Business

Bank Reconciliation

Overview

The Bank Reconciliation screen in Master Builder is driven by the Statement Cutoff Date.  Enter the checking account you want to reconcile, and enter the cutoff date displayed on the bank statement.  If you don’t enter the exact ending date of the bank statement, the reconciliation will probably be wrong.  Master Builder does not display transactions entered after the date you enter.

To maintain accurate records, it is a good idea to reconcile accounts each month when you receive the bank statements.  It’s important to understand that the Bank Reconciliation is a worksheet.  It relates to the General Ledger, but it is not the General Ledger.

Reconciling a bank account in Master Builder is like reconciling your checkbook at home.  The bank statement and the display in screen 1-5 must match when you are done.  If not, you need to find out why it doesn’t match.

Maybe there are entries on the bank statement which aren’t in Master Builder.  If so, research them, and if they are correct, enter them in MB.  Or there could be entries in MB which aren’t on the bank statement.  If that’s the case, you need to research them, and if they don’t belong in MB, void them or credit them.

The MB Bank Reconciliation (Screen 1-5) is similar to a check register.  It displays transactions that have not cleared. As you compare the bank statement to the transactions in the Bank Reconciliation, clear the transactions listed on the bank statement by double-clicking in the Status cell next to the line item in the Bank Reconciliation screen.

Master Builder displays transactions in transaction number order. If a check number falls out of numbered sequence, Master Builder displays an asterisk (*) next to the transaction number.

The Statement Beginning Balance box displays the balance as of the previous reconciliation.  If the amount in the Statement Beginning Balance box does not match one amount displayed on your bank statement, clear all the transactions you can, then do a Trial Save (Trial Save is explained below).

When you display records for a checking account, the Statement Ending Balance box displays the balance as of the previous reconciliation. As you change the status of transactions, the amount in the Statement Ending Balance box changes.
After clearing the transactions, the ending balance in the Bank Reconciliation screen should match the ending balance of your bank statement.

Master Builder lets you save a reconciliation that is only partially completed (Trial Save).  Master Builder saves each transaction with the status that you have assigned to it. You can then return later to finish the reconciliation.  (When you display the trial reconciliation, Master Builder displays any records entered since saving the trial reconciliation.)

After completely reconciling the account with the statement and you do a Final Save (which you should not do until the Beginning and Ending Balances match the bank statement), Master Builder rolls the amount in the Statement Ending Balance box to the Statement Beginning Balance box for the next month’s bank statement.  Never perform a Final Save without printing the last Trial Save reconciliation displayed on the screen first.

Detailed Steps to Reconcile a Bank Account Read more »

Schedule Variance Indicator

Construction project owners are demanding faster construction, cutting the typical project duration dramatically. This schedule compression has made scheduling today of crucial importance. General contractors with the ability to meet and deliver projects quickly have a major competitive advantage.  The goal of scheduling is to create a tool that can be used to drive the project and build credibility with all the participants, particularly the owner. Quality, safety, communication, planning, coordination, and resource utilization are all enhanced through the scheduling process, which includes updates to it and integration of input from all project participants.  Scheduling and its value in communication to owners sets expectations, seeking owner satisfaction with the project’s execution.

Project schedules represent a detailed plan of individual activities, sequencing, duration, and interdependence. Many project schedules are prepared simply at the inception of the project. Though most owners require submission of these schedules as part of the contract, not all general contractors leverage the full advantage of schedules by using them continuously to drive projects to successful completion.  The integration of subcontractors into project schedules is critical to effective scheduling.

Schedules that are loaded with costs, resources, and labor hours help identify cash flow and overall resource requirements. These schedules are invaluable in developing an aggressive schedule of values that are then submitted to owners for payments on progress billings.

Effective scheduling techniques include the integration of subcontractor schedules into a master schedule from which project execution is driven. This process establishes and communicates critical milestones, critical paths, and delivery dates. Read more »

Financial Management for Productivity

Being able to produce the work in the estimated time for the estimated cost is the challenge.  Improving productivity must be a way of life in any company, especially construction, where management is difficult and production is so varied.

Some of the major factors that affect productivity are:

a) Job planning: Studies have shown that most production losses are the result of poor planning by management. Poor use of tools, material acquisition and instruction to employees results in a great deal of wasted time. High quality job site management can be the single most important factor in improving production.

b) Employee education: in order for employees to be more productive, they have to know how. It is our jobs as managers first to educate ourselves and then to educate our employees about how to increase production rates over the long term. Investing in long term employees may seem costly or risky, but the rewards can more than offset the short term costs.

c) Production reporting: For managers and employees to improve production, they have to see when things are going right as well as when they are going wrong. Most people will be self corrective if they are made aware of problems in production and are commended when they are doing well.

d) Acknowledgment: Nobody likes to go unnoticed when they have done a good job over and over again. Managers need to recognize top performance both in words and deeds.

e) Research and Development: By researching new materials, tools and production methods, a forward looking company can improve its equipment use and cost of doing business.

