Strategic Consulting Solutions, Inc.


Have I Outgrown Quickbooks?

Outgrown Quickbooks?QuickBooks is a great accounting system for small Government Contractors.  It can be designed and used in a manner that is considered DCAA compliant and can pass an accounting system audit.  Many companies find QuickBooks to be an ideal fit for their company.  However, we are often asked the question ‘How will I know when I’m ready for a system like Deltek’.  Unfortunately, there are no bells or alarms that go off to tell you.  It’s generally not based on employee count or revenue volume.  Some things can start causing significant pain in the accounting processes, while others may be subtle things that just increase the amount of time to do things manually.   Below we list some of the major items, plus some of the less obvious signals that tend to sneak up on you.

Subtle

Manual Rate Calculations

Indirect rates can be calculated by extracting the P&L to Excel.   By properly designing your chart of accounts, you can minimize the work involved in this manual calculation.  Some DCAA auditors may want you to document your process for extracting the data and creating the rate calculations to verify the manual process.  As the company grows and becomes more complex, this process may become more and more cumbersome.

 

Manual Job Status Reports

Job Status Reports, showing the profit/loss by contract, are not created very often by QuickBooks users since the process is manual.  However, you can use the P&L by Job and extract to Excel.  Once in Excel, you can manually apply indirect rates to the direct costs.  This can get quite involved if the indirect rate structure is complex.

 

Manual Tracking of Funding/Contract Values

QuickBooks is not designed to track government contract information.  So tracking funding or contract values, and modifications to the contracts, is not an easy task.  Many people accomplish this by using a User-Defined field.  However, the reporting against actual cost or billing is not easy to do.  This can become an issue when your contracts have the Limitation of Funding or Limitation of Cost clauses.  Make sure you have a good system to track this.

 Significant

Complex Indirect Pool Structure

As mentioned above, indirect rates can be calculated in Excel by extracting the QuickBook’s P&L.  However, for companies with multiple fringe or overhead pools, or other complexities, this process can become extremely cumbersome.  It may require making journal entries to allocate costs between divisions.  It also can get frustrating if costs change after manual calculations have been performed.  This is usually one of the key signs that it is time to move to a more robust accounting system that automatically calculates indirect rates.

 

Work Breakdown Structure  Requirements

Many contracts require that costs and/or billing be tracked at lower levels of the contract.  This may require a multi-level work breakdown structure (WBS).  While QuickBooks allows for Jobs under the Customer, the ability to roll-up to the various levels is somewhat limited.  Invoices cannot be printed at both the Contract and Task level; generally the invoices are just printed at the task level.  As your contracts have more reporting requirements, this may also become another sign that it’s time to consider upgrading your accounting system.

 

Cost Reimbursable Contract

QuickBooks can handle the Fixed Price and Time & Materials invoicing.  It can also pull in actual costs for the Cost Reimbursable contract.  But the burdening process becomes somewhat of a manual process.  Additionally, you must verify the cumulative incurred against billed with each billing.

 

Keep in mind that if the costs and/or hours are pulled into the billing, you must verify that they match the incurred; if the invoice is saved and then deleted, those costs/hours do not get marked as unbilled.

 

Since customer invoices are a key factor in running a business, getting these invoices out as quickly and accurately as possible is important.  When this process becomes more manual and is no longer efficient, it is an indication that you may have outgrown QuickBooks.

 

 Reporting of Cumulative Billed

Many contracts require that cumulative values be shown on the invoice.  QuickBooks invoices do not show the cumulative amount billed.  The total billed can be manually added at the bottom of the invoice or the invoice can be extracted to Excel to add columns for the cumulative values.   If this is a manual process for your invoices, this may be another indication that you should consider migrating to another accounting system.

 Conclusion

There are no blaring signs that tell you that you have outgrown QuickBooks.  It is usually something that happens slowly.  Your manual processes begin to take more and more time to accomplish without necessarily realizing it.  At some point you realize the additional time involved in doing many of these things manually.  If you are not directly involved in the accounting processes, it may be something that you’re not aware of, as your accounting staff may not say anything.  It just becomes routine to them and they also don’t realize that they could be freed up to do other things to help the company as it grows.  All of these things mentioned above are automated in accounting systems like Deltek First Essentials or Costpoint.

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