an area where you're projected to go over budget and maybe another area under. Well, I still wanna even I wanna focus on the over. Even if they net out, I what if I can what if I can do something about the area where we're projecting to go over? I may be able to bring the job in in total under budget. So I think, you know, would would you agree? I think the category level is the right place to to do these cost projections at. Absolutely. Yeah. Alright. So I'm gonna go ahead and launch a quick polling question here. It looks just like an idea from the audience here. So we'd like to know, are you currently doing a work in progress schedule? So I'm gonna go ahead and launch that poll, and we'll leave that open for, you know, fifteen or twenty seconds here. Give everybody a chance to answer that. I see a lot of yeses, some nos, and a couple not sure. Well, hopefully, after today's session, you'll, maybe we're gonna turn the no into a yes. And from the not sure, maybe you'll be better able to answer that. So, hopefully, we can help guide you in that direction. So give it another couple seconds here, and I'll go ahead and share the results. Alright. So about 80% of you are currently putting together a WIP schedule, 13%, not, and another five percent, not sure. So, yeah, I think that's, some good information, and we'll we'll get into some other questions here as we go, you know, throughout and about about the whole process as well. So go ahead and Alright. So, you know, people ask me a lot of times, you know, why, you know or, you know, why do I do this? Or a lot of times, I'll ask people, well, why do you put together a WIP schedule? And a lot of times, people tell me because somebody asked me to, because I had to provide it for my, you know, the the the bonding agent or the you know, I had to provide it for the banker. And while that's I I guess that is that is an answer, and it you know, and I and, yes, you do have to do that. But, I mean, I think it's, you know, the the first and foremost, you should be doing it for yourself. It's a it's the it's a better, you know, better way to manage your jobs. It allows you to make smarter day to day decisions. It allows you to be be proactive instead of reactive. You know, the the over owner billing from the WIP is key to to producing accurate financial statements. I think I don't know. I mean, I don't know. Kathy, I don't know. I'm sure you would probably agree. I mean, you can't produce an accurate financial statement if you're a contractor if you don't have the WIP calculations accounted for in the you know? And and which is why the the banker and the surety, underwriter, or bonding agent wanna see your WIP schedule along with the financials because they know they can't, you know, the they can't trust the financials if they can't support them with the with with the WIP schedule. So I think it's, you know, I I I would I would love if everybody answered they're doing it because it's the best way to run their business. And maybe after today, we'll get a few more people doing it for that reason. But just curious, Kathy, you know, in your experience working with contractors, I mean, how many are doing it, you know, maybe for the reason I said because somebody is forcing them to do it and not really for the, maybe, what I'll call, the right reason, which is because it's the best way to manage your company? I mean, that's usually how it kind of starts if they don't want to. So it's definitely, forced in that situation because like you said, for bank and bonding to have GAAP financials and a reviewed statement, which most contractors do when they get to a certain level, they have to have gap financials, and that's part of it. But as you said, it's best practices to be able to understand what your business is doing. So even if you don't have this for tax basis and that sort of thing, like, this is best practice for construction. Yeah. Yeah. It really it really is. I think even, you know, maybe a smaller contractor is, you know, for tax purposes is on a completed contract method as an example. They haven't hit the threshold yet, but this is still an important process to to help manage your business. And I and I think, you know, and I always find, like, when I'm talking to the, you know, the the bankers or the the the surety folks that I work with and when you know, they they love it when a contractor when they ask for that report to the contractor, well, sure. Here's my latest WIP schedule and not, okay. Let me put that together for you. Like, I've never, you know, I'm not doing that. That, you know, they I think they all prefer this be part of your regular process in in running your construction business, and it it gives them more confidence in the in the reports and and that you're providing them when you, you know, when when they're when it's clear and obvious that you're doing it, you know, as a regular part of your. business, not just because they're hounding you for it. So there's, you know, a a couple different methods we'll talk about here. You know, we could go back to that key variable. You know, how do I get to that projected cost to finish? And and there's, you know, there's no right or wrong answer on how you do this. But, one, you know, if you have a measurable unit, you can let the the percentage of units that you've completed drive the percent complete. If you don't have a measurable unit, you can, you know, eyeball it, so to speak, and say, okay. I I think we're 40% done. It feels like we're 40% done looking at it. Or, you know, sometimes it's like, I'm really sure about the percentage, but I know what it's gonna take me to finish. Maybe I'm gonna need another hundred labor hours and some another $5,000 in material that I haven't committed or purchased yet, and I'm gonna calculate the cost to finish. And, you know, no no matter which one you choose, and they're really interchangeable. I've seen a lot of times I may somebody may start early in the job, maybe easier to look at it and say, I think we're about 10% done. Later in the job, towards the end, it may be easier to say, I need $10,000 to finish. And there's, you know, there's no right or wrong answer to get there, but any one of those methods is gonna end up being far more accurate than just assuming that percent spend is percent complete or or you're just comparing the estimated cost to the actual and assuming that as the percent of work that you've done. You know, an example here, you know, if you have a $100,000 budget and you spent $50,000, the least likely scenario is that you are 50% complete because you've