What Are Your Sage 100 Contractor Financial Reports Telling You?

Transcription

1 What Are Your Sage 100 Contractor Financial Reports Telling You? Presented by: Leslie Shiner Owner, The ShinerGroup Copyright Notice 2013 Sage Software, Inc. All rights reserved. Sage, the Sage logos, and the Sage product and service names mentioned herein are registered trademarks or trademarks of Sage Software, Inc., or its affiliated entities. All other trademarks are the property of their respective owners. (Note to developers: Other sentences may be required as part of the copyright if your presentation covers third party products such as Crystal Reports. See the Legal page on SageCentral for more information.) 1

2 Notice to Attendees U.S. Copyright Law protects the program you are about to attend. Multiple participants at one location are not authorized to share access provided to a single registrant. For each individual who attends, a single dedicated seat license must be purchased, or a group rate must have been previously negotiated with Sage Software. Sage reserves the right, at its discretion, to cancel or interrupt access to a web-based training class without notice, or to invoice and collect the group rate payment for the class from the single registrant if this requirement has been violated. Introduction - Leslie Shiner Owner of The ShinerGroup Financial & management consultant for over 25 years MBA in Accounting and Finance from U.C. Berkeley Sage Certified Consultant Author A Simple Guide to Turning a Profit as a Contractor ( Contributing Columnist Remodeling Magazine 2

3 Continuing Professional Education Credits This course is eligible for 1.5 CPE credits. In order to receive these credits, you must: Be present for the entire duration of each course session. Participate in all class activities. Session Information Download session materials from the Resource Center. Set screen resolution to 1024 x 768 for optimal viewing. Place phone on mute to avoid excessive background noise: Press *6 to mute. Press *6 again to unmute. DO NOT put us on hold. Turn off notifications, cell phones, and instant messaging. Move cell phones away from your phone and computer. Chat your questions to our moderator in the Chat panel. Due to time constraints, questions that are very specific to your business are likely to be deferred to post-session follow up. 3

4 Our Oregon campus! Learning Objectives After completing this session you will be able to: Perform a Balance Sheet Audit Understand the value of the Gross Profit and Gross Margin and reconcile the Income Statement to the job profitability reports Learn what the Cash Flow Statement is actually telling you Discover some valuable reports that many users don t know exist 4

5 Balance Sheet Audit Every balance sheet account must make sense to you! Walk down each number on the Balance Sheet Each number on the Balance Sheet verifies to outside documentation If the Balance Sheet is correct, then the profit is accurate Easier to verify Balance Sheet accounts than Income Statement accounts Why Perform a Balance Sheet Audit? Correction of errors on Balance Sheet will almost always affect Income Statement and Net Profit Common errors Incorrect posting of payroll taxes Incorrect posting of workers compensation Incorrect posting of customer deposits or retention Incorrect prepaids, accruals, payables, etc. Adjustment causes increase or decrease in expenses Adjustment causes increase or decrease in revenue Means your profit number is not real! 5

6 What to Look For: Bank reconciliation Just because it balances doesn t mean it s correct! Look for old outstanding checks and deposits May need to write off or correct Example: Enter a check with a wrong date (in the future) It doesn t show up on the bank reconciliation So you re-enter it Now the bank account reconciles But you ve entered a check twice and your expenses are overstated! Is Payroll Liability Account Correct? Run General Ledger (2-4-21) Account Payroll Liabilities Does it go to zero after each payroll? Is there a correction needed? How to fix? Where to start? 6

7 For Example: January 19th For Example: Next Payroll = Same # 7

8 For Example: It Just Keeps Coming Are Your Liability Balances Correct? Accounts such as Child Support Payable 401K Payable Health Insurance Payable (or Prepaid Health) Each account is a holding account It should go to zero on a regular basis 8

9 Look at 401K Run Subsidiary Ledger-Land (2-4-53) How can you tell if the June payment was the correct amount? Question For You Let s say that you posted the Worker s Compensation invoices to Worker s Comp Expense But you also set up payroll to accrue it Your net profit is More than you thought! 9

10 Other Balance Sheet Audit Actions Run A/P Invoice List ( ) Status 1-3 Don t ignore dispute or review status Look for old A/P Look for credits that need to be applied Run A/R Invoice List ( ) Status 1-3 Don t ignore dispute or review status Look for old A/R Look for credits that need to be applied Other Balance Sheet Audit Actions What are the consequences of these errors? Worker s comp is off Duplicate A/P Duplicate A/R Petty cash grows How do you easily find these errors? When is the last time you looked at the balances Worker s Comp Deposits Prepaid expenses 10

11 Find Transaction by Amount If you need to find something, use the General Journal (2-5-31) and search by dollar amount Now its Time To Look at P&L Once Balance Sheet audit is complete, you can review the P&L Look at Gross Margin Look at Trended Income Statement Run Income Statement: All Periods (2-3-34) Needs legal paper Can export to Excel 11

12 Trended Income Statement Report # Polling Question Do you ever run the Income Statement All Periods? Yes, all the time Yes, sometimes No, it doesn t tell me what I need to know No, I didn t even know it exists 12

13 Basic Income Statement (P&L) Multi-Step Financial Statement For 12 Months Ended 12/31/XX The Line Income $XXX 100% (Direct Job Expenses or COGS) $(XX) xx% Gross Profit $XXX Gross Margin (Overhead Expenses) $(XX) xx% Net Income $XXX xx% Dollars Percentages Reconcile Job Costs Reconcile Job Costs to General Ledger General Ledger Cost Comparison (2-3-61) Why can it be off? Someone is posting directly in 6-3 Don t!!!!!! There is unposted payroll Minor rounding errors can occur Make Job Cost corrections through Journal Entries Otherwise your margins are misleading 13

