How to Build Your Construction Accounting Dream Team

 Do your financial reports leave you with more questions than answers? Are you constantly wondering where your cash went, even when the work keeps coming in? Feel like you're flying blind? Contractors face some of the most complex financial challenges out there, and you need an accounting team you can rely on as you grow.

This episode explores the pros and cons of four main approaches to accounting support: hiring in-house, working with a monthly construction bookkeeper, using generalized back office services, and leveraging a team of construction-specific experts. Learn about the cost considerations, technological implications, and the overall return on investment.

This episode is perfect for contractors looking to level up their businesses with confidence that their accounting systems and supports will be able to keep up.

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Topics we cover in this episode include:

• 00:34 Celebrating Five Years of Podcasting
• 00:51 Unique Challenges in Construction Accounting
• 02:12 Building a Reliable Accounting Team
• 04:40 In-House vs. Outsourced Accounting
• 08:53 The Importance of Industry-Specific Knowledge
• 12:12 Cost Considerations and ROI
• 20:02 Technology in Construction Accounting
• 28:48 Conclusion and Free Resources

LINKS

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Transcript

Wade Carpenter: [00:00:00] Do your financial reports leave you with more questions than answers? Are you constantly wondering where your cash went, even when the work keeps coming in? Feel like you're flying blind? The truth is, contractors face some of the most complex financial challenges out there.

Hi, I'm Wade Carpenter with Carpenter & Company CPAs, and this is the Contractor Success Forum. My partner in crime, Stephen Brown, is out of town this week, but he will be back next week. Today we're gonna be diving into what it takes to build an accounting team that you can rely on. Since it's just us, we're just gonna dive right on in.

But before I do, I just wanted to celebrate today as it is the start of year five of our podcast. We have actually gone four years without missing a single week. And I just wanted to say thank you to everybody that's listened, and hope you've gotten a lot out of the time spent together.

With that said, I know construction accounting is challenging and if you're going to make it to that next level and get out of this chaos that you're in, it [00:01:00] starts with getting things in order.

So that's what we're talking about today, and I don't know where you are on your journey, but there are a lot of unique challenges in construction. Job costing progress billing, retainage, those kind of things that we don't have in other industries, and a lot of them are stacked against our cash flow and those kind of things.

There's industry specific regulations, tax considerations. A lot of that. But, getting on top of it is different for a contractor than any standard business. And I will be the first to admit, it can be a challenge. And I understand. And too often when contractors start off, they're trying to do it using their, maybe their spouse, significant other, and they can never get the information they need.

Maybe it's sort of a second priority for, especially if you're not paying that person or whatever. Or then you maybe dive into hiring somebody, but you're trying to do it on the cheap and [00:02:00] is that person really getting you what you need?

So if you're asking yourself, Hey, you've been promising me job reports and you never get 'em, or if you do get 'em, you don't trust the numbers. We see that all the time.

So, today what I wanted to do is spend a little bit of time from my perspective,talk about the four main approaches to building a construction accounting team. And your accounting team may consist of one person. I understand that.

But you know, whether you've got the spouse or significant other, or you're actually hiring somebody, your in-house accounting staff. You've also got people out there like construction bookkeeping services. A lot of them are generalized in nature.

You've got other ones that are saying, we'll do back office services. We do construction, but we also do manufacturing, retail, and doctors and everything under the sun. And then again, our firm, we are very specialized. Construction is all we take, and I think after several years of this, and my background is an auditor and [00:03:00] tax and strictly in construction, I've got a sort of unique approach and thoughts to this. So hopefully this'll be useful for you wherever you are in journey. There are some unique challenges to construction. There's the industry specialization, and you can learn accounting in high school or college or whatever. You can take a course on QuickBooks. But a lot of those courses, there's a lot of stuff in construction that is not taught in schools, and it is taught on the job learning what we do. Andthe nuances of construction deposits andwe've got a lot of other things that go along with it. The challenges of cash flow and seasonality, the ups and downs in the economy.

