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02 Sub Box

Setting Up QuickBooks For Contractors

QuickBooks for Contractors is a fabulous and inexpensive tool for managing your construction business and gaining control over your job costs, but in order to use it to its fullest potential you need to setup and use QuickBooks a little differently than you would for most other businesses.

First, and most importantly, you need to setup your Items correctly because they are the heart of QuickBooks for Contractors. You should setup an Item for each level of detail you want on your job costing reports. It can be as simple as Labor and Materials or as detailed as having hundreds of sub-categories for the services you provide. A good example of a middle-ground (enough detail to manage your job costs without becoming overwhelming) can be found in the sample contractor-based business file that comes with QuickBooks:

1 Plans & Permits
01.1 Plans
01.2 Building Permits
01.3 City & Co. Lic's & Fees
02 Site Work
02.10 Demo
03 Excavation
04 Concrete
05 Masonry
06 Floor Framing
07 Wall Framing
08 Roof Framing
09 Roof Flashing
10 Exterior Trim & Decks
11 Siding
12 Doors & Trim
13 Windows & Trim
14 Plumbing
15 HVAC
16 Electrical & Lighting
17 Insulation
18 Interior Walls
19 Ceilings & Cover
20 Millwork & Trim
21 Cabinets & Vanities
22 Specialty
23 Floor Coverings
24 Paint
25 Cleanup
26 Landscape & Paving
27 Contingent

Many contractors add sub-items for Labor and Materials to their Items which is useful if you want to track those costs separately. This also makes it easier 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 on Item and select New. Job costs should always be setup as Service Items which, fortunately, it defaults to. If you are a contractor with short-term jobs make sure to set up all your Service Items as two-sided, with both an expense and an income account. This doesn't occur automatically and unfortunately it isn't very intuitive. You need to put a check next to "This service is used in assemblies or is performed by a subcontractor or partner" for the expense box to be added to the setup 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 job related costs aren't usually expensed until the project is completed. For this reason, their Service Items do not need to be double-sided. You should check with your tax advisor or CPA before deciding which one is right for your business.

Once your Items are setup, you need to start using them. Many of the job costing reports, such as Estimates vs. Actuals, require the use of Items on all your transactions including bills, checks, and credit card charges. Again, this is not very intuitive, especially since all these transaction types default to an Expense tab, but look carefully and you'll see an Item tab just to the right of the Expense tab. In order to get the most out of QuickBooks for Contractors, you must always use this tab. Forget that the Expense tab even exists. It's also important to assign all your transactions to a Customer/Job, of course.

Lastly, if you want to get the most out of QuickBooks for Contractors always, always enter an Estimate with the level of detail you're trying to track. You don't need to send this out to your customers, though you might find that this is very useful. Many users think this adds an unnecessary extra step to their day-to-day accounting entries, but this is one of the beautiful things about QuickBooks for Contractors. Once you enter the estimate, you can turn it into an Invoice, a Sales Order and/or a Purchase Order with just the click of a button (all three are hiding under the "Create Invoice" button on the Estimate form). So, rather than 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 you'll be getting much better, more detailed reports.

About the Author

Ruth Perryman, MBA, CMA, CFE is the president of the QuickBooks Specialists, an Intuit Solutions Provider that was recently named Intuit's top seller for the western region and has provided QuickBooks help to thousands of businesses all over the world since 1996. She is an Advanced Certified QuickBooks ProAdvisor and a member of Intuit's Trainer/Writer Network. She is also certified in QuickBooks Point of Sale and QuickBooks Enterprise.

Free version of QuickBooks Point of Sale v10 now available! Plus get a $500 ACH rebate once you're approved for a new POS merchant account through us.  Call 800-707-0940 for details.

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