How Does Training Help To Save Money?

How useful is Master Builder (or for that matter, any business software)?

One of the main reasons people buy Master Builder is to get accurate and timely job cost reports.  A very useful report which many owners, estimators and project managers look at first is the 6-1-4-21 Job Cost Summary.  In this report, one can see the original budget by cost code, change order amounts to the budget by cost code, the revised budget (budget + changes) by cost code, the actual job costs by cost code and the variance between the revised budget and actual job costs.

This report is a summary of the job and is very useful in most circumstances.  However, many companies cannot use the report for a very simple reason:  the personnel responsible for creating the budget (entering the estimated costs) and/or the personnel responsible for entering the actual job costs are not trained to consistently and accurately enter the estimated costs or the actual costs with the correct cost code.

The report may indicate that certain cost codes for which there is a budgeted amount do not contain actual costs, or even more likely, certain cost codes contain actual costs for which there is no budget.  At the end of the job, the total costs might be less than the budgeted costs, but the report is meaningless, because it doesn’t tell the estimator or management how to better estimate costs in specific areas of the job.

An Example

A typical scenario in a construction company might be:  the estimator creates an estimate in the screen 9-5 Takeoffs and exports it to a budget in screen 6-2 Budgets.  The estimator attaches a cost code to each item in 9-5, and the export process summarizes the item costs by cost code in 6-2.  So far, so good (maybe – we’ll look at this below).

Then when actual costs are created for the job via Payable Invoices (screen 4-2) and Payroll Records (5-2-2), a project manager or supervisor codes the costs with cost codes and passes the paperwork along to a person who enters the invoices and/or timecards by cost code.  Simple, right?

A few exceptions I’ve seen repeatedly are:  the person coding the actual costs decides that the budget cost codes are wrong and codes the actual costs “accurately”.  This could be corrected easily if that person wrote a change order to the budget, removing the estimated costs from one code and placing them in another.  But the project manager doesn’t realize how easy it is to do this, doesn’t do it,  and the report becomes inaccurate.  If a budget change order had been written, not only would the estimated costs have been distributed to the areas in which actual costs are being distributed, but there would be a clear trail as to how and why the change was made.  Management would be reading accurate reports and the estimator would be gaining greater understanding of what is happening in the field.  It’s a win-win situation.

Communication

Another main reason why people use Master Builder is to get accurate feedback from completed jobs in order to better estimate new jobs.  The illustration above shows how the estimator can benefit from actual costs being coded correctly.  When the estimator is fully involved in the process from creating the estimate, to exporting it to the summarized budget, through and including reviewing the actual costs being reported, the feedback loop is completed.  Communication between the field and the estimator at the time of any changes to the budget is essential to this process.

How does training help to save money? Read more »

You don’t need to use the Master Builder Estimating module in order get a large amount of value from Master Builder.  What’s necessary is a Budget, which is the job estimate, summarized by Cost Codes and Cost Types.  You can use any estimating method to create the estimate:  yellow pad, Excel, or a third party estimating program.  But if a budget for the job is not entered and followed when creating job costs, at least half of the value of Master Builder is lost.

Having said that, the rest of this article will focus on Master Builder’s Estimating module.

If you do use the Estimating module, you can save a large amount of data entry time for each job on an overall basis.  This is because the Estimating module (in Master Builder ” Takeoffs”) allows you to export Budgets, Proposals, Purchase Orders, Subcontracts, Change Orders, Requests for Proposals and Service Work Orders.  It also allows you to export templates of parts of the estimate or the whole estimate to a holding file, then import the file contents back into a blank screen.  This feature of being able to re-use previous work with minor changes will, in the long run save you potentially hundreds of hours of work.