The knowledge matters. And it's one thing to just get a bookkeeper that can keep your books straight. Just reconcile your banks and credit cards, and actually getting it in the right place. But when you're trying to hopefully get job costing or something like that so you really know [00:04:00] where you are, that is key and that is a specialized thing and you would think that, you could just make the leap, but so many people really struggle with that.

And I wanted to spend a little time talking about why some of that is.there are some complex construction accounting-- I've already brought up the retainage thing and retainage still to this day. There's, You can Google it and how to handle it, but I see it all the time. That is never properly put on the books. And that's just one simple example.

But you know what I want to talk about too is okay, so we were going back to the we four different ways that you could build an accounting team. For purposes of this, I'm just gonna assume like your spouse, significant other or hiring somebody in-house.

Well, the old saying, you get what you pay for. That is absolutely true. And a lot of people will start off with a lower end bookkeeper or whatever. But as I've already said, [00:05:00] construction accounting is specialized. To get somebody that has been doing this or understands the nuances of it, those people are fewer and farther between.

And so yes, if you look at the cost of a construction accountant or a construction accounts payable person or a CFO in this industry, yes, they're incredibly expensive. And they better be bringing their A game because you've got all the challenges already.

And so these generalists that I see, again, hiring in-house, it can be very, very expensive. And, I see a lot of contractors struggle with hiring a person that is not really trained in it and they get frustrated because these people, promise job reports and all this stuff, and they'll sit there and go to classes or, and they just can never wrap their head around it.

And even if they do, if you're going to be hiring somebody in-house, you need that person to give you books that you can trust. And if you ask 'em [00:06:00] for a job report, you should be able to rely on that information.

So again, hiring in-house is one thing. But you could go out there and get somebody, they're out there basically the monthly bookkeepers, you could find them all day long.

And just because they hung a shingle out there doesn't mean they know anything more about the construction industry. Although a lot of people say we do construction, or they may specialize in construction, but they also take medical practices or dentists or retail or what-- they take anything in under the sun.

And there's a difference between, from my perspective, that a contractor really needs up to date accounting. They don't need to know a month later, they really need to stay on top of their cash. Not knocking it because this may be where you are. And if you're starting from a perspective where you know, if you don't have a good accounting team, person in place already, this can be a step up.

And if you're just trying to get your tax returns done, obviously this can be a [00:07:00] help. But a lot of times a lot of people get very frustrated with these monthly bookkeeping firms in that they have troublegetting the information and understanding, like if they get into a nuanced situation with construction, they don't know how to handle it.

And if you're looking for somebody that you know, really understands the industry or, you know, okay, well here's the information, but they don't understand the industry and they're really not able to give you the insight. The numbers all mean nothing. If you can't interpret 'em and if they can't help you interpret 'em, then that is not helping anybody.

Then you have the next level up, I guess what I would say is the back office services that do a little bit of everything. They're not specialized. I don't want to go there too. But a lot of 'em are using outsourced labor from-- overseas labor, I guess I would say.

And with overseas labor, sometimes [00:08:00] you have communication issues and other things. But you know, they also may not understand a lot of the nuances as well as, one of the issues that I see all the time is that let's say you hire in house, or a bookkeeper, or even these back office firms, they have just one person.

So one of the biggest problems that I've seen is that somebody goes on vacation or they get out sick, or they leave, whether it's in one of these firms or whether you're, you're one person that you rely on, on in that position. If they leave or you, you let 'em go because they've never given you the information you need, you lose all that knowledge.

And then I see the next person comes in and they've got their own way of doing things and they start over and all this stuff. And then six months down the road. You realize that, hey, these people aren't getting me any farther than... they look good on paper, but they really aren't getting there.

Our firm, construction is all we take and all we do. And I look at it more of like [00:09:00] strategic financial partnership. This, to me, in my world, after 35 plus years of doing this, this is so much more rewarding to me than giving somebody a tax return and helping them-- yeah, we want to help 'em do that too. But you know, also, spinning an audit, it means nothing to them if they can't have what I call a strategic financial partnership. Somebody that is vested in their interest. Our way typically, we don't have to, but most times we have like our back office services, we can replace that person in the office and I'll get into that more.

