QuickBooks for Contractors is a great and inexpensive tool to run your construction business and gain control over your labor costs, but to use it to its full potential, you need to set up and use QuickBooks a little differently than you would most. of the other businesses.
First and foremost, you need to set up your items correctly because they are the heart of QuickBooks for Contractors. You must set up an item for each level of detail you want in your job cost reports. It can be as simple as labor and materials or as detailed as having hundreds of subcategories for the services you provide. You can find a good example of a middle ground (enough detail to manage your job costs without becoming overwhelming) in the sample contractor-based business file that comes with QuickBooks:
1 Plans and Permits
01.1 Maps
01.2 Building permits
01.3 City & Co. Licenses and Fees
02 Work on the website
02.10 Demonstration
03 digging
04 Concrete
05 Masonry
06 Soil structure
07 Wall framing
08 Roof structure
09 roof flashing
10 exterior trims and terraces
11 Coating
12 doors and trim
13 windows and trim
14 plumbing
15 air conditioning
16 Electricity and Lighting
17 Isolation
18 Interior Walls
19 Roofs and Covers
20 carpentry and moldings
21 Cabinets and Vanities
22 Specialties
23 Floor coverings
24 painting
25 cleanings
26 Landscaping and Paving
27 Quota
Many contractors add labor and material subitems to their items, which is useful if you want to track those costs separately. This also makes it easy to report only the labor portion of a subcontractor’s invoice on their 1099.
After you determine which job costs you want to track, you’re ready to add your items. Go to Lists – Item List, right-click Item and select New. Job costs should always be set to Service Items which, luckily, is the default. If you’re a contractor with short-term jobs, be sure to set up all of your service items as two-sided, with an expense account and an income account. This doesn’t happen automatically and unfortunately it’s not very intuitive. You must check next to “This service is used in assemblies or performed by a subcontractor or partner” for the expense box to be added to the settings screen. Contractors often use a cost of goods sold account called something like “job related costs” for job related expenses.
Builders, on the other hand, who have projects that span several months or more generally use a work-in-progress (WIP) or construction-in-progress (CIP) asset account because work-related costs are generally not expensed until that the project is completed. For this reason, your service items do not need to be two-sided. You should consult with your tax advisor or CPA before deciding which one is right for your business.
Once your items are set up, you need to start using them. Many of the job cost reports, such as Estimates vs. Current, they require the use of items on all your transactions, including bills, checks, and credit card charges. Again, this isn’t very intuitive, especially since all of these transaction types have an Expenses tab by default, but look carefully and you’ll see an Item tab just to the right of the Expenses tab. To get the most out of QuickBooks for Contractors, you should always use this tab. Forget the Expenses tab even exists. It’s also important to assign all your transactions to a Customer/Job, of course.
Lastly, if you always want to get the most out of QuickBooks for Contractors, always enter an estimate with the level of detail you’re trying to track. You don’t need to send this to your customers, although you may find this very useful. Many users think this adds an unnecessary extra step to their daily accounting entries, but this is one of the beautiful things about QuickBooks for Contractors. Once you enter the quote, you can convert it to an invoice, sales order, and/or purchase order with the click of a button (all three are hidden under the “Create Invoice” button on the quote form). So instead of adding an extra step, you’ll often find that you’ll end up saving an enormous amount of data entry time in the future, plus getting much better and more detailed reports.