Quickbooks Unleashed (and other tips for organizing your accounting)

By: Shane Umstead

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Several people, have emailed me offline, asking exactly what I am doing in Quickbooks to keep track of expenses, while I rehab or perform various contract services, additions ect. About a year, ago or so I asked William and a few others could they post about what they do in the office specifically, to make life easier, what is a normal day like, what your system looks like.

The biggest challenge with QuickBooks is knowing the question to ask your accountant, so you can get the most out of it. What do I do, and how do I get started, what should my chart of accounts look like, how do I manage my projects today, and where am I going.

Background Info: I don't have a large staff, just one assistant who helps me stay on top of my projects. When I worked in the professional world, I was responsible for a relatively large team, everyone was responsible for a weekly report, weekly expense report with attached receipts, time sheets which had to be in full view at all times. Each project was given a code, so the accounting dept could run burn rates for a project, and each PM signed off on the time sheets and kept track of P/L. Typical corporate model, sales, engineering, accounting ect..

The reality, is that model in the "construction world" for a very small office does not really fit, unless your a construction company structured like the professional world. I made a lot of mistakes the first years, trying to manage my business like a large company with lots of resources and different depts.

So what do you have to do when your a small company, as in one or two people and you need to manage a few rehabs, several additions like I routinely do now. You need systems in place, that one person can do and others can do easily with very little thought, until your income supports bring on more staff.

So lets get started on some nuts and bolts:

If your going to rehab, you need to seperate your personal expenditures from your business expenditures as soon as possible.

John Hyre's KISS bookkeeping system is excellent as it covers many facets of bookkeeping and REI, however it really does not give the nuts and bolts of an everyday business in a way that makes it easy to understand. However if I had John sitting over my shoulder I am sure the learning curve would of been much smaller, because it is the small things that matter and really clue you in as to what you need to do.

So what do you really need when you’re rehabbing? What do the banks need? What does your accountant need? What kind of system do you need in place to manage more than one project? I can;t address all of them, here but I can offer a good starte.

What do you need?
1) Well, you need a wonderful accounting system that has strong reporting
Capabilities, expense management act, so you know exactly what you
Have spent phase by phase certainly and this holds true if your
if your managing multiple projects.

Assuming you have a home office the most important thing I think you can do for yourself in this business if your intend to rehab homes, build homes or build additions is to set up a business immediately and apply for revolving credit lines in the business name so you can separate your expenditures by from your personal expenses. This is huge, because it is the most painful thing in the world to reconcile credit cards, and try to separate personal expenditures from business expenditures.

Today, I have two personal credit cards "revolving lines" in my name, and I have two personal credit cards "revolving lines" in my businesses name. My personal lines, are VISA and MasterCard, and my business lines are AMEX and VISA. AMEX is what you really need to operate in the "construction business" but VISA is nice as well, in case your vendor does not support AMEX. I can't say enough how much having these cards have helped me, with my accounting. Just doing this, and using a simple spreadsheet and a few manila folders was more than enough for me two years ago, when I was doing a single project, at a time. Obviously you can set up "trade lines" as well with your suppliers, but I opt to pay with my "revolving credit lines' as I want to process as little paper as possible.

Let’s fast forward, three years and let me tell you what I DO now and why I had to do it.

Problem I) When I had a single project, it was no big deal to keep up with receipts, and expenditures. I come home, throw all the receipts in a shoe box, at the end of the week break it out by trade doing the work, put all the gas receipts with the gas receipts, carpentry receipts with the carpentry receipts, and life was good, UNTIL the size of my projects went from 20K to well over 200K. It drove me nuts, but still 200K was not that bad...

Talk about a nightmare to manage this way..it gets harder as your company gets bigger.....Then add insult to injury, what about more than one job. I might go to the store, and make three separate purchases, and then I would come home throw them all in the same shoe box, and then separate them out at the end of the week and put them in their folders, so I had all the receipts for Mr. Smiths project, broken out and organized by trade, and my project broken out and organized by trade.

Why did I go thru all this hassle, because I can't tell you how many people I have worked for over the past three years that had no idea what they had spent from day to day, month to month per job, per trade? And I knew people that were making money, hand over fist despite the fact they did not know what they were spending, UNTIL I met several contractors whose bad habits caught up with them as they moved up too bigger projects and that is when MR. Murphy showed up, and when he is done with you Mr. IRS shows up, the point is sucess is good, but if you do not have good systems your business does not scale.

Well, I thought I had a really good system this past year, until my workload increased. This past year, I had two rehabs under way and four additions all being built at the same time. My system just cracked under
the pressure and I almost cracked with it.

In fact, about a year or so ago I told my brother of my challenges, and he became so engrossed in the complications of the business he built a database for me to estimate repairs for the homes I renovate homes with reporting capabilities based on my input. He received an A in his class, and I threw his solution into the trash, and told him I needed something better, and he quickly agreed as he routinely came home to me on hands and knees going thru receipts, and we talked about all the nuiances of the business.

The ironic thing is over a semester he came to the conclusion that we had to find another way, and I have to give my brother complete credit for revolutionizing the way we keep receipts and where I am at NOW, because I literally explained my problems, what I do, how I get my income, even drew up flow charts that people were extremly impressed with no less than five accountants who "eweeed" and "aweed"...

My brother was the genius that came up with the phrase " You need to classify expenses with a computer, and file your receipts chronologically" that was the phrase that helped me get over a huge hurdle, I could not see to get past..

