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Quickbooks For Plumbing Contractors And The Chart Of Accounts

During QuickBooks setup and especially QuickBooks for Plumbing Contractors one of the most dangerous and difficult steps is setting the Chart of

QuickBooks for Plumbing Contractors

Accounting Pie Chart

Accounts.

Get This Right and your QuickBooks for contractors has a good chance of generating useful financial reports and job costing reports that you can use to understand where you are making money and losing money. Get this crucial step wrong and no matter who is responsible for your contractors bookkeeping services you will never get useful reports and in fact the reports you do get could lead you to make decisions based upon bad information that could cripple or destroy your entire plumbing company. This checklist has helped 100’s of contractors and I sincerely trust it will help you too!

Common Chart of Accounts Groups For Plumbing Contractors

Group #1 Sales Accounts

A. Income Account – Plumbing Labor

B. Income Account – Plumbing Material

C. Income Account – Plumbing Other

D. Income Account – Plumbing Subcontractors

Group #2 Cost of Goods Sold And Work-In-Progress Accounts

E. Cost of Goods Sold Account – Direct Job Costs

F. Cost of Goods Sold Account – Indirect Job Costs

G. Cost of Goods Sold Account – Other Direct Job Costs

H. Cost of Goods Sold Account – Other Indirect Job Costs

Group #3 Work-In-Progress Accounts

I. Asset Account – Retentions Receivable

J. Liability Account – Retentions Payable

K. Asset Account – Construction Performance Deposits

L. Liability Account – Client Job Deposits And Advances

M. Asset Account – Under Billing

N. Liability Account – Over Billing

Hey Plumbing Contractor, Which One Are You?

Dear Plumbing Contractor, understand who you are and get real clear about what market segment you serve. If everyone is your customer nobody is your customer. Determine which description listed below best fits your plumbing company and that will help you know which group of accounts listed above you should focus on when completing your QuickBooks setup.

Step One – Take time and review the list below and be honest with yourself. Which of the Four Types of Contractors best describe your plumbing Company knowing there is no right or wrong answer because each one has its own unique Strengths, Weaknesses, Opportunities and Threats (S.W.O.T.)


Dog And Pick-Up Truck

QuickBooks for Plumbing Contractors and a dog

A dog and a pick-up truck contractor

This Wonderful Soul – Has a heart as big as the outdoors and likes working alone. They are easy to get to know. They usually have either a pick-up truck or a van with a dog sitting in the passenger seat hanging his head out window watching and occasionally barking hello to folks and other dogs while feeling the breeze as the contractor zooms down the road.

They Do Not Think About – Retirement and when asked about it the reply I get most often is something like “Retire, nope, I don’t need new tires yet”.

These Contractors – Enjoy being their own boss, doing what they want when they want, how they want and works hard. They typically do not feel the need or desire to grow the business or hire employees since they would only get in the way.

Most Of Them – Run their business as a sole proprietor

They Generally Earn – $20K to $40K a year after all expenses

Chart of Accounts A, B and E


Salt of The Earth

This Wonderful Soul – Also has a big heart; just not quite as big as all outdoors. They like having employees because they do not want to work

QuickBooks for Plumbing Contractors and salt

Salt of the Earth

alone. As their business grows they like to take time off and enjoy travel and vacations.

These Contractors – Have one, two or three employees because when the employees get out of line the contractor can hold two of them by the throat; one in each hand and eyeball the third one!  This is called “Construction Management”

This Group Will Usually Invest – Some money to build a retirement nest egg.

Most Of Them – Operate their business as a C-Corporation, LLC or Sub-S

They Generally Earn – $40K to $60K a year after all expenses

Chart of Accounts A, B, C, D, E and F


The Professional

QuickBooks for Plumbing Contractors

The professional contractor

This Wonderful Soul – Also has a big heart; they just tend to keep it under cover. This group tends to have more employees and have a structured approach to their construction business treating more like a firm.

These Contractors – Tend to have 1-20 employees with formal organizational charts, processes and systems in there contracting businesses including a formal documented business plan which is updated and reviewed regularly with a board of advisors as outlined in my article on the subject.

They Invest Heavily In Marketing – Their businesses. They understand their target market, they use The 80/20 Rule to understand the demographics and psychographics of their prime customer, the ones who generate 80% of the cash and income. And they seek to acquire more of them and will do whatever is economically feasible to turn those customers into lifetime repeat business.

This Group Usually – Engages the services of a competent financial planner, banker and accountant to work together in helping plan and develop a financial estate that can take care of them in their senior years and provide be passed on to future generations.

Most Of Them – Operate as a C-Corporation, LLC or Sub-S or Partnership.

They Generally Earn – $100,000+ a year after all expenses

Chart of Accounts All Of Them


The Enterprise Level

These Construction Firms – Have 100+ employees and generate enormous revenues. Most of the owners and managers earn about the same as a

QuickBooks for Plumbing Contractors

Enterprise Level Firm The Hill Group Office in Franklin Park Illinois

well-run professional contractor. In a lot of cases their life span is shorter than any of the other contractors due to the enormous stress the suffer trying to navigate their construction companies through the ups and downs of the Business Cycle.

Chart of Accounts All Of Them


Step Two – What type of work is your plumbing company involved with? Land developers, spec home builders, custom home builders, general contractors, remodel contractors, handyman contractors, commercial tenant improvement contractors or some other type of contractor?