spent 50% of the money. And, you know, if we if we polled everybody and said how many times you do a job or exactly what you estimated it for, then we'd get very few of any hand raisers, which, you know, which goes to prove that it's unlikely that that percent spent is the percent complete. You know, when talking about those three methods, Kathy, anything that you know, any insight into what you work with on your contractors is how they how they project that cost to finish and, you know, some you know, anything any tips for the audience on what you've seen be successful or for some of the clients you work with? I mean, for me, best practices is for us, like we talked about, going by category and having the project manager assess every category and making sure the costs are in that they expect and then, yeah, estimating how much is left because the on the WIP, on the main schedule, you usually have an average percent complete based off all those line items. So if you're over on certain ones and you're not capturing that properly, then your percent complete is gonna be wrong. So definitely down to the category level where the project manager is looking at the detail, I think is best practice. Yeah. Oh, great. And I know we talked a little bit earlier about the about 06/2006, and that was something that, you know, like I said, was introduced. Gosh. It's probably been more years than I than I think now. It seems like it was just yesterday, but I think it was quite it was, what, maybe four or five years ago now that 06/2006 became a thing. At least. And, yeah, I mean, maybe longer than that. You're right. And and I think, you know, this is something that, you know, at the time, there was a lot of confusion in the construction industry about what this is gonna do. Everybody thought that was gonna completely change, you know, what they did. And that's that's really not at all the case. But, you know, at the at the end of the day, right, the, you know, the the 606 at at kind of a high level and, Kathy, I'll let you certainly chime in here. But at at at a high level is in some situations, you may have a single contract that you have to separate into separate performance obligations. So they can be delivered separately. And kind of the best example I'll give is a contractor and a lot of contractors that do a lot of you know, they they do a lot of they do a lot of schools. And, you know, they may be delivering the the main school building and and, detached gymnasiums at separate, separate timelines. So even though it's one contract, they would have you know, they would need to put together a WIP schedule for each of those components independently, which at the end of the day, it's just you're doing the the the WIP process at the, what I'm gonna call, the phase level, maybe one step above the category level where I have a group of categories under the the main building phase, and I have a group of categories under the under the the gymnasium phase in that example. But I don't know, Kath, anything to to add as far as kinda what you've seen as far as who's been impacted by the the six zero six rules and and how, you know, how your clients are handling that. I think the biggest thing that I've had to deal with is, like, things like prepaid bond costs, things that used to be front loaded onto the jobs under general conditions, for GCs or, you know, heavy heavily bonded contractors. You have to actually put it in a prepaid. You can't front load it with insurance, like we were able to before and bill for it. You mean, you can bill for it and front load it that way, but you have to take the expense over the course of the job. Yeah. That's a good yeah. That that is great. That is yeah. That is one example of, the a change where yeah. You like I said, you could bill for it upfront and get paid for it, but you have to you you have to to recognize it over the over the duration of the job. So, so, yeah, I think, you know, I think it's kind of the the $6.00 6, I think, is kinda settled in, and those that had to make some some slight changes to the process have done that. But, at the end of the day, I don't think it was nearly as disruptive for the industry as as many thought it was going to be. Alright. So let's talk a little bit about, you know, how do we how do we stay compliant? How do we have a good process in place? And I'm I'm gonna start by, you know, by launching another quick polling question here. And we're gonna ask, you know, how confident are you your company has a good whip process in place? So let me go ahead and open that poll. And once again, we'll give it about thirty seconds or so. Give everybody a chance to vote. Hopefully, we'll see a lot of very confident, and and maybe a maybe a few somewhat confident and very few not confident or not yours. Believe that go for about another fifteen seconds or so. Give it another couple seconds here. I'm gonna go ahead and share the results. Alright. So almost, you know, 38 of you, very confident, 47%, somewhat confident, and about 15%, not confident. So, yeah, a good, you know, good spread of the, of the answers there. And I think, you know, sometimes I find that, you know, being somewhat confident or not confident may be a result of the, you know, of the the tool or the lack of tools that you're using to, you know, to to do the whole web process. And I don't know, you know, I know, Cathy, you know, you and I talk a lot about you know, we we have you know, we deal with a lot of clients, contractors that are coming from, you know, what I'm gonna call generic software solutions like QuickBooks that don't have the concept of of WIP at all. And they so, therefore, if they're doing it at all, they're doing it in Excel, becomes a quite a manual process, becomes very difficult to do, sometimes very you know? And I think that leads to some you know? And what I see is a lack of confidence because of the the effort it takes, and there's not a not a, you know, a process in place where if you have a purposely built solution like Computerease, you know, you can do the WIP process in your job cost accounting system where which to me is where that's where all the data resides and certainly where where we wanna do this. But just kinda curious what you see, Kathy, when you, you know, see people that are, you know, struggling to do this, you know, doing it in Excel and some of the, you know, some of the the challenges they run into. I mean, the the biggest piece I think is is the, timeline of what they do with the WIP and how often they look at it. So I think, honestly, that's the biggest, struggle