Once again, his current job (he oversees purchasing at the GAO and IDA where he purchased books, periodicals and ton's of other things by the 1000’s) came into play, and I told him look the way I am keeping receipts is killing us as I was getting pounded daily, and I am not real diligent about doing things on a daily basis. I have to track all of this stuff to keep up, with where I am so I am under budget.

I have to track receipts for projects where material is short because the GC, that hired me has no idea what is going on, why the material is short and I have the option of solving the problem quickly, getting the job done or sending the team home.

I won't get into the challenges that arise out of working for others, but bottomline your accounting system has to adress their shortfalls, and if it does not their shortfalls, become an accounting nightmare for you.

Folks here are the answer. You can use QuickBooks or Excel for that matter to do all your classification of your expenditures, by account and job, or even class either by using Excel or QuickBooks. YOU DO NOT WANT TO TRACK RECEIPTS BY PROJECT, however you must have a classification process in place that works and it must be automated as much as possible.

We now, classify all receipts with a computer, and chronologically file our receipts day by day. So it does not matter if I have receipts mailed to me or if I bring them home. I take all the small receipts for that day, and I tape them onto a plain white piece of paper (a technique) I learned from my professional world) with the date, and I file it into that months folder day by day. At the end of the month, we have all the receipts for that month

Now, all my receipts are in order by date, sounds like a big mess but it is not because it makes things so simple. As always I write on the receipt, what it was for and the job. Let’s say I am framing a house, and doing a rehab at the same time and I am framing at two different addresses. My receipts will say, 9601 Watts Branch_Framing_Material and my other receipt will say, 1520 Birdwood Court_Framing_Material

At the end of the month, I pull out another folder and start a folder for the next month. The reason, my brother told me to file all of my receipts by date is simple. All my credit card, bank charges, show up on the statements by date and this is the quickest way to reconcile charges and see if anything is missing.

We had several go arounds and huge battles over how I was doing accounting in my business. He would say. "You need to keep track of the pennies" to which I would reply. "Who cares about the damm pennies, if your losing dollars in the field because your in the office counting pennies and not tracking progress, motivating the various crews, keeping morale up and comparing that to your budget" Very few working men respect individuals that manage from a glass office, they want someone in the trenches, who turns his cell phone off and is there to help.

He would say "The IRS" and I would say "Look it takes more effort to get the last 10% of a job finished then the first 90%, the IRS can wait" . "I need to make money first, just to pay the IRS"

Afterall, I have seen three different businesses go under and I felt the major reason, was they lost focus and were out of touch with the customer

That was my fear, if I spent all my time in the office I would lose my edge, I could not learn the trade, I could not figure out the short-cuts, I could not figure out how to turn a rehab over in four weeks. I could not figure out how to make a rehab more profitable.

Enter Quickbooks, finally a program that has everything you truly need, built in budgeting tools, strong reporting capabilities, and YES, the HOLY GRAIL, I have FINALLY out figured out how to track all of my construction expenses, by project, and by trade, by line item that I desire, and I can compare it to my budget. Finally, real time reporting at it's best with minimal time spent in the office, crawling on my hands and knees..

The secret is knowing how to set up the CoA, how to build budgets, and various memorized reports to track profit and loss, when it comes to rehabbing, building additions or new houses. My brother was right, it does take both, however in order to arrive at my CoA I had to learn my business intimately, and put a CoA into place that made sense.

You must and I stress must understand, the CoA, Customer:Job and Classes, Budgeting and Reporting Capabilities. This was so complicated for me, I am thinking about writing an ebook on how to do this for the investment community when it comes to rehabbing.

I wish, I could say that I have a perfect system for everything that John Hyre has outlined pertaining to REI, but I do not, I have a system that will work well for new homes, additions and complicated rehabbs.

But it would be really interesting to see how an advanced investor, with a small staff keeps track of multiple rehabs, how they track receipts, what kind of reports they generate ect..

Many thanks too William as well for a powerful concept that I think everyone should do. At his sub-2 workshop he show-cased some legal style folders with seperate partions. I took his concept and ran wiht it
and put together stuff for my rehabbs.

For each rehabs, I make up two folders and keep them in one place. One is my REI fold, and the other is my Contractor Folder. My REI folder consists of:

1) Contract to Sell, Contract to Purchase
2) Specification of Repairs (My Budget, Line Item by Item)
3) Appraissal Subject to Renovations, Apraissal Normal
4) Hud I, Hud II
5) Lesson Learned
6) Financing Documents
7) HUD1's to Purchase, HUD1' to Sell
8) Builders Risk Policy
9) Photos Before, Photos After

Since I run the projects myself, my field package consists of a single legal folder, and my log book, The nice thing, you can use a single legal binder with partions and have three or more projects in it at the same time, depending upon the size. Here is a list o what I keep in my folder.

1) Specifications of Repairs (Budget Line, Item, by Item)
2) Project Schedule, Material Schedule, PO's ect..
3) Budget versus Actual Daily Weekly(Burn Rate)***
4) List of Contractors, Phone Numbes
5) Field Log Book
6) Blue_Prints
7) Survey, Design and Implementation Plan
8) Change Orders

My Log Book is a concept that I learned in the .com world and sales as well.
I keep hours, I do field drawings to remember, things. This is where I keep all my punch out list items, I draw out concepts that I want to solve, goals ect. Till this day, I think a log book, or "moleskin" is absolutely the best way to capture your thoughts and organize a project.

Anyway, over the next few months, I will be fine tuning all the information were entering into Quickbooks, so it should be a interesting to see where things are six months from now.

Some tidbits for all.

Shane Umstead

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