14 Run Monthly! Polling Question Do you ever run the General Ledger Cost Comparison? Yes, all the time Yes, sometimes No, it doesn t tell me what I need to know No, I didn t even know it exists 14

15 If Job Costs Do Not Balance to GL Look for cost entered directly in 6-3 Job Cost Journal ( ) Source 31 only Making Corrections Correcting cost codes or phases From A/P invoice Use drill downs From Timecard Use drill downs Correcting job number From A/P invoice keep the detail the same Drill down to transaction, copy, new, paste, plus and minus to same direct account, job cost Enter vendor in 6-3 if necessary From Timecard Use plus and minus hours next week Stop posting in 6-3! 15

16 The Key Metric: Gross Margin Income COGS Gross Profit $ Gross Profit Income Gross Margin % The Key Metric: Gross Margin Why is gross margin so important? Gross profit ($) is used to cover overhead and leave money for profit Gross margin (%) should be consistent across jobs Need to review gross margin For company across time On a job by job basis By type of work (labor vs. subcontractor vs. material) By type of job (kitchen vs. bath vs. whole house) By type of client (commercial vs. residential) 16

17 Sale Metric: Markup vs. Margin Markup vs. Margin Company Margin Income 1,000, % Markup Cost of Goods Sold Equipment 390, % Labor + plus burden 250, % Subcontractors 100, % Total Direct Expenses 740, % % Gross Profit 260, % 35.14% Overhead 200, % 27.03% Net Profit 60, % 8.11% A markup of 35%... will only produce a margin of 26% Common Mistake COMPANY First Year Using a Margin as a Markup COMPANY Second Year Bid Price = Budget * Margin (!) Income 1,000,000 Bid (740,000 * 1.26) 932,400 Cost of Good Sold Cost of Good Sold Equipment 390,000 Equipment 390,000 Labor + plus burden 250,000 Labor + plus burden 250,000 Subcontractors 100,000 Subcontractors 100,000 Total Direct Expenses 740,000 Total Direct Expenses 740,000 Gross Profit 260,000 Gross Profit 192,400 Overhead 200,000 Overhead 200,000 Net Profit 60,000 Net Profit (7,600) Markup (GP/Costs) 35.14% Markup 26.00% Gross Margin (GP/Income) 26.00% Gross Margin 20.63% 17

18 Markup vs. Margin How do you estimate? Do you multiply estimated costs by certain percentage How did you arrive at that number Know the difference between Markup vs. Margin Markup is a percentage of costs Margin is a percentage of income Markup and Margin To estimate with markup Costs times (1 + markup) To estimate with margin Costs divided by (1 margin) Income Statements shows margin numbers only Overhead is typically represented as a margin number (percent of revenue) Don t make this mistake: Since I markup my jobs 25% and my overhead on my Income Statement is on 20%, I should be ok! 18

19 Don t Confuse Markup with Margin Takeoffs In takeoff details, Markup is entered In takeoff bid summary You can apply a Gross Margin Override Or Apply Markup to Extended Price Markup and Margin Table Markup % Margin % Markup % Margin % 25.00% 20% 20% 16.67% 33.33% 25% 25% 20.00% 42.86% 30% 30% 23.08% 53.85% 35% 35% 25.93% 66.67% 40% 40% 28.57% 81.82% 45% 45% 31.03% % 50% 50% 33.33% % 55% 55% 35.48% % 60% 60% 37.50% % 65% 65% 39.39% % 70% 70% 41.18% 19

20 Gross Profit & Margin by Job Report shows Gross Profit and Gross Margin Should reconcile to Income Statement Total Costs and Contract Billing (+ Service Billing) Report # Polling Question Do you ever run the Job Profitability Report? Yes, all the time Yes, sometimes No, it doesn t tell me what I need to know No, I didn t even know it exists 20

21 Gross Margin Fade Ever asked this question? If all my jobs are coming in with good gross margins, why isn t my company achieving the same number? If you have shop/warehouse costs in COGS, it dilutes gross margin If you have warranty costs in COGS, it dilutes gross margin Warranty Costs? Stop coding to jobs once job is complete Who is still looking at job cost reports? No reason to keep coding to job if no one is looking at reports Create job called Warranty Create phase Use old job number Run Job Cost Journal by Phase through 54 Create monthly Journal Entry to move warranty costs down to Overhead 21

22 Statement of Cash Flow Valuable report! Converts accrual based financials to cash basis 3 sections Cash flows from operating activities Backs out changes to current assets and liabilities Shows net cash provided by jobs Cash flows from investing activities Changes in fixed assets and other assets Cash flows from financing activities Changes in long term liabilities Includes draws and distributions Polling Question Do you ever run the Statement of Cash Flows? Yes, all the time Yes, sometimes Yes, but it doesn t make sense No, I ve never even looked at it 22

23 What can I learn from this? Net income is great, but it s all tied up in A/R Bought some fixed assets Not paying down debt Other Hidden Reports Database Security/User Defaults See how security is set up Report #

24 Other Hidden Reports Deposit slip (3-3 and 1-2) Print before you save Working Trial Balance (2-1-31) Your CPA will hug you! Search Reports Search by key word Includes custom reports as well Eight Rules to Live By 1. Measure your margins 2. Reconcile job cost to GL 3. Gross profit must cover overhead 4. Measure true profit 5. Fully burden your labor 6. Keep overhead out of direct expenses 7. Pay attention to the balance sheet 8. Track cash flow 24

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26 Questions and Thank You Leslie C. Shiner, MBA Sage Certified Consultant (415)