that I see is some contractors don't wanna look at it on a regular basis. And if they don't have to provide financials for only quarter, then they're like, well, I just wanna look at it quarterly. Well, you should be looking at it at least monthly, if anything. And, yes, having a system where you have all of that data so you can assess it in the system instead of having to pull everything together makes a huge difference. Like, QuickBooks is not ideal for any of this at all. It's like the worst software for it. Yeah. Yeah. It's just it's not you know, and it's you know, in QuickBooks is you know, it it's not built for this industry, and it's, you know, I'm not it's a it's a fine generic accounting solution, but it's built for any kind of business, and it's not built for this business. So, you know, in in construction, you really need to to have something that understands, you know, the the the concept of job costing and work in progress. And, you know, and I think if you if you have a tool that can help you do it, you're gonna be more likely to do it more frequently, and, therefore, you're gonna have good data. And I think I think you you touched on this, Kathy, but I, you know, I think you said at least monthly, and I would agree. If you're doing it any less frequently than monthly, you're I really don't think that's a you know, you're not, you know, you're not best in class practice as far as contractors go. So I think we would certainly Kathy and I would both encourage all of you to if you're not doing it at least monthly, you need to revisit that. And I and and maybe ask yourself why. Why am I not doing it monthly? And, you know, and even and we'll we'll we'll go with the monthly cadence, but I you know, I don't know about you, Kathy, but I'm always telling contractors. And. when we say monthly, it's not you know, I don't want it to be the middle of the next month when you're doing the previous month. It needs to be as real time as possible. Because if if I ask somebody fifteen days from the end of the month at the, well, where were we at the end of the month fifteen days ago? Well, that I don't know. That that that's already that that time is gone. And and you really need to get to where you can do this and not you know? And, I mean, with the right tools in place and the right process in place, there's no reason you can't, I think, do this within a couple days of the month of closing the month, and you're, you know, you've got updated with forecast, and and you're, you know, you're you're ready to go. And I don't know what, sure what you see, Kathy, but I think, you know, do you ideally, you know, try to get your clients, you know you know, doing the WIP schedule with within a few days of the month being closed? Definitely. Definitely. I mean, yeah, monthly is just from the management standpoint from executives. But on a project manager level, in my opinion, it should be at least weekly. You know, they should be looking at. their stuff. And if they're a labor intensive contractor, then some project managers should be looking at labor daily. So, you know, it really depends on what kind of contractor you are, but the, you know, lower level managers should be watching this a lot closer than executives. But, yeah, that should be done monthly at minimum. And, yes, once you close the month, you should be able to quickly turn that around and look at it and have a regular project manager meeting scheduled. Yeah. And the you know? Yeah. And I think you're you're so right, Katie, especially especially those labor intensive contractors. I mean, you should be looking at that, you know, daily, weekly, and, you know, the the monthly is when you're actually gonna put the, you know, the the report and the schedule in place, but you should be managing this throughout the, you know, throughout each day, throughout the week, and throughout the month. And one, you know, an important component of that is having real time job costing. I mean, and, you know, when I think for me and, you know, I've I've I've been been doing it a a while, and I've seen the definition of real time change because of technology. There you know, when I started in construction many years ago, You know, real time job cost is real time as we could get was this week on starting on Monday, we'd gather time for last week's work. We would enter it into our system. We would post payroll middle of the week, and our job cost reports would be updated. And that was real time as far as in, you know, in at that time, that was real time, where today, you know, we we should be using the technology that exists to turn time in on a daily basis. We should see that unposted or committed payroll on our job cost reports today. So we're not waiting a week and a half to to see that labor hit my job. Is if I'm a project manager, site superintendent, I mean, I can look at that report this evening or first thing tomorrow morning and know exactly where I stand as of as of today's time that's been entered. And I think that's one thing that I've really seen change the you know, in in the industry is the the definition of real time. And and I think real time some people are still living on that real time from definition from years ago where, really, we were, you know, a week and a half, almost two weeks behind in some cases, but we thought that was real time. Yeah. I mean, I'm seeing contractors not even give their people the access to the system, which to. me, I don't I don't agree with and I don't understand is, you know, you're spending labor hours trying to run these reports and get the information to project managers that they should be able to access at their fingertips. Yeah. Yeah. I agree, Kathy. I I see that. When I see that, I just cringe. When I see somebody says, well, I'm not, I don't you know, I'm not gonna give them access to the information. I said, well, what do you mean? Well, I don't want them to see the information. I said, well, how do you expect them to manage the. job? They if they if they don't know what it is, their job is to manage the job. And, you know, I think there's, you know, like this this, you know, I've heard people tell me, well, if they know what the budget is, then they're just gonna use all the budget. I said, but if they don't know what the budget is, how can they, you know, how can they beat the budget? I mean, you're you're I don't understand that. I mean, and that I mean, that's my job to manage the person that always uses all the budget when I know they could do better than that. It's not, but not allowing them to see the report, I don't