But having the industry knowledge and working with contractors all over the country, we have figured out a lot of the best practices. And we're not reinventing the wheel every single time. That's one of the biggest things that we can a lot of times jump in and really get going a lot faster.

So, okay, you got a bookkeeper, or even if you're hiring an in-house, call 'em, a CFO, [00:10:00] whatever you wanna call 'em. But a title means nothing. And so a CFO's gonna cost you six figures plus.

And, they're not gonna be probably doing the work and a lot of that stuff. But,they've got one base of knowledge versus, you also have the same thing with these bookkeeping firms or these back office. Typically they've got one person on your account. And the way we have sort of developed and the approach to it is that number one, everybody on my team is trained in construction, we have specialists that, work on things like payroll or accounts payable orthings like receivables and retainage and the, contract schedules, job costing, those kind of things.

But again, this is where I see the service gaps. Okay, you got a bookkeeper, or the back office like bookkeeping firm. And they're may be not wrapping everything... Our approach to this is more of, let's get a [00:11:00] good set of books so that we can, know where you are at any given time. Again, we are more like, hey, we're in there every day and every week, keeping that cash up to date so you always know where you are.

Andthat's where it makes it so much easier is 'cause we know the entire relationship, and in October November we can jump in and do some tax planning, some real tax planning. 'cause we know exactly where you are, and we know your business, a lot more than somebody would even, from an outside firm.

We can sit there and say, okay, well we can, look together. What do you have coming in? What do you need to go out? How are we gonna plan our taxes? If you're dealing with things like bond agents or dealing with lines of credit or your banking relationships, these are the things that will, you know, planning the year out.

I've said it many times on this podcast that it is too late after January 1 to do a lot of things for your taxes or your planning. But there are things you can do [00:12:00] if you plan ahead to plan for your taxes and minimize your taxes, maximize your financials picture, as well as not screwing up your cashflow in the process.

So with that said, let's shift gears a little bit.

The cost consideration. I've already gone into some of this stuff, but what is your return on investment? Again, a lot of times people don't think of accounting having any kind of return on investment, and it's intangible, those kind of things. But you know, there are different options. And let's talk about the cost.

 Hiring somebody in house or using your significant other, that's doing it on the cheap. Well, again, if you're paying them nothing, a lot of times that's, you get what you pay for. And I say that all the time. if you're paying for somebody in house, as I said, they've already can be very, very expensive, and in-house comes with the payroll taxes, the, if you're trying to keep 'em retirement plans and benefits and insurance and all the stuff that goes with it.

Not [00:13:00] to mention the overhead. The overhead that goes along with, hiring an employee can be very expensive. on top of what, you know, just the base salary is.

Part of where I'm going with this is, typically the cost of some of this stuff, like outsourcing, the way we do it typically is 30% to 50% cheaper than hiring somebody in-house.

But these hidden costs of hiring somebody in-house. I get it. You want somebody that has dedicated your business, and that's one of the things I think that a lot of people don't understand, is that, so you've got a, okay, you've got a dedicated employee, that's one thing, and they've got a vested interest in making sure you survive.

But they also want raises every year and have their needs. You have a monthly bookkeeper that is also maybe servicing 30, 50, other accounts and you've got one person on it. And again, you know they're not going to be as invested in your business.

With the monthly [00:14:00] services, again, they're not on top of this and yeah, you can probably get somebody a lot cheaper hiring a monthly service to do that.

There are also, again, these. back office services that'll do anything and everything, or they say they will, at least. They will maybe process your payables and pay your bills, but they don't truly understand the industry. And also that could be cheaper, especially if they're using offshore labor.

Kind of coming back to what we do too is that, we've got a vested interest in your outcome because we're looking for a long-term relationship. And if you don't survive, if you're not able to pay us... and the other people have that too, but we, we take that to heart in that we approach this from a team perspective.

 This is one of the things that I think that most of these people don't realize is that, number one, if you're hiring somebody in-house, it's one person. And if they go down, they get hit by that beer truck or whatever, then you got issues.

