“Why isn’t my company making more money? We’re busier than ever, I’m working harder than ever, but things just aren’t coming together like they should!”
If this sounds or feels familiar, you may want to sit in on this meeting to pick up some ideas…
It Just Doesn’t Make Sense!!!
Matt was nearing the end of his Monday-morning Construction Managers’ meeting.
They were at the point where they normally reviewed financial results. Matt hadn’t had enough time to look through last month’s numbers before the meeting started. Now he pulled the report from the remaining pile of papers, and quickly absorbed the unpleasant information that it revealed.
Instantly, he could feel his blood pressure rising. “I can’t believe that we’re showing another loss this month! It just doesn’t make sense…we have so many jobs going – we should be making money, not losing it,” he said.
He couldn’t get his eyes off that bottom line on his Profit & Loss which was in the red.
This isn’t the first meeting he’s had with his Construction Managers where the company has shown a loss. He’s begged his managers and employees to help contain costs; he’s reasoned, he’s yelled, he’s even pleaded and threatened. But nothing seems to change.
“OK,” he thinks, “Time for a new approach.” Instead of losing his cool he asks, “So does ANYbody have ANY idea about what’s happening out there? Help me out here guys!”
After some quick glances around the table, Matt’s Construction Manager, Tom, speaks up.
“Well, I don’t think that we’re charging enough to cover our costs and still make a profit,” he suggested.
“So, what do you mean?” replied Matt (somewhat defensively since, as the owner, he did most of the sales and estimating for his company).
“Well”, replied Tom, “at my last company, for each of our jobs, we got Estimate vs. Actual reports that showed our Estimated vs. Actual cost comparisons. On the front end, the Estimate told us how much the company had to mark up in order to make a decent profit.”
Tom was in his early 60’s and had worked at several large construction companies during his career. Now he was warming up to share his war-stories about ‘how the big boys do it’. In this case, the other managers were NOT rolling their eyes. They were nodding their head in agreement…
“Then, while the job was underway, we checked how we were doing against our Estimated costs. If we were over or under our estimated costs, we could check to see why. We could figure out if it was something we could fix. If it was, we could fix it before the whole job went sideways.”
“Sometimes the differences were due to Change Orders that hadn’t been turned in, and we could get them recorded, so we could collect on them. And sometimes the estimate was off – but we used that info to make sure that we had the estimate right the next time.”
“I’ve asked Helen for that sort of report, but she says that our system isn’t set up to do that. I feel kind of blind without that data.”
It Just Doesn’t Make Sense – To Run Your Business Without the Right Numbers!
Of course, thought Matt, Data. Sigh. Helen, his full-charge bookkeeper was very competent. She’d been telling Matt for years that they needed to either stop his practice of using Excel for Estimates OR that they should, at the very least, put his estimated costs and income into QuickBooks.
But Matt liked the flexibility of using Excel for the estimates. He’d done estimates that way for years, and was comfortable with it because it helped him do the math calculations. Then he’d send his potential customers his quote and paperwork in a Word document with summary numbers. He just couldn’t see the point in doing (what he considered to be) “double entry busy work”.
However, Matt admitted to himself, based on what Tom’s saying, I can see how it would make life easier if we could see the project costs to-date next to the estimated figures. And, it might help to keep jobs on-track while they were in motion, rather than just seeing the totals after the project was completed.
And, to top it off, he’d make Helen really happy when she got to tell him “I told you so – LOTS of times!” Oh well, no solution is perfect! He’d just have to let her know that she’d been right all along. Life would eventually get better…
Consultant’s Corner: Estimated Costs → Estimate vs. Actual Reports
Matt’s comfort-level and idea that Excel is easier for Estimates is fairly common among business people. What he hasn’t, until now, understood is that this approach typically creates an “information disconnect”. Using Excel alone means that his estimated costs and income are sitting in an Excel file that others may, or may not, be able to see. Then his current actual costs are posted and reported in QuickBooks. There’s just no easy or reliable way to compare one set of numbers against the other.
Ironically, if Matt had standardized prices, the task of creating Estimates could be even easier than in Excel. AND, it would likely actually simplify his purchasing and invoicing process.
How would that work?
As soon as estimated costs are entered into the QuickBooks Estimate form, it takes just the push of a button to copy that information into each vendor’s Purchase Order. Then, Purchase Orders can easily be converted into Bills as they arrive. Additionally, Invoices can be generated directly from Estimates, either as a percentage of completion – or for a specific dollar amount (for specific job phases, or for the entire job).
The primary management bonus, of course, is having real-time reports where Matt and his Construction Managers can see exactly what ACTUAL costs have been incurred on each project vs. what the Estimated costs were. AND, as Tom pointed out, Estimates vs. Actual reports make missing Change Orders much easier to spot and recover.
Of course, it does take a front-end investment of time and energy to establish the Item List, and map the Items to the correct accounts so the reports display correctly. But the payback, over time, can be impressive.
Example Section of a QuickBooks Estimate vs. Actual Job-Cost Report
- This report is from a sample “training” file that includes a variety of small example transactions, so please ignore the dollar amounts shown – instead, focus on the format!
- A complete report would also show totals for each column at the bottom.
Let’s see how this portion of the Monday morning meeting COULD have gone if Matt had been using the Estimates feature in QuickBooks.
“Okay, gentlemen” Matt said to his Construction Managers during their monthly Financials Review, “From these Estimate vs. Actual Job-Costing Reports, it looks like Job #811-Henley Square is running close on costs. Tom, what’s your plan?”
Everyone looked at Tom, who smiled and replied, “Don’t worry, I’m on top of it. I got the customer to sign off on their two major Change Orders, so we’ll finish the project right-side up.” He gave Matt a thumbs up.
Matt nodded in approval, “Good. I’m also thinking that we need to reassess our pricing for flooring and installation. I’ve noticed that our hard material costs have been increasing slowly, and it’s up about 7% over the past quarter. We should adjust our rates to reflect that.”
“Agreed,” said the Construction Managers, in unison, as they pushed their chairs away from the table, and headed out to lunch.
Do YOU Have a Similar Problem?
Here are a few questions to think about:
- Are you missing these types of Estimate-to-Actual reports for your larger jobs?
- If you DO have these types of reports available, are you reviewing them weekly or (worst-case) every other week to make sure that you’re “on target” or to discover if you’re missing any Change Orders?
- As a business owner or bookkeeper, if you’re missing out on this kind of information, how does it make you feel regarding your ability to confidently do your job and/or manage your business?
What if there was a fast and easy way for business owners and bookkeepers to implement a bullet-proof system to implement Estimates and Estimate vs. Actual job-cost reports into their construction business?
Well, there is! The solution: AccountingPRO.
The AccountingPRO system is specifically designed for construction business owners and bookkeepers who are too busy in their business to figure out how to organize the financial side of their business.
If you’re sick and tired of trying to run your business with a sub-standard set of numbers and missing financial data, then this is the time to check out AccountingPRO.
Click the image below to see how easy it can be to get your business math back under control.