think is the way to accomplish that. So, yeah, share the information. I mean, you know, with it once again, I'll I'll go to computers because that's the system I know, but you can control their ability to change information. I yeah. I get it. You there are certain people you don't wanna have access to change information. That's fine, but they should have access to the information on their jobs. I mean, you've you you've tasked them with the responsibility of managing that job to finish it ahead of schedule and under budget. Well, I can't finish ahead of schedule and under budget. I don't know what the schedule or I don't know what the budget is. So I think it's really important that we share that information and and with everybody. And and, you know, and encourage the, you know, the the open lines of communication and encourage and then, you know you know, I don't know. The the best way I can explain this is, you know, I always encourage people I always tell people that, you know, I wanna hear good news, but I have to hear the bad news, and I have to hear it sooner rather than later. And it's it's human nature. Nobody wants to share bad information. So, you know, you you've got people in the field that are saying, well, you know, I've spent half the budget. I know I've only done 40% of the work, but I'm gonna make it up in the second half. And so I'm just gonna share with you that I'm 50% done. We won't knowing that I'm not, and I've I've seen that happen too often. And and I just think you you gotta build a culture within your organization that says, look. I know every job is not gonna go perfect, but I need you to I need you to tell me when things are off. I need you to tell me, you know don't tell me how much of the budget we spent. I know that. I want you to tell me how much work you did for the amount that you spent. And if we do that and and we, you know, we build that into our organizations and get people communicating, I think it's just you know, the whole process works a lot better. And I think, you know, the other thing I don't know, Kathy, about about you, but I see a lot of times you know, because this this takes a full, you know, collaboration between, you know, project management, accounting, ownership to, you know, to make this process work. And, you know, sometimes you go into a company and it and it feels like it's us against them. You know? Well, accounting is just, is is nagging me about my forecast because they're they wanna annoy me and, you know, accounting is thinking, well, project management is just not giving it to me because they wanna annoy me. Now we're we're all on the same team, and we all play a part in this. We all play an important equal part in this, and we gotta we we gotta, you know, encourage that collaboration between all the all the stakeholders in the in the in the within the company. Oh, absolutely. Collaboration is so important. Yeah. And it's you know, so so just remember that. You know, what I know we got a lot of different people, a lot of different roles on the call. Next time somebody asks you something or participate in the WIP process or gather information, you know, think about why they're doing it. Don't think about, well, this seems like a you know, they're doing this to aggravate me. They're not. They're doing it because we're you know, we all have a job to do and, you know, it's it's all of our jobs, whether it's, you know, you know, accounting or project management. And I remember, you know, if I go back in my early career thinking, well, why are, you know, why is this so difficult? Why is there this, you know, friction between the teams? And and really, you know, you know, in a lot of ways, I think that's changed over time, but there's still sometimes it it seems like, you know, we're not, you know, we're not seeing everybody as equal partners in this, and we really are. We all play a part in this role within within the construction company. So, certainly, you wanna you wanna look at that. You know, one of the things we talked about in you know, Justin will maybe come, come back to this here just for a quick second. Absolutely. But, you know, we talked about the, you know, the six zero six rules, and I think we covered this, you know, probably already. But this is where you may have to divide a contract into separate performance obligations. Kathy talked about, you know, where before we could recognize the bond cost upfront, now we have to spread it across the life of the job. Anything else, you know, Kathy, come to mind as far as, you know, things that the, you know, that contractors need to be doing to make sure, you know, they're staying compliant just with, you know, six zero six in general or just, you know, just the the process, you know, to to be compliant with just, you know, general, you know, gap rules as well? I mean, honestly, just making sure your accounting is right is is enough to stay in compliance. You know? If you don't have good practices in terms of how you treat pending change orders or those sorts of things, then your financials are gonna be wrong, and misrepresented possibly. So definitely having good practices and processes in place are gonna make sure you're compliant. Yeah. And I think, you know, when you if you understand what you know, one, I think we talked about the importance of doing this for, you know, the the management of your business and to run your business. Also, understand what the outside entities that are requesting this report are looking for, you know, and and and, you know, make sure you're looking at the report through that lens as well saying, okay. Do I have a report that's gonna make sense to the to the banker, to assure the underwriter that corresponds with the with my financial statement? I've seen people go through the whole process, do the you know, create a great WIP schedule, and then they don't make the entries on their financial reports. They don't they don't record you over under billing. So now there's a disconnect. I've got a I've got a WIP schedule, and I got financials, and they don't and they don't match. And so just, you know, think about that and make sure that you're looking at it from that lens as well. Because when when they get that, the the, you know, the better the information, the easier it's gonna be to get that next loan, increase in your line of credit, get the you know, get your bonding capacity increased, whatever it may be, or, you know, pass that review or that audit from you know? And you wanna make sure you're in good shape for all that. So, you know, make sure you're looking at