But with us, the way we run it is we have a [00:15:00] construction accounting team, everybody is all trained in it. And yeah, you may have account manager or you may have two or three people that are your specialists, but they have backups. Somebody can step in if something is not done, they're out sick.

We have our documented procedures, and I could spend a whole podcast talking about the documented procedures. People talk about that all the time. And then the issue is, okay, we hire somebody in-house and they did it their way. Maybe they did a pretty good job of it, but they leave and they didn't have it documented, and the next person wants to come in and start all over. We see that no matter what part of the industry, whether estimators or project managers, everybody seems to do things a different way unless you spell out how to do it.

Wade Carpenter: But coming back to this, the value proposition, yes, okay. It's going to be expensive to hire somebody in the house. Hiring a monthly bookkeeper can be, you can get somebody like you could go to QuickBooks Live right now. And I think you're probably gonna understand if you ever try that service, that these people are really not trained. That's [00:16:00] like the ultimate low end of this. But you know, even if you find somebody, these back office services, yeah, they're gonna be cheaper. Especially if they're using the outsourced labor. With our firm, I, I think I've already said this, but you're typically looking at 30% to 50% savings on lower costs than you would have if you were hiring a competent industry professional.

Not to mention the fact that this one professional, they may have expertise in the financial management, but they don't have the tax. And this is where the tax and all this stuff, it's a strategic partnership, so you know we're going to have other people on your account that can lend the perspective and bring in the expertise and this relationship. That's where I believe a lot of the return on investment comes from.

There's a lot of things like the long-term financial impact of making these accounting decisions and when you've got somebody that can really [00:17:00] put it in terms that you can understand, I think that goes a long way.

Sort of leads into the next thing. So, these operational factors. You know, the team continuity, the stability of the business. If you've got one person in that role or one main person at your outsource firm, you got a single point of failure versus this team-based approach.

Turnover. Stephen Brown, with the insurance, he talks about mitigating risk all the time. The strategies for making sure you don't take hits on your insurance or somebody doesn't get hurt. Well, this is mitigating a risk for your construction business as a whole.

This is one of those key components that you really want to have in place. You need to understand that you do have a risk when you have a single point of failure.

A lot of times contractors will get going. If they survive that first few years and they get in this chaos and getting past some kind of,base level of profitability, things are getting better.

 I've seen people that do this, they get in these growing pains. And [00:18:00] sometimes they come to a point where they realize I can't keep running the way I've been running. I just can't manage it. As well as, what I also see is that whether you're, whether you got somebody in house, or however you, you're doing it right now. you have these growing pains.

Sometimes you outgrow the capacity of that person or the team or however you've done it. There are some challenges just like cashflow as you ramp up your top line revenue, you ramp up the cashflow issues and those kind of things.

Just like with the cashflow, you've got these growing pains in your accounting team, and a lot of people never ever think about that.

The different solutions, they adapt to business growth differently. And what I see is that if you are stuck with one model or they can't adapt, it really can be a problem. And,there are some people too that are stuck in the past and things like paperless. I guess that'll sort of lead me into the [00:19:00] next topic I really wanna talk about. Getting past where they are now. Getting to that next level and they get stuck.

So, I mean, there are levels that I see, you know, they, you're trying to get to the half million of the million, then the one to 3 million, one to 5 million. Those can be really, really tough areas to grow through. How flexible is whatever you've got in place? And how flexible are the ability to adapt to the changes? Sometimes you do have to scale up. and in construction we all know it can be very seasonal, depending on your industry. And the seasonality, sometimes you may need to scale up, but you need to scale back in other parts of the year.

And, that's where, if you have the right team in place, you can push that level up easily, and then scale back down when you need to. I don't recommend you like, completely throw out your construction accounting, but you know, when the volume goes up, you may have additional needs.

So [00:20:00] let's change gears a little bit. Let's talk about the technology. So with technology, there's a lot of things to say here. And some technology is good and some is bad, and some people don't really understand the difference.

