Congratulations to me!

I finally got certified in my third version of QuickBooks (2010, which has some really cool new features), which was the prerequisite for taking the QuickBooks Advanced ProAdvisor exam. I passed, and now I can sport this cool new logo. To see it in action, check out my profile on the Intuit Builders and Contractors Community forum.

QB Contractor Tip: How to handle "no markup" transactions without messing up your Gross Profit

Here was the question:

I use a subcontractor for a large portion of the job. When
job is complete my GPM does not look good. Since I only mark
up 1% on my subs, what is a creative way to show
subcontractor payments and invoices in my GL to make my GPM
accurate and not understated on the jobs with
subcontractors?

Here is my answer:

My knee-jerk reaction is DON'T DO IT. If you aren't marking up subs, what are you marking up? The most profitable remodeling contractors use subs more heavily than those who are less profitable. The reason, of course, is that you can control costs better with firm fixed price quotes from subs. But this only makes you profitable if you mark up the subs. As a general contractor, you bring your construction and management expertise to the project. Your markup is your compensation.

One of the most straightforward construction pricing systems is to recover all your overhead costs and profit (in other words, mark up) from your labor. Nowadays it is difficult to mark up materials beyond just a basic handling charge, because customers have access to information about the cost of materials thanks to the Internet. So you can't mark up the materials enough to cover overhead and a reasonable profit. If you use subs instead of in-house labor, you have to recover all your overhead and profit through the subs, i.e, mark them up.

So, bottom line, I think you should re-think your sub markup. Another excellent source on the subject is Michael Stone's Markup & Profit: A Contractor's Guide and his website http://www.markupandprofit.com/. At the very least, I doubt if 1% even covers the actual handling costs for managing, scheduling, paying the subs, etc.

So. now that I'm finished with my lecture about WHY NOT to do it, I'll tell you HOW to do it. In order to do what you want to do, you have to bypass your job costing accounts (construction income and the COGS accounts). Here's how I handle a similar thing, which is when customers pay directly for certain things that --for whatever reason -- pass through our hands. Occasionally to help a good client, we have the client pay the supplier our actual cost of a sub or expensive material (stone countertop, for example). We may have to handle the payment, because we have the account with the supplier.

This basic technique is useful for Barter transactions (Check with your CPA; the IRS doesn't like barter), owners' time on jobs, and other types of clearing accounts. These accounts are meant to carry a zero balance so they don't mess up your figures. The first step is to create a Bank type account in QuickBooks. I have a Bank account named Cash, and sub-accounts named Barter, etc. for these zero-balance accounts.The one for this tip is called Customer Payments.

I deposited the customer's check directly into our checking account without an invoice, and without using Undeposited Funds. The "From" account in the deposit is the Customer Payments account. When I write the check to, or create the bill for, the supplier, instead of using Items, I use the Customer Payments account on the expenses tab to show where the payment went. The result is a zero balance in the Customer Payments account, and it bypasses the Income and COGS accounts on the P&L.

You could do something similar, and handle your 1% markup through a dummy invoice or sales receipt. I'd also consider making a sub-account of your main income account for the Item you use for this markup so you can track it separately, but collapse it into your income when you want to see the whole picture. You might even want to point it to an Other Income account so it doesn't overstate your GPM.

The video for this tip is in the editing process. I'll post it when it's ready.

Before you try this at home, be sure to read the Disclaimers.

Stay tuned for the video; Meanwhile, more QuickBooks Contractor tips

Okay, I let myself get bogged down and stuck by the massive video editing necessary to publish my next video QuickBooks tip. I have LOTS more to share, but it takes longer than I thought to record and edit my video QB Contractor Tips. In the meantime, so we can keep this process moving along, I will post just in writing the tips I share with my Most Burning Question askers, and the answers I post on the QuickBooks Builders and Contractors Community forum. As I get the videos done, I will add them here, so keep coming back.

QB Contractor Tip: How to pay Job Costs with personal funds

Here is my first video tip to help contractors with QuickBooks. I apologize in advance for saying "quote-unquote" too many times, although it makes sense in the context. Also, next time I'll have my screen set at a smaller resolution so the QuickBooks demo is a little easier to see. All that said, I think it is a really cool tip, and I hope you agree. It will help you process Job Costs that you pay with personal funds.

Don't forget to go to http://www.qbcontractorprofit.com/ to request a tip. I won't spam you, and I'll put you on my mailing list for my free mini-course Introduction to QuickBooks. Of course you can unsubscribe at any time. Please tell your friends and contractor colleagues about my site, and my tips.

Be sure to review Disclaimers before employing this or any other QB Contractor Tip.

Welcome!

Welcome to QB Contractor Tips. My goal is to be the go-to location on the web for advice to help small contractors manage their businesses profitably using QuickBooks®. I plan to dish out bite-size, easily digestible tips and tricks from the trenches. If you are a remodeling contractor, a trade contractor, or a light construction contractor and need to learn QuickBooks better to be more profitable please return here often.

I also need to ask you a favor to help me make my site more responsive to your needs. Go to http://www.qbcontractorprofit.com/ and tell me your Most Burning Question about QuickBooks. Be sure to visit the Resources page (linked from the confirmation page after you leave your question). It's FULL of useful links to free and inexpensive resources to help you make more profit in your construction contracting business. Bookmark that resources page, too, because I plan to update it as I find new links. (Let me know if you have any to suggest.)

Disclaimers

These are the same Disclaimers I give my bookkeeping clients. The short version is, check with your CPA and/or your lawyer before employing any of these tips.

Muriel Johnson Murray is not a Certified Public Accountant. She is not engaged in the practice of public accounting, nor in providing financial auditing services, nor is Electronic Cottage Industries, LLC, so engaged. No information contained on this site should be considered as financial, tax, or legal advice. We make no attempt to reflect Generally Accepted Accounting Principles nor to reflect proper tax record keeping. We may provide reports that contain portions of financial information; these reports are for your internal management use only. We will not provide any financial statements and will not perform any compilation, review, nor audit of any of the financial information. We do not at any time provide legal services of any type. We have not been requested to discover errors, misrepresentations, fraud, illegal acts, or theft. Therefore, we have not included any procedures designed or intended to discover such acts, and you agree we have no responsibility to do so. Your reliance upon information and content obtained by you at or through this site is solely at your own risk. Muriel Johnson Murray and Electronic Cottage Industries, LLC, assume no liability or responsibility whatsoever for damage or injury to you, other persons or property or any other entity arising from use of any product, information, advice, idea, or instruction contained in any of the content or services provided to you through this web site.


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