that, and, you know, kind of almost doing a self audit to make sure that, you know, the report would meet the you know, would, you know, pass as far as, you know, outside, you know, outside agencies would look at it. So I think that's that's really important to make sure you understand what they'll be looking for. So you're, you know, doing it to to better run your business, but also you're preparing yourself for when the outside entities wanna look at that as well. Alright. So this is just another little example of, you know, we talk about the, you know, the revenue recognition, when, you know, this would be the kind of the steps that you go through if you have to separate it into, you know, any, you know, separate performance obligations. So you have a contract, you know, you you you need to distinguish if there are any separate performance obligations in the contract. You know, then determine the overall transaction price and then allocate the transaction price across the separate performance obligation. So I don't know, Kathy, you have any good examples. I gave the example of maybe a a school and a gym separate under one contract. But any other examples you can think of where you you have to separate the a single contract into multiple performance obligations? I think where it normally comes into play would be, like, massive change orders that happen after you pretty much, you know, close out the job and say, well, you know, they wanted to add a portable to the building if it's a school, but we finished the school and the construction already, and now we have this. So, like, you know, separating that, now that's a separate job on on the contract line item. So, I don't see it as often because most of the time, you know, we're we're kind of separating this and doing it from the very beginning, but I would say pretty big change orders is where I would see this the most. Yeah. That's a good example. Yeah. Big change order after the you've already kinda delivered the, you know, the initial, you know, phase of the project could you know, would would certainly be would fall in that category. So, yeah, just something to think about. But, like I said, we don't wanna focus too much on the on the the $6.00 6 because I think it's, you know, pretty much you know, we we've kinda handled all that already. So I think, you know, we've we've certainly talked a little bit about that. So I'm gonna go ahead and launch another polling question real quick here. And here, we're gonna say, you know, what is the biggest challenge your company faces when putting together a web schedule? And I'm gonna go ahead and launch that question here. Well, maybe I'm not gonna launch that polling question. I apologize, but I seem to not have the the polling question able to to launch there. But, you know, think about that. We'll just kinda maybe talk through this for a minute. You know, just some of the challenges you may be facing, you know, are, you know, the the tracking and reporting on long term projects. I mean, that you know, the, you know, the the shorter duration the job is, it you know, one, it you know, you can it's gonna probably be a little bit easier to manage in the web processor. The longer the duration and, you know, the more difficult the reporting can become, you know, the process of allocating costs and revenues correctly, you know, managing subcontractor, you know, billings and their change orders, you know, can can certainly be some of the things that that challenge. And I don't know. Cathy, do you have any, you know, kind of best practice recommendations as far as and a lot of times people will ask me, you know, that there you know, is there a certain duration that a job has to last before I wanna, you know, do the whip process on it? And, you know, I I I think really even shorter jobs, you know, there's benefit in doing this, especially if we're doing it on a daily or weekly basis. But, you know, just what what do you see when you have a maybe a contract that has very, you know, projects that last very different, you know, durations? Maybe they do some really short term projects and they do some really long term projects. I mean, I I put everything on the job schedule. You know, we'll break out between small and bigger jobs and, you know, focus on the bigger jobs generally. But I like to put everything on there because it doesn't really matter, especially if you have timing issues between when you're billing and when you have your costs because sometimes the smaller jobs don't get billed till the end. So you might be 90% with the. job at month end, but you don't bill for it until the following month for whatever reason. So I I think that is important. Where I see a lot of issues is mainly, I would say, allocating the costs, on any cost that need to be added to the jobs that might not be already in there. So I would say that is probably the biggest challenge in finishing the WIP. Yeah. I think that's, you know, the the cost allocation. And I I agree with Cathy. I mean, I'm I'm a big believer in putting all the jobs on the on the web schedule. Certainly, I've seen some where, you know, you can you know, maybe I'm gonna run an overall web schedule, but maybe I wanna classify the jobs and be able to run, you know, you know, subsegments of the WIP schedule. That certainly is this can be a good practice as well. But, yeah, I think at the at the end of the day, I mean, every job needs to be accounted for on, you know, on that schedule. Alright. So, you know, one of the things, you know, we talk about, you know, establishing, you know, schedules and some of the best practices for, you know, building a schedule. Obviously, the, you know, the we're talking about the there's the the budget component to to the process. There's also the scheduling component. And, you know, we're talking about the you know, our our ultimate goal for every job is ahead of schedule and under budget. So I think to, you know, to to build good schedules, you need to establish clear milestones and deadlines knowing that they're gonna change. I mean, you know, that there's certainly you know, nothing is etched in stone, so to speak, in construction. You know, ideally, you know, once again, if you're using a industry specific solution like Computerease, you're gonna have not only ability to do, you know, your job costing, your accounting, your web processors, you're gonna have the ability to schedule the jobs and manage resources. That's a big part of that. You know, I need to regularly update schedules. And and, you know, the because the schedule impacts the