Financial Management:

Many otherwise profitable businesses fail because of poor financial management. Many others could recover from losses and be profitable with good management. The need for accurate accounting and quick decision making is always greatest when a company is growing or shrinking. The wide variability of the construction industry makes long term management particularly difficult.

Some of the areas that management must address are: Read more »

Risk Management

Every job contains an element of risk, either that costs may escalate, estimating may be faulty, the owner will refuse to pay, work may be interrupted, or some liability may be created. The management of this risk directly affects the company’s profits both in the short and long term. Some of the risks that are inherent in construction projects are:

a)         Not getting paid: Since profit usually represents a small portion of the contract price, uncollectible debts have a huge impact on profit. As an example, let’s assume that you perform a contract for $100,000 that would have had a 10% profit and are not paid. You will now have to perform $900,000 worth of work with a profit of 10% just to break even (with no profit).

The additional short term expense of doing a complete credit and reference check on a new client could save many times its cost in on just one job. Evaluating who you are planning to work for is as important as evaluating the job itself.

b)         Faulty estimating: Anyone who has been in the construction business for long has paid to go to work at least once. Often these “learning experiences” don’t teach us nearly as much as we ought to learn from them. We keep making the same general error over and over: estimating work we are not skilled at and do not have accurate historical cost data for.

When so much is riding on an accurate estimate, it is amazing that more expertise is not used in this process, especially in smaller companies who can ill afford to loose money on even one job. Spending extra time to verify estimating assumptions or getting educated about estimating practices will cost more in the short term, but pay you back quickly.

c)         Accidental loss: Some jobs are inherently dangerous and the cost of an accident can often be very expensive. The injury to employees or equipment along with additional cost of compensation insurance can result in loss of profits for many jobs to come.

Outside liabilities can also be incurred during the construction process resulting in large damage claims. Spending time to make your jobs safe will cost more now, but will pay off over the long term.

d)         Loss of reputation: Read more »

Money As A Motivator

Since it’s a new year, and resolutions are always popular around this time, let’s look at the subject of motivation.  It’s pretty hard to follow through with a resolution without motivation.

Practically everyone agrees that money is a prime motivator. But part of the success of money as a motivator depends on how it is used to motivate.  Most employees are motivated by money.  Some employees may have other considerations, but pay, and the prospect of better and more pay is always welcome to an employee.

Money is most effective when the recipient can somehow control the reward.  Commissions are a good example of this. This is why raises not based upon performance are not good motivators. If part of an employee’s reward is based on how effectively they perform, then they can be motivated to perform better.  This works for most employees, but it does not work for everyone.  There will be more articles about different types of motivation, and you will need to know more than one method of motivating people.  Today, we will focus on money.

Before you can do anything else, you must obtain and use accurate information. If part of an employee’s monetary reward depends on his/her productivity or company/project profitability, you must be able to access correct information and use it correctly to determine a reward.

Let’s say that for each project, the company sets a budget amount (estimated cost of project).  Now let’s assume that the project manager’s bonus is a percentage of the difference between the estimated amount (as may be revised by budget change orders) and what the job actually costs. The project manager has a real stake in completing the job on time and on budget.  (As discussed in the Scheduling article, reduction in time will result in lower costs.)

To be effective, this system must yield accurate job costing and the effective use of the reports that are available. The reports must be easy to read and “provable” so that everyone will have confidence in their use.  The use of reports like a job summary report and a job cost journal can help everyone see what costs are included in the total job costs and detail of each cost if certain items need to be examined.

The reason I mention “everyone” above, is because it’s inevitable that one employee will compare incentive pay with another.  It’s the nature of employees.  When questions arise, documentation is important (even if it’s never displayed).  Just knowing that you have your reason for granting a bonus of a certain size makes it easier to manage your employees.

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

Accounts Receivable, Improving Cash Flow

A. Why do companies have cash flow problems?

1. There is no defined billing cycle which is followed regularly.
• Many companies bill when they need the money, instead of at a set time such as the 25th of the month, every two weeks, or weekly.

2. Many companies over-bill on their projects.
• Over-billing is a good procedure if used correctly.
• But some companies use over-billing on one project to finance another.  This leads to cash flow problems.

3. When companies have financial or cash flow problems they tend to focus on accounts payable (costs). In most cases there is actually an accounts receivable problem (income).
• If the accounts receivable were collected there would not be an accounts payable problem..