In construction, people are not very adaptive to change a lot of times. And what we're finding is that, it's one of the slowest industries to adopt some of these things. And AI and technology is making leaps and bounds right now. And there are several cloud-based solutions versus a traditional software solution.

There are things like QuickBooks Online, and, I'm sorry, I'm just gonna say it right now. And in spite of what every your salesman may say at QuickBooks Online, it is not built for construction. Unless you have a very straightforward service business, if you ever want to get any kind real job records, you're not gonna get it out of QuickBooks online. Hate to be so blunt about that.

And that's why people are buying these. add on softwares: [00:21:00] Buildertrend, Job Tread-- and I'm not knocking any, Procore, all of them.

They can be really good software products, but they're an external. They're not intended to be an accounting system, and so they're disconnected. Another great example using QuickBooks online, again, they have their purpose but QuickBooks Online has a payroll and yeah, they will talk to each other. And so if you do your payroll over here in the payroll system, yes it will pull the journal entries over, but they will not do job costing with that. If you want job costing, again, it's not really built for that, but if you do, it's an incredibly manual process.

And I had a contractor, actually, I'm talking to right now, that was telling me that they hired a CFO that was spending eight hours a week allocating payroll, two jobs, with this sort of setup. And I was floored by that. I appreciate the trying to get the good job costing, but the problem here is that, if you got your accounting [00:22:00] tech stack that is not integrated, and you don't understand why, or if you got,just from the payroll side alone, if you can pull it directly in, like a lot of our people we work with, like QuickBooks, the desktop enterprise.

And we understand the ability to get access to it, and we need our clients to have access to it. That's why typically our packages are including the software and the tech stack that goes with it. And we can work with your tech stack, but, again, a lot of times we know what these best practices are and trying to get in some of the software products that work and some that don't work.

There's a lot of 'em that say, again, I'm not gonna knock any particular one, but they say they sync. And they can say they sync all the time, but too often, we have so many problems with those things and it's never intended to really be an accounting system and it's never gonna match.

And those that do, [00:23:00] it's like, okay, well even if you've got that, you've got to go to two different places to get all this stuff together. So again, the data accessibility reporting capabilities, that's where I feel like a contractor needs up to date real time knowledge. And if you've ever had to like, okay, well we're gonna go to the payroll system and add stuff up here and we're gonna go to our supply house or go to our bills and add 'em all up here and we gotta add up our sub bills and trying to get an understanding of how you've done on your job.

And I know you've probably all done that. You've done it on a piece of paper, you put it on an Excel worksheet or whatever you've done. But if you're pulling it from all kind of different places, think about all the time that could have saved.

And so where I'm going with this, people do not understand how a CPA firm and a traditional CPA firm can be very expensive. It's,by the hour and all this stuff. We don't work that way. It's one fixed price that you pay. But what you also find [00:24:00] with these bookkeeping, or back office services, the timeline to really get ramped up ,it can take months. It really can. And it's really sad.

There's always a learning curve. I won't lie, we gotta learn what you do. But typically we can usually get on top of your books in a week. We came across one recently that had, it's right at 10 years, and never had their banks reconciled. Literally. And if you're going to get one person to do that, whether you bring them in house or whatever, or you've got an outsourced team in India or whatever, you gotta have this learning curve.

And the question is, how fast is that learning curve? So if you can ramp that up really quickly and get somebody on the path that they need to be on, there's a lot of contractors that come to me, maybe they're doing well, but they've grown into a problem. There are cashflow issues. And we need to understand and get on top of that where they are as [00:25:00] quickly as possible. And that is one thing that we are very good at doing. As well as, understanding what the system needs to look like.

We have these best practices in our tech stack that we can plug in and really get you rolling. Our prices typically are going to include the tech stack. So we're bringing the software.if you want QuickBooks online, you can bring your own,so if you ever leave, obviously it's, it's your data and what we will send it with you. But you know what people don't realize, it's like comparing apples to apples.