Other features include:
1) using Formulas to create dependent entries by declaring variables and applying simple math formulas;
2) declaring Global Variables to be able to use declared variables throughout the job estimate;
3) entering Scheduling Tasks which work together with the job Schedule to produce an automated project Scheduled Cash Flow Report;
4) entering insurance, use tax and binding costs independently based on declared increments;
5) marking up the estimate for bidding by a global percentage or declaring a bid amount independently of the estimate.

There are at least a dozen more useful and interesting features relating to item/part databases. Read more »

Entering Fixed Assets as Journal Entries

When entering fixed assets using the 1-3 screen, the correct accounts should be used for debits and credits.  Typically, the accounts might be something like this:

The important things are:  1) Debits = Credits;  2) there is an asset account which declares the actual asset value of the vehicle (purchase price) and a long-term liability account which declares the principal loan amount.

When a monthly payment is made again the loan, it would typically look like this:

This can be accomplished in the 1-1 screen by displaying the two debits in the grid.  Or if you want to run it through A/P and pay an invoice, display the two debits in the grid of the A/P invoice screen.

When the asset is depreciated, your CPA should give you a journal entry to accomplish that.

There other possible scenarios, such as when the interest and principal change every month.  To implement that, you would need a schedule from the lending institution showing the principal and interest monthly over the life of the loan.  This summary above covers the basic idea.

Entering Payroll Records as Journal Entries

When entering payroll records using the 1-3 screen, the correct accounts should be used for debits and credits.  Typically, the accounts might be something like this:

The important things are that:  1) Debits = Credits;  2) all accounts for which payroll tax liabilities are Credit accounts (in the Current Liability range), not asset accounts.

If a payroll advance is added, it’s a credit to Checking and a debit to the Payroll Advance account (an asset account in the Current Assets range).

Other entries might include deductions for health insurance (reduces Net Pay and credit a separate liability account in the Current Liabilities range), an employer-paid benefit (debits an expense account and credits a separate liability account in the Current Liabilities range) or a reimbursement (debits an expense account and increases Net Pay).

There are many other possible debits, credits and deductions or additions to Net Pay, but this summary covers the basic idea.

Paying Liabilities

Liabilities are created in various ways.  Your company might take out a loan, use a revolving credit line or overdraft protection, buy an item based on credit (such as a computer using Dell Credit), accrue a payroll liability to be paid in a deposit to the Federal or state government, or use a credit card to buy something.

Liabilities do not include using a debit card (which is like writing a check), or transferring funds between asset accounts (such as a transfer from a checking account to a savings account, transferring between checking accounts, or a transfer from a checking account to petty cash).  I will cover those topics later below.

Making a payment against a liability account is almost always the same procedure.  Using a check writing screen, such as 1-1 or 4-3, or making a journal entry in 1-3, the payment is a credit to a checking account and a debit to the liability account you are paying against.

If the payment was a deposit of Federal Payroll taxes, the ledger side of the entry would look like this:

If it was to pay a credit card, it would look like that also:

The same would apply for a line of credit payment (whether you initiated it or it was an automatic deduction by the bank), a payment against a loan or other credit account.

Transfer of Funds Between Accounts

Because of the way Master Builder’s bank reconciliation works, it is best to use a clearing account as an intermediate step between two accounts when transferring funds.  If you were transferring $10,000 from Savings to Checking, the transactions would look like this.

Then (Step 2),

The reason for this is that if you transfer directly from one cash account to another, the transaction only appears on one Bank Reconciliation.  If you use the above method, you can use the Bank Reconciliation screen 1-5 in Master Builder normally for each cash account.

A Word About Debit Cards

Although a debit card might look like a credit card, we know it’s like using cash.  The best way to think about a debit card it that it’s like writing a check each time you use it.  It credits the checking account, and usually debits an expense account.  If you purchased lumber at Home Depot with a debit card, the transaction would look like the one below.  You can use screen 1-1 or 1-3 to produce the transaction.

See my article Debits and Credits Made Easy.

Please contact us if you would like to learn more about instituting a comprehensive training process.  Thank you.