cost and the work we do. I mean, if we don't have a good scheduling process in place, we're gonna end up with people standing around with nothing to do. We're gonna have people in the wrong place, and this all can impact our ability to, you know, to to do the job and perform at, you know, at our, you know, optimum level. I mean, you know, we need to make sure we coordinate with subcontractors and suppliers. There's nothing worse than having a crew of your own crew on the job site, but there was no coordination with the subcontractor and supplier that also had to either have material there or be there as well-to-do do the work, and all of a sudden, we have unproductive labor, which is which is very difficult. And I think one thing in construction, I think we would all agree, we we've gotta we've gotta be flexible. Things are going to happen. No matter what we do, whether, you know, delays and delivery, whatever it might be, even the best plan can be disrupted at at a moment's notice. And we need to be able to to account for that and be able to adapt quickly and make adjustments. You know, we certainly wanna track, you know, actual versus plan progress, where we at versus the original timeline. You know, we have activities that are related to other activities. So if you're using you know, if you're building a Gantt chart and you have the ability to to build in, you know, dependent activities, if one one activity slips, the next one can't start until, you know, one a related activity finishes. That you know, those are things we all need to to account for and, you know, and be able to, you know, hold people accountable to those schedules. I mean, we're ultimately held accountable to the schedule, I mean, you know, by external sources. I mean, we have a we have a job and and we have delivered on time or there's going to be typically financial penalties for not delivering the job on time. So we need to make sure we're we're looking at that and and make sure we're communicating and collaborating across the teams, both internal and external, our internal teams. But there's a lot of coordination that has to go on with the general contractor, subcontractors, material suppliers, etcetera. And, you know, we we need to do that. And this should all be integrated with your, you know, your regular job costing and financial tracking process. And once again, that's where I think, you know, a system, you know, like like ComputeRease can bring all those components to the table. But, Kathy, just curious. What what do you see as far as best practices with contractors you work with as far as, you know, building and maintaining a job schedule? mean, utilizing and having a good system like a computer is and making sure you're utilizing it to its fullest capacity. So, one example is if you're heavy in equipment, then using the equipment module and making sure you're tracking the hours and the time and everything. So when you have these sorts of jobs that maybe get delayed or things get changed around, then you know what equipment you have available, what equipment isn't being utilized, and all of these things at your fingertips. Plus making sure that you also know what you've got going on from your cash flow perspective and that labor source like you're talking about. So, you know, your your backlog is a little snapshot into the future, but you still have to, you know, know everything that's going on with those jobs. and everything else you can plan. Yeah. And, you know, you mentioned equipment, Kathy. And I think that's one thing that, you know, sometimes gets missed in in the in the job cost process, especially, once again, if you have a system that maybe isn't built for construction. I mean, if you if you have equipment and you're not allocating cost to the job for the use of your own equipment, you're not doing a good job of job costing. And that is, you know, the the best example I can give is if I have, you know, if I have one backhoe and I have two jobs that each need a backhoe and I rent one for one and I use the one I own for the other, and the one that I rent that one for, when the invoice comes in, I charge it to the job it was used on, but I don't charge the other job or the one that I own. Then I go to look at those two reports. Which one do you think is gonna, you know, is gonna look better? It's just, you know just because you own a piece of equipment does not mean it's free to use. There is cost to own and maintain that piece of equipment, and I'm a big believer, and you need to charge your own job for the use of the equipment, whether you're renting it from someone else or you're using something you own. You should be charged at in the at the same rate, at the same process, and, you know, treat that equipment as its own internal rental center and make sure you're, quote, unquote, renting it to yourself to make sure that you're accurately costing the job. And I think that's something, once again, that, you know, with the right tools, makes it very easy to do. Sometimes it doesn't get done because it's difficult to do. And, you know, I think that's, you know, a a a, you know, big believer in that and making sure that you're charging the job for the use of your equipment. Because at the end of the day, if we don't have accurate job costing, all this all this starts to, you know, starts to fall down and it starts to crumble if we don't if we're you know? So that's just one of the things that we need to do. Alright. So I know we talked a little bit about the about the six zero six recognition already and and and, you know, separate performance obligations. You know, the, you know, the this we really talked about the the importance of, I think you know, no different than having the right tool in the field. You need the right tool in the office, and that's really what, you know, a system like Computery is, you know, you know, or, you know, any construction specific solution. I might be a little biased towards computery, certainly, but, you know, there there there are others as well. But what, you know, what any construction specific solution does is going to be significantly better than what the generic solutions, the accounting solutions, like, the QuickBooks of the world. That's that's not a knock on QuickBooks. It's just not purposely built for this industry. So it's the wrong tool for this job. So, you know, you wanna make sure you have the right tool to help you with all this, to help you with this process, help you with the revenue recognition, help you with the work with the WIP process, help you with the allocating of a