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Gauging Your Financials

Editors Note: Last month, Leslie Shiner answered questions about using QuickBooks on the financial side of your business. This month, Rich Riehl adds his two cents about this essential software tool.

In the fast-paced world of custom installation, most of us wish we could avoid all the hassles of bookkeeping. We just want to sell system, run wire and hookup all of the gear. We have little interest in spending countless hours keeping track of every miniscule detail. As long as were busy, we must be making money, right?

Wrong. Running a business is like flying an airplane through a storm. If you dont pay attention to your navigational gauges, you will have no idea what your heading is, what your altitude is, and whether you are climbing or falling. Your financial reports are the critical gauges and you need to watch them all of the time.

QuickBooks Pro is a good match for the accounting needs of most installation companies. It is very affordable, relatively easy to use, and has the basic features needed to manage small-business finances. Start by finding an accountant who also uses QuickBooks. This eliminates all double entry from the start.

When you first begin using QuickBooks, you will set up your company in the software. There is a preset template for Construction: Trades. This creates the accounts needed for this type of business. Bank account and credit card accounts need to be set up along with opening balances.

Enter each supplier and service provider that you work with. Enter every vendor who will send you a bill. This includes suppliers who sell you equipment for resale. They will send you invoices that are entered into your Bills and Payments (Payables).

QuickBooks is a great place to handle your payroll. You can enter each employee, their wages and withholding, etc. You should have a bookkeeper or office staff member enter hours worked into timesheets and assign these hours directly to the jobs and customers you are working on. This helps track hours spent on each job.

Each job sold is entered into invoices that are sent to your customers. It is easy to bill progressive amounts as your jobs reach various stages of completion. Statements are easy to create to remind clients when bills are due. These are your receivables and you can create reports to see how quickly your customers are paying you.

Unfortunately QuickBooks does a very poor job of managing products that are sold. Creating hundreds or thousands of these Items is a real pain. Inventory Items can force you into a double-entry system where you cannot create an invoice to sell something if the item is not in your inventory. You cant get it into your inventory until you create purchase orders, wait for the shipments to arrive, and then receive them into inventory.

QuickBooks Pro also does a poor job of organizing and searching for products by category, manufacture, supplier, etc. I strongly recommend that micromanaging inventory in QuickBooks is a waste of time for small installation companies. Inventory is costly, and constantly counting it is also expensive.

Not for Proposals
QuickBooks Pro also is not a good tool for creating sales proposals. The lack of ability to associate labor with the proliferation of additional cable, hardware, labor, project management charge, etc. makes it a poor estimator. More expensive contractor versions add some help, but they still leave a lot to be desired in calculating complete job costing.

QuickBooks is an accounting tool that is designed for bookkeepers, not salespeople. It is not really a good idea for your salespeople to be working inside a program that contains confidential company financial data and that controls their salary and commissions, etc. Few salespeople have been trained in using accounting software. The estimates that QuickBooks produces are very limited and are not a professional presentation to offer to a customer during the selling process.

I recommend QuickBooks as the best choice for small business accounting. It offers so much, but does not perform as a sales and estimating tool. There are much better software choices to manage your products, prices, and labor. There are also much better choices for salespeople to use when creating professional proposals.

To get the most out of QuickBooks, keep it in the accounting department.