You've got ABC bookkeeping that does it. Okay, well, you're gonna pay for your QuickBooks Online. You're also gonna pay for say, ADP or Paychecks, or I'm not picking on anybody, to do your payroll. And okay, well we, we did all this stuff to make sure everything's in compliance, but hey, every time we got a quarterly report, we're gonna charge you extra.

Every time we got W2s, 1099s, we're gonna charge you extra. And ours is just baked into the service as [00:26:00] well as some of the other tech stacks where we are really,managing payables. Payables is one of the biggest things that people don't realize getting on top of can revolutionize your, you know,knowing where you are to be able to bill.

So you hire a CFO, again, whatever that means to you, whatever their background is, that is typically they're gonna have certain insights. But if you got your own bookkeeper or your spouse, significant other, or it's a back office service that you're doing it as cheap as possible, then, you know, most what I see from my perspective, is that you're getting more tactical advice. Okay, well we can help you with this one little thing, but they don't see the entire picture.

So my approach is like, what we try to do is strategic accounting support. Basically a holistic approach to looking at your business. And yeah, we could fix this one little thing, but is that the right thing to fix first? What would make [00:27:00] the biggest impact on your business? And so that's where we talk about tactics versus strategy.

We could talk about some of these warning signs that maybe your accounting approach isn't serving you. If you can never get the job cost records that you want. Or you're trying to get all this stuff to work together and you never got your cost code, your item codes, and you don't really know how to put some of that stuff together. No matter what you do, they're always behind. Another thing you may see is that you take it to your CPA and they'll charge you thousands and thousands of dollars just to clean it up. Well, that may be another sign that your bookkeeper may not be doing what they need to do.

As well as some of the other facets of, a lot of the bookkeepers are not doing things like the depreciation or they don't get things like the notes payable and all that stuff that's squared away or even these back office services.

But, we have seen so many of these things where, people do not understand how effective we can be because we understand this, as well as we can be so much more [00:28:00] efficient. And because we know what we're doing here.

One of the stories I've told all the time was that we had a contractor down in Florida that was taking two and a half people four days to accumulate their payables so that they could get their bills out the door. Very paper based system. Was always a scramble to get it out by the 25th so that they could get paid the next month.

A lot of these things that we see that people do not do, maybe they don't value accounting, or maybe they do, but they feel like they can't afford it, so they're gonna hire somebody in house.

And they don't realize the cost savings that really they could reap from that. Not to mention, again, I believe the return on investment can be great. When you really get on top of your books, you know where you really are.

Hopefully this has helped a little bit, wherever you are on your journey. If it's made you think about that, no matter what you do with this information, I hope that helps you on your road to [00:29:00] success.

We talked about the four different ways. You know, hiring in house or your, technically that's the fifth way is your spouse significant other, whoever it is. Hiring in-house can be very expensive.

The monthly bookkeepers, again, they're not on top of things to where, your cash is not up to date. It's gonna be reconciled once a month or something like that.

The other part is more like the outsource services that may process your payables and payments and stuff like that, but don't really have a specialized approach, and they do it for everybody else. And they're not really on top of things. Some are better than others. But, versus, our approach typically is 30% cheaper than everybody else, while bringing this team approach.

I'm very proud of what we've built in our firm. And I hope youdon't see this completely as self-serving. If nothing else, just, I hope you got some things to think about. And if you're not on top of your chaos, construction can be turned into a chaos [00:30:00] very quickly.

As I said before, you can have all the jobs you want, all the jobs you can get to, but you're still not taking home the profit you deserve, then is it really serving you?

If you stuck with me this long, I appreciate it. I do have a free resource. We put together a table of these pros and cons to each one of the approaches to it, the cost, the downside, and the risk, and some of those things. So if you want to think about that, we can send you to our website, carpentercpas.com, and we can put that in the show notes where you can get that.

 But I appreciate you listening to us. Again, this is our, start of year five. And really been a rewarding journey for me and Stephen that, I think we both value bringing the education, it's been very rewarding to me. So again, thank you for listening. If you got some value out of this, I'd appreciate it if you'd like, share, subscribe, do all that stuff. It all really does help the channel

and we are gonna see you next week. Thanks. [00:31:00]