Garbage In, Garbage Out
A recap of CEDIA’s March 20 Webinar on efficient use of accounting software
May 2008 By Keith S. Cottrell, PMP, President & COO, Kinetic Systems Consulting
Garbage in, garbage out. According to Wikipedia, the phrase is commonly used to describe failures in human decision-making due to faulty data. And when it comes to running today’s ESC business, nothing can skew the decision-making process more than inaccurate or incomplete financial data.
That’s why CEDIA reached out to industry expert Leslie Shiner (The ShinerGroup, Mill Valley, Calif.) to facilitate its March Webinar, titled “Using QuickBooks as a Foundation-Building Tool.” The second webinar in CEDIA’s Survival of The Fittest series, this presentation wasn’t about promoting QuickBooks; how you run your company will determine what software package is best for you. Rather, this webinar focused on QuickBooks as an example of how an accounting process and properly configured software system can strengthen your business. It was about looking at QuickBooks as a tool for better understanding your financial picture and overall performance, enabling better management of your company.
Like any other tool, the software system you choose will only be as good as its operator. With that in mind, Leslie’s presentation went into great detail about the importance of properly setting up your Chart of Accounts (CoA). Your CoA is the basis for all your financial reports; it can either be a standard set of accounts or a set that is customized based on your needs. (CEDIA is in the process of developing a CoA specific to our industry.) For our industry, the default CoA in QuickBooks is inadequate because it treats labor as an overhead expense rather than a job cost.
When setting up your CoA, keep it simple so that your Income Statement (Profit and Loss Statement) is simple—leave specific job performance details to your Job Cost reports. Make sure you clearly separate what belongs above the line and what belongs below the line. Your job-related expenses (labor, equipment, materials, etc.) are your Cost of Goods Sold (COGS) and these belong above the line; overhead expenses fall below the line. This will help you feel confident that your gross margins are calculated correctly. This is why you want labor treated as a job cost—keeping this cost of goods sold above the line will give a proper snapshot of project performance.
One of the reasons so many in our industry use QuickBooks is the simplicity of its Job Costing reports. One such report, Profit & Loss by Job, is an overall snapshot of how each job is doing. There are also two reports that provide a summary and detail at the job level: Job Profitability and Job Estimates vs. Actuals. The latter report only works if you have an estimate in the system for the specific job. In order to maximize job costing reports, be sure to assign job costs to your COGS and watch out for job costs that are not assigned to any jobs. One incorrect entry can really skew the data.
That’s why CEDIA reached out to industry expert Leslie Shiner (The ShinerGroup, Mill Valley, Calif.) to facilitate its March Webinar, titled “Using QuickBooks as a Foundation-Building Tool.” The second webinar in CEDIA’s Survival of The Fittest series, this presentation wasn’t about promoting QuickBooks; how you run your company will determine what software package is best for you. Rather, this webinar focused on QuickBooks as an example of how an accounting process and properly configured software system can strengthen your business. It was about looking at QuickBooks as a tool for better understanding your financial picture and overall performance, enabling better management of your company.
Like any other tool, the software system you choose will only be as good as its operator. With that in mind, Leslie’s presentation went into great detail about the importance of properly setting up your Chart of Accounts (CoA). Your CoA is the basis for all your financial reports; it can either be a standard set of accounts or a set that is customized based on your needs. (CEDIA is in the process of developing a CoA specific to our industry.) For our industry, the default CoA in QuickBooks is inadequate because it treats labor as an overhead expense rather than a job cost.
When setting up your CoA, keep it simple so that your Income Statement (Profit and Loss Statement) is simple—leave specific job performance details to your Job Cost reports. Make sure you clearly separate what belongs above the line and what belongs below the line. Your job-related expenses (labor, equipment, materials, etc.) are your Cost of Goods Sold (COGS) and these belong above the line; overhead expenses fall below the line. This will help you feel confident that your gross margins are calculated correctly. This is why you want labor treated as a job cost—keeping this cost of goods sold above the line will give a proper snapshot of project performance.
One of the reasons so many in our industry use QuickBooks is the simplicity of its Job Costing reports. One such report, Profit & Loss by Job, is an overall snapshot of how each job is doing. There are also two reports that provide a summary and detail at the job level: Job Profitability and Job Estimates vs. Actuals. The latter report only works if you have an estimate in the system for the specific job. In order to maximize job costing reports, be sure to assign job costs to your COGS and watch out for job costs that are not assigned to any jobs. One incorrect entry can really skew the data.
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