Most government contractor start-ups begin with QuickBooks® because it’s very inexpensive and it’s easy to get started. It operates on a cash basis, very much like the way you run your own household. It does automate a few of the most common accounting tasks, but the scalability just isn’t there. As QuickBooks users grow, the effort associated with accounting and finance work grows directly with the company.
You should begin to see economies of scale, but you don’t. And, QuickBooks has few internal controls at all, much less the ones GovCons really need. When you start to outgrow QuickBooks, there will be some obvious signs. If any of these seem familiar, it’s time to level up to a project-based ERP.
FIRST SIGN – Simple Questions take Two Days and a Spreadsheet to Answer
Whether you’re a project manager, a Division VP, or the CEO, the question asked most often seems to be “Where are we?” Most of the data to answer that question can be found in QuickBooks, but it will take a day or two to extract it, filter it, and put it in context – almost certainly in a spreadsheet – to turn it into information. And whoever on the finance team draws the short straw for that project won’t be doing their regular job while that’s going on.
“Where are we?” is strictly rear-view mirror stuff and project actuals-to-date should give you that. If that’s hard, “where are we headed” and “where are we likely to end up” are probably near impossible. The answer to those questions involves combining actuals with the PM’s plan for the rest of the project. It shouldn’t take a special project to answer those questions about a single contract. And if you ask the same questions about a portfolio, such as all the contracts for a customer or all the T&M contracts, your ERP should put that at your fingertips as well.
SECOND SIGN – Performance Metrics are a Special, Month End Project
Do you live and die by your employee utilization? Can you track Days Sales Outstanding? What about the wrap rate you use for bidding versus your actual wrap rate? Are those available on demand, or only after the monthly close is complete? With QuickBooks, gathering the data and calculating performance metrics is a probably pretty significant project in its own right. It shouldn’t be. Metrics should be calculated continuously and displayed in reports or on a dashboard on demand. Performance metrics should be an outgrowth of transaction processing, not a separate process.
THIRD SIGN – Critical Functions Occur Outside of QuickBooks®
Do you have to manually calculate your revenue by project? QuickBooks’ only approach to revenue recognition is to make it equal to whatever you bill when you bill it. Is your Finance team having to adjust QuickBooks revenue using manual journal entries to get the amounts in the right period or correct the amounts when billing and revenue aren’t the same?
What about Indirect Rates? QuickBooks doesn’t maintain cost pools or calculate indirect rates. Does your Finance team have to transcribe data from the trial balance into a spreadsheet at month end to do those calculations outside the system? Since QuickBooks doesn’t apply indirect rates to direct costs by project for project reporting, your Finance team probably has to do that in – you guessed it – spreadsheets.
There’s nothing wrong with a spreadsheet. It’s a convenient and easy-to-use tool. But they’re difficult to document and easy to “break.” And trying to figure out someone else’s? It’s easier sometimes just to build a new one. That’s a big part of the problem. Finance teams in companies that use QuickBooks spend a lot of their time reinventing their tools over and over and over. When the spreadsheet work is done and the answer is clear, often it has to be entered back into QuickBooks – as a manual journal entry.
Even the best network of spreadsheets, wrapped around QuickBooks, won’t be efficient. It may be effective, might even be mostly accurate, but it won’t be efficient. That’s why there are no economies of scale.
FOURTH SIGN – Your Compliance Activities are all Manual
Your ERP should include a timekeeping system that enforces all the government timekeeping rules without you having to do anything more than approve completed timesheets, post labor, and process payroll. Everything else from daily entry reminders to prohibiting future entry should be completely automated. Your expense report system should be the same way. Whether it’s enforcing lodging and per diem limits, posting excess costs to separate unallowable accounts or enforcing attachment of receipt images, it should all be automated.
When you have employees subject to a Wage Determination under the Service Contract Act (SCA), the Wage Determination itself should be stored in the system, the wage floors automatically enforced based on the contract being charged and the locality where the work is done. And, the system should calculate any benefit shortfall and report it so that it can be paid as Cash-In Lieu. And none of that should require a spreadsheet, much less manual transcription of data from QuickBooks or an external timekeeping system.
Compliance does not require automation. A company with an experienced, qualified, GovCon accounting and finance team could be compliant with any system. It’s been said if you are willing to work hard enough, you could be compliant with a shoebox and a pile of Post It notes. No one wants to work that hard. No company wants to pay what that would cost. And no matter how experienced or how qualified the staff, human error will eventually creep in and cause a problem. The only question is how much of a problem it will be and how much it will cost.
FIFTH SIGN – You Don’t Really Have Any Internal Controls
The lack of internal controls is QuickBooks’ primary fault. Internal controls come in two flavors: preventative and detective. A preventative control keeps you from doing something you shouldn’t – like changing the date on a check from last week to last year. Or changing a labor charge (timesheet entry) from project A to Project B after it was already billed – and then billing it again on the new project. QuickBooks is perfectly happy to let you do either one.
A detective control is just what it sounds like. It detects that something has happened – proper or improper – and makes a record of who did it and when. One form of detective control is called an audit trail. QuickBooks just doesn’t have them. When things change that shouldn’t, you might eventually find out what happened, but good luck determining who did it or when.
ALL SIGNS Point to Unanet
Unanet GovCon was purpose-built for project-based businesses and has all the very special functionality required by government contractors. It’s completely GAAP compliant and is designed to operate on a full accrual, not cash, basis (a requirement for government contractors).
Unanet GovCon offers managers at all levels real-time status reporting to answer that pesky “where am I” question on demand – as of right now, not the last time timesheets were posted. And it can roll up projects or contracts into portfolio reports in a matter of seconds, not days. With simple planning processes for labor and materials or travel, Unanet GovCon can also answer that “where am I going?” question on the very same reports.
Unanet GovCon calculates metrics in real time as well and can display them on dashboards or in reports without pausing operations for a special project. And all those critical functions like indirect rate calculation and application, revenue calculation using any number of GAAP compliant methods, and invoice calculation, editing, approval, and posting all happen in the system, not outside.
Unanet GovCon’s compliance functionality is built in, not added on. It doesn’t rely on manual inputs or calculations or transcription into spreadsheets for things like SCA compliance. Fully GovCon-compliant timekeeping and expense reporting systems, complete with enforcement mechanisms for all the government rules and regulations, are built into the system. And employee timesheet entries are visible as soon as they are entered and saved – no waiting for the end of the timesheet period for updates.
Unanet GovCon’s internal controls are numerous and robust, from detective controls like audit trails to preventative controls that preclude changes to posted entries or unauthorized changes to timesheets or expense reports.
Does QuickBooks have the automation, scalability and stability you need to manage your project-based business? If not, it’s time to level up to a project-based ERP. Eliminate spreadsheet chaos, reduce human errors, increase efficiencies, and achieve economies of scale with Unanet. Learn more about how Unanet levels up your project-based accounting here.
by Lucas Hayden
Aug 11, 2021