Step Three – Invoicing issues related to how you are being paid. Are you doing large projects requiring a schedule of values related to percentage of completion and change order management with progress invoicing and payment applications? Are you getting job deposits? Is there retention being withheld and are you withholding retention? Are there any back charge issues to be tracked?

All Plumbing Contractors Can Benefit from professional QuickBooks setup the only question is can you justify the investment?

New Construction Plumbing ContractorsServing Residential and Light Commercial Tenant Improvement Contractors:

  1. Typically they use QuickBooks for contractors to track all the costs and generate Bank Draws and Work-In-Progress (WIP) reports against budgeted estimates to monitor progress.
  2. The Chart of Accounts is usually focused WIP Assets with a few Cost of Goods Sold Accounts (COGS) to allocate the sale of the building.QuickBooks for Plumbing Contractors
  3. Successful Plumbing Contractors use the Five Key Performance Indicators (KPI) to monitor the financial health of the business.
  4. There are between 200 and 6,000 Items setup to track all the costs of the construction process from the ground up through the roof and final cleanup.
  5. This is the most difficult QuickBooks to setup because there is a mix of Direct, Indirect, WIP and COGS accounts.
  6. The day to day input is also the most difficult and to be done properly requires your accounting staff to have specialized training in construction accounting or if not perhaps contracting it out to us is an option to consider.
  7. Our experience has been this group generates a very unstable income and is extremely sensitive to the ups and downs of the new construction market which is why having a strategy with an external focus on the global housing market is so critical for them.
  8. It is unfortunate that we do see the vast majority of them unable to reach their full potential because there is no overall strategy. Even a simple Business Plan can go a long way toward building a profitable Plumbing Company that can generate ongoing passive income.
  9. I believe a lot of Plumbing Contractors go bankrupt because they do not have accurate financial and Work-In-Progress (WIP) reports to base decisions on and that is as direct result of trying to save money by hiring cheap bookkeepers who have good intentions but lack training in construction accounting.

Remodel Plumbing ContractorsServing Residential and Light Commercial Tenant Improvement Contractors

  1. Typically they use QuickBooks for contractors to track all the costs and generate Complex Payment Applications Item Estimates vs. Actuals, Job Profitability Summary and Job Profitability Detail Reports to monitor progress.
  2. The Chart of Accounts is usually focused Goods Sold Accounts (COGS) to allocate project costs.
  3. The successful contractors use the Five Key Performance Indicators (KPI) to monitor the financial health of the business
  4. There are usually 1,000 to 5,000 Items setup to track all the costs of the construction process from beginning to end.
  5. This is the third most difficult QuickBooks to setup because there is a mix of Direct, Indirect, COGS and only a few WIP accounts.
  6. The day to day input is also the second most difficult and to be done properly requires accounting staff with specialized training in construction accounting.
  7. Our experience has been this group generates a stable income and is not a sensitive to the ups and downs of the new construction market.
  8. It is unfortunate that we do see the vast majority of them unable to reach their full potential because there is no overall strategy including a Business Plan for Contractors.
  9. And of course cheap bookkeeping is the one area where short term savings is overwhelmed by making bad decisions based upon inaccurate QuickBooks for contractors reports.

Service and Repair Plumbing Contractors – Serving Residential and Light Commercial Buildings:

  1. Typically they use QuickBooks for contractors to track all the costs and generate Simple Invoices which can then be input into QuickBooks Premier Contractor Edition.
  2. The Chart of Accounts is usually focused Goods Sold Accounts (COGS) to allocate project costs.
  3. The successful contractors use the Five Key Performance Indicators (KPI) to monitor the financial health of the business.

    QuickBooks for Plumbing Contractors

    Picture of Expert Plumbing Service

  4. There are usually 500 to 2,500 Items setup to track all the costs of the construction process from beginning to end.
  5. This is the fourth most difficult QuickBooks Premier Contractor Edition to setup because there is a mix of Direct, Indirect, and COGS accounts.
  6. The day to day input is also the third most difficult and to be done properly requires accounting staff with specialized training in construction accounting.
  7. Our experience has been this group generates a very stable income because they are not as sensitive to the ups and downs of the new construction market.
  8. It is unfortunate that we do see the vast majority of them unable to reach their full potential because there is no overall strategy including a Business Plan for Contractors.
  9. And of course cheap bookkeeping is the one area where short term savings is overwhelmed by making bad decisions based upon inaccurate QuickBooks for contractors reports.

A lot of information was covered in a short space and believe it or not I actually condensed it down to the most important points. If you are a Plumbing Contractor I sincerely hope you got value from this article.

I did not go into detail about the specific account types and how they are used because each Plumbing Contractor’s needs are unique. The one thing that is common across all Plumbing Contractors is the need to clearly separate Cost of Goods Sold (Direct and Indirect) from Expenses (Overhead) in order to generate useful Financial and Job Costing Reports.

Those reports are only the beginning since they are what profitable Plumbing Contractors use to develop their overall Business Strategy and set Sales and Net Income targets in order to grow wealth which as we know is one of the reasons Plumbing Contractors like you work so hard and take so many risks is to develop a pile of money and income streams so you can retire and live comfortably.

I leave you with this heartfelt blessing “May you continue to enhance the lives of your family, friends, employees, suppliers and all whom you come in contact with in your daily lives and may they appreciate you for who you are, the great men and women of the family of plumbing contractors”.

Warm Regards,

Randal L. DeHart, PMP, QPA

http://www.fasteasyaccounting.com/

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