4. The contract language may lead to cash flow problems.
• The contract may restrict the billing process—too few draws.
• There may be retention clauses.
• There may be penalty clauses.
• Change order language may be very restrictive.
• Change orders may occur in the field but might not be reported to the office.
• Many change orders are made but not billed.
• Many companies do not have collection policies, or if they do they may not be followed faithfully.

B. How to manage Accounts Receivable Read more »

Estimating

Estimating is a process of learning to predict the future, based on performance in the past.  Why do we want to learn to estimate better?

Improve productivity; Increase profits; Improve cash flow; Save money; Bid more work; Etc., etc., etc.   It all comes down to making more money.

Here are some concrete steps you can take in your estimating process right away:

I. Estimate jobs you want and can get:

  • Know what type of jobs are profitable.
  • Example: A concrete subcontractor may make money on foundation work, but not on flatwork. Therefore, he shouldn’t take jobs which are only flatwork.
  • Who are the other bidders?
  • How many are there? If there are ten, then there is a good chance that one of them will make a mistake.
  • Are there bidders who consistently beat your bid?
  • Who is the owner?
  • Do they pay slow? (This can wreak havoc on your cash flow.)
  • Are they high maintenance? (Every conversation you have with them uses your time, and time is money.)
  • Who is the architect?
  • Slow response? (Delays in their response cause you to stop work or change direction. This results in a loss in momentum and workers feel there is no plan for accomplishing the work.)
  • Disorganized when answers are needed (e.g. concerning Change Orders, etc.).
  • No give-and-take. (This is frustrating, it can kill your energy and momentum.)

II. There is no reason to bid to:

  • Bid shoppers. If you feel you must, then give them a higher price, but not always the same percentage higher so they will not be able to detect a pattern.

III. Don’t guess: Read more »

Time Management

Peter Drucker was arguably the most well-known management expert of the 20th century.  The entire first section of his book, The Effective Executive, is devoted to how the executive must manage his time in order to be effective.  It’s a must-read for anyone who wants to get the most from their business.

Time Management is more than just managing our time; it is managing ourselves in relation to time.  It’s the art of arranging, organizing, scheduling, and budgeting one’s time for the purpose of generating more effective work and productivity.  And it is most essential for the person who owns his or her own business.

As with any system (including software), it comes with a price.  That price is the time you must spend first learning and then maintaining the system.  As Steve Pavlina says, “The essence of time management is the following:
1. Decide what to do;
2. Do it.
The general mindset of time management is far more important than any system. And the mindset of time management is simply that you value your time.”

Drucker agrees.  He advocates stripping away or delegating tasks which are not essential to the process of managing, and reserving a large chunk of undisturbed time regularly for pure thinking and research.  He claims it’s essential that the effective manager or executive divorce themselves from the practice of spending most of their time dealing with crises and putting out fires. Read more »

Time Management Matrix

Time Management Matrix from Stephen Covey’s book “First Things First”

Urgent Not Urgent
I(MANAGE)

  • Crisis
  • Medical emergencies
  • Pressing problems
  • Deadline-driven projects
  • Last-minute preparations for scheduled activities
II(FOCUS)

  • Preparation/planning
  • Prevention
  • Values clarification
  • Exercise
  • Relationship-building
  • True recreation/relaxation
Quadrant of Necessity Quadrant of Quality &
Personal Leadership
III

(AVOID)

  • Interruptions, some calls
  • Some mail & reports
  • Some meetings
  • Many “pressing” matters
  • Many popular activities
IV

(AVOID)

  • Trivia, busywork
  • Junk mail
  • Some phone messages/email
  • Time wasters
  • Escape activities
Quadrant of Deception Quadrant of Waste

See my article on Time Management.

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

Bookkeeping 01 – Understanding Debits and Credits

For years, I’ve been working with people in accounting and bookkeeping jobs who are really, really good at what they do.  But when they have to deal with Debits and Credits, they seize up and go blank.  Although these people are highly knowledgeable about their business (or the business at which they work), the basic backbone of accounting has remained a mystery to them.

And it was a mystery to me also.  When I started working with accounting software, I interviewed for a job in tech support.  My pitch was, “I don’t know anything, but I want to learn”.  A very kindly person hired me, and it became clear within a week that I really didn’t know anything.  This was highly embarrassing.

So I resolved to at least learn accounting, and the software knowledge would have to come through osmosis.  I spent long hours every night reading accounting texts, downloading accounting tutorials and studying them, asking questions in forums, but I still couldn’t understand the basis of accounting:  what are Debits and Credit?  How do they work?  Why?

All of the books, tutorials and forums seemed to use a lot of words to not explain what I needed to know.  So I decided to experiment. Read more »