Accounting Systems for Contractors

Accounting for Contractors

The biggest mistake any small business can make is not having an accounting system, or they are trying to make do with QuickBooks Online, Freshbooks or some other cheap accounting software. It is like buying a bike helmet if you have a $10 head buy a $10 helmet. Good accounting software, correctly set up and maintained is one-third of their business. Without it, there is no way to get useful financials.

Here is my advice for choosing the best accounting software for your business:

#1 QuickBooks Desktop In The Cloud

 

Pros                                                                       Cons

Best for contractors who need Job Costing, Earned Value Reporting, and Spec Home Builders from the start up to $10M.

 

Requires training to be used for contractors.

 

Once it is set up, a lot of the tasks can be automated.

 

Set up is extremely difficult and not intuitive.

 

Easy to record checks and credit card transactions.

 

Every check and credit card affects 27 different tables in the software and mistakes in data entry may not show up for a long time.

 

Single entry accounting means mistakes are easy to correct.

 

Lack of audit trail means finding and fixing data input errors are harder.

 

QuickBooks has dozens of contractor specific reports.

For Example:

Ø      Job Costing

Ø      Job Profitability Summary

Ø      Job Profitability Detail

Ø      Job Estimates Vs. Actuals Summary

Ø      Job Estimates Vs. Actuals Detail

Ø      Item Profitability

Ø      Item Estimates vs. Actuals

Ø      Profit & Loss by Job

 

The user must have in-depth knowledge and skills regarding:

Ø      Work-In-Progress (WIP)

Ø      Earned Value

Ø      Retention

Ø      Direct Cost of Goods Sold

Ø      Indirect Cost of Goods Sold

Ø      Expenses vs. Cost of Goods Sold

Ø      Spec Builder Asset Allocation

Ø      Job Deposit Tracking

Ø      Change Order Tracking

 

Chart of Accounts can be customized to construction.Whoever set up QuickBooks must have an in-depth understanding of Regular Accounting and subsequent training and specialized knowledge of Construction Accounting to set up the Chart of Accounts correctly.
Data entry can be done quickly and efficiently.The user must have an in-depth understanding of the layout and purpose of each account in the Chart of Accounts to correctly code all transactions.

 

The financial reports can be formatted to follow GAAP and FASB so that bankers, bonding companies, lenders, and investors can understand them.

 

Requires a deep level of skill and expertise in Regular Accounting.

 

#2 Xero

 

Pros                                                                      Cons

Best for contractors who need basic bookkeeping.

 

Requires training to be used for contractors.

 

Once it has set up a lot of the tasks can be automated.

 

Set up is confusing and not intuitive.

 

Easy to record checks and credit card transactions.

 

Every check and credit card affects many accounts and mistakes in data entry may not show up for a long time.

 

Every transaction is a Journal Entry which means mistakes are easy to correct.

 

The audit trail is confusing and difficult to understand.

 

Xero has a few contractor specific reports.

 

 

The user does not need in-depth knowledge and skills regarding construction accounting.

 

Chart of Accounts can be customized somewhat.Whoever set up Xero should have an in-depth understanding of Regular Accounting and some understanding of Construction Accounting to set up the Chart of Accounts correctly.
A lot of data entry can be automated.The user must have an in-depth understanding of how Xero works and the layout and purpose of each account in the Chart of Accounts to correctly code all transactions.

 

The financial reports can be formatted to and used by bankers, bonding companies, lenders, and investors.

 

Requires a rudimentary degree of skill and expertise in Regular Accounting.

 

 

Get more advice, tips, and tricks from accounting expert Randal DeHart. Sign up for Master Accounting Basics: Contractor Edition premium online course today and unlock the door to developing a highly profitable contracting business with the Five Key Performance Indicators, tips on how to better handle invoices, and much more.