of of equipment costs, help you with getting real time job costing, getting labor cost on a daily basis, building a schedule, building a timeline. These are all things that the right tool will allow you to do. You know, so if we do all that, I think, you know, when you put these put these things all together and put a good process in place, you're gonna see, you know, I think, incredible incredible results. And I don't know, you know, Kathy, maybe I know I've seen a lot of my day, and and I'm sure you have as well. I mean, you see it I see somebody come from, you know, like I said, a a I'll say a generic solution, and then they get into a solution that was built for their business. They start to implement some of these things, and all of a sudden, wow. I mean, the the, you know, the, you know, the even though they were maybe they were profitable before, now they're even more profitable because they have a better handle on their business. Or I've taken some that were maybe, you know, marginally profitable and all of a sudden came became, you know, very profitable because now all of a sudden they they had a good, you know, a a good handle on their business. And, you know, you don't have to be struggling to do better. I mean, you you could be maybe you're maybe you're doing very well, but isn't the goal to do even better? And with the right tools, I think you can you can do even better. And I think that's what you know, that's my goal is to help contractors get the right tools, understand the process, and be able to, you know, and, you know, manage and and ultimately, you know, grow their company and improve their profitability. Yeah. I mean, I've seen them on average double in size when they've gone to a good software. Yeah. That's great. I mean, that's that's that's significant. And and, you know, I think that that, you know, doubling in size would be probably next to impossible with, you know, without the right software. You're gonna you know, because I think if you if you try to double in size without the right tools, they're they're more like you know, you increase the chances you're gonna fail at that, and that and that's not, you know, Yeah. that I mean, not what, not what we, wanna do. a lot of times I hear that it it's a cost factor. You know, this oh, well, the software is so much cheaper, and it's like, well, yeah. But if you're gonna say it in construction terms, it's like taking a mini excavator to a job that you need a full dozer on. Like, yeah, the Bobcat might be a little bit less expensive, but you're going to pay. so much more in labor and time to get that job done because you don't have the proper tool. And it's the same thing with the software. Like, it takes me two or three times the. amount of work to pull the information out of something like QuickBooks. And I'm like, I it's for me, it's not cost efficient. Yeah. And it's interesting because sometimes, you know, we don't as contractors, we don't hesitate to put the right tools in the hands of the people in the field. But sometimes, we hesitate to put the right tools in the hands of the the people in the office that are running the, you know, the the the the back office process and and the accounting and job costing. So I want everybody in the company to have the right tools. I I want the, you know, I want the excavator to be on the job site rather than the rather than the Bobcat, and I want, you know, I want the my accounting team to have the right tools in in the office because that's gonna help everybody. And it's all about you know? And, really, you know, the, the construction specific accounting job cost solution, it is it is the right tool for the job. It's not a it's not a, quote, unquote, necessary evil. It is the right tool for the job, and you gotta make sure you have the right tool. Don't look at it as an expense. Look at it as an investment in your business just like you would investing in the right piece of equipment in the field, and I think that's, you know, that that's key for everybody. It it it's the same way. I mean, you you invest in that in that backhoe for a reason. You're gonna invest in a construction specific accounting solution for a reason as well. Alright. Well, I think we're gonna get into some questions here that have come in. I'm gonna go ahead and launch one quick class polling question here. If you'd like to be contacted to learn more about ComputeRise, learn more about what we talked about today, you can go ahead and answer yes. But while we have that poll open, we'll go ahead and take some questions that have come in. Here and, first question, here's a good one. What are the best practices to account for time and material jobs on the WIP? And so that's a that is a great question. Cathy, maybe you you wanna take first stab at. that? I mean, for me, I treat them the same way as any other job. You have estimated contract, say, in this case, because you don't really know what it's gonna be. But assuming that you've actually estimated what the job is going to be, then you should have an estimate and a rough idea of what you're gonna bill for it. So I recommend putting those estimates onto the job information so you kinda have something that you're working towards. Yeah. No. I think that yeah. That's great. I I understand why. Yeah. And to do that, you know, for the web process, you do need a an estimated contract and an estimated budget. And like I said, on t and m, it it truly is an estimate. We're on a non t and m job. It is a fixed contract. But, yeah, I'm I agree with Cathy. I certainly recommend those going on the schedule. And even in computers, a lot of times, I may wanna that once once again, I can may have an overall WIP schedule, but I may classify those t and m jobs. So if I also wanna look at the WIP just for the t and m jobs, I have that flexibility to dig to drill down and dig even deeper. But, yeah, big big believer in in putting that on the WIP schedule. Is the recording available offline? Yeah. Certainly was. We at the beginning, we mentioned, you will be getting a email after today's presentation, which will give you a link to the on demand recording. So feel free to watch this back, or certainly, there's and there's a lot of other WIP content around the around the WIP process available on our Construction and County University site as well. Can Computerease WIP replace my Excel spreadsheet WIP? Absolutely. That's I'm glad you're asking that, and that's a that's a good question. So I, I think that's coming from a current Computerease user. So if you have any, questions around it, we can certainly follow-up and have somebody guide you through that process on on doing that in Computerease instead of in Excel. We talked about the t and m. Just going through a lot of these questions. They're duplicate. Currently on QuickBooks looking, into exploring moving to Computeres. Can you give me any idea on pricing and timeline to convert? So, couple questions we'll have for you. We'll certainly follow-up. If you haven't answered yes in the polling question to be contacted, we will certainly follow-up. It's, not that I can't answer, but I do have to ask a few questions before I can answer that. So we'll certainly follow-up and be able to to dig in a little bit deeper and and certainly, love to talk to you about the moving over to Computease. Does Computease have an Excel WIP? I'm sure I quite understand the the question. In in Computease, you have the ability to export the WIP report to Excel. I think that may be the question. If not, we will we will certainly follow-up. But you certainly have the ability, While Computers, you can do the WIP in Computers. It can also be exported to Excel. A good, this I think a general question, somebody agreeing with us. I just made more comment than anything, but it said, you know, how how does anyone know what's happening in their business that they're not doing WIP at least monthly? And I think Kathy and I would both agree with you, 100%, but that was somebody from the audience, commenting on that as well. So, then there's a question here. Last one here. Can you talk a little bit about, backlog? So, yeah, I mean, backlog at the high you know, high level definition is the amount of work under contract that you haven't completed yet. So, you know, your how much work you have under contract that you that you haven't done. Obviously, the WIP process is going to you know, the WIP schedule will show, you know, contract, build to date, revenue recognized, and you're gonna be able to determine your backlog. That's something that, certainly, on the surety side, they're all, you know, not only looking they're looking at your backlog as well, and, you know, that's gonna determine their you know, the, you know, the ability or lack of ability for them to to issue you a bond. So that's certainly something you're gonna gonna manage as part of this process. See if there's any other questions coming in here. I've got a couple. Got a couple other people wanting to follow-up on doing WIP and Computery versus Excel. So, yep, certainly. Is Computery is a full accounting platform? Yeah. This is a full fledged accounting job costing solution. So it's you know, if you're depending on what you're doing today, for example, if you're doing QuickBooks, we're gonna do everything that you're doing in QuickBooks plus all these things we talked about here today, do much more robust job costing, work in progress, scheduling, you know, equipment costing, etcetera. It's all part of the the, you know, all in one solution. Just looking here. A lot of the other questions here are kinda similar to what we've already answered. Oh, so maybe one last question here we got time for. So what is best practice used to record the offset, you know, for your monthly WIP entry? You know, and I think they're asking you to do it against revenue or or, you know, cost of goods sold. So I I think to me, it's always a it's a revenue adjustment and and then, you know, the the and then the other side of that entry is, you know, over under billing depending on which it is. But I don't know, Kathy, any any other insight into. that? I mean, I always set it up as a revenue contra account, so it's always in the 4,000, 40,000 series. But it should be part of your revenue because that's the revenue line that matches on your profit loss from your WIP. Right. Right. Yeah. So it's gonna be a, you know, a debit or credit to revenue and a debit or credit to over under billing depending on which it is. So, you know, if you're if you're, you know, if you're, you know, overbilling is a liability, you know, underbilling is an asset, and then you have the corresponding, you know, adjustment. So if you're, you know, if you're if you're underbilled, you're gonna reduce revenue. I'm sorry. If you're overbilled, you're gonna reduce revenue and increase your overbilling liability. If you're underbilled, you're gonna increase revenue and and, and increase your, the underbilling asset. So, you know, one thing that, you know, like I said and it's you know? And and that's the key component. I mean, over overbilling for cash flow is, you know, certainly you know, we all like to be slightly overbilled so we can increase our cash flow, but it must be managed. It must be accounted for in that revenue contra account, and it must be recorded on the balance sheet as a liability, which means, you know, we know we have work to do that we're gonna be paid for before we do it. And that's, you know, and that's what the one of the key things. I mean, if you don't have a you know, when you produce that those financials, the p and l and the balance sheet along with your rip schedule, you know, they're gonna go right to they're gonna go right to the balance sheet and make sure if you're overbilled, it's reflected on the it's reflected on the balance sheet. Alright. So I think with that, we're just about at the time here. Cathy, I can't thank you enough, for joining me today. This has been been fantastic. I think a lot of good, I know you and I love talking about WIP, and we could probably go on for, for, you know, hours at least talking about that. But, really appreciate your insight. I know, you know, you know, love working with you and all of your clients, and, you know, I think you this has been, been great. And I think the audience really appreciate appreciated your feedback. So really appreciate, you joining me on today's appreciate. you having me here. Thank you. Yeah. Just a quick reminder, the, the next session in our Construction Accounting University two point o series is the basics of construction accounting. That'll be on June 9. But you can view, you know, all the prior courses in the constructionaccountinguniversity2.o and in on, you know, on the website, which you'll be directed to to watch a recording of today's, presentation. Any questions at all, you can please contact us, but we'll be following up to those that, asked to be contacted or anybody had a question we didn't, get to or didn't completely answer during today's, session. So once again, thank you, Kathy, and thanks to the audience for taking time out of your busy day. And we'll see you on the next webinar.