Quickbooks For Home Builders

As a home builder, you have a unique set of needs and requirements when it comes to tracking your finances and money. In this post, we’re talking about Quickbooks for home builders. How do you use it in your home building business?

Home builders are dealing with large amounts of money moving around — from buyers, to banks, to subcontractors, and to materials.

Out of the box, Quickbooks isn’t the friendliest accounting software for home builders.

However, we’re sharing some things you need to consider and how to use Quickbooks as a home builder, regardless of whether you build on spec, are a tract builder, or build custom homes.

Looking for other real estate related Quickbooks advice? We wrote other excellent guides.

• Quickbooks for Real Estate Agents
• Quickbooks for Investors

Project Costing As A Home Builder

You need to stay organized when it comes to all of the moving pieces of your projects and builds.

The project functionality inside of Quickbooks allows builders to track, manage, and cost their different projects. You can assign transactions, costs, and time to specific projects.

For example, let’s say you’re building a spec home on a plot of land on Elmer St. So, you create a project called “Elmer St.” and assign every cost to the project.

In this way, you can measure and report the profitability of the build as you go.

This is a great feature for any home builder that is building on spec. Let’s say you run a market analysis to determine the value of the home after you build it is $425,000.

By managing the project inside Quickbooks, you can ensure that you’re on track to create a profitable build. You have a budget target and you can shift costs, eliminate, or work with other subcontractors to reach profitability.

Of course, with your general Profit and Loss reports, you can still track and review the profitability of your business as a whole.

In order to use the project feature in Quickbooks, you need to have a Quickbooks Online Plus subscription. At the time of this writing, that costs about $85 per month.

To turn on the functionality of projects, select the Gear icon and go to “Accounts and Settings”.

Select “Advance” in the left sidebar and turn on projects.

Chart Of Accounts Home Builder

Your chart of accounts forms the foundation to your Quickbooks. Without a solid chart of accounts as a home builder, it’s nearly impossible to get the information, insights, and financial control you need over your business.

Think of your chart of accounts like a shelving system in a warehouse. Each different shelving unit is associated with a chart of account type, such as:

• Assets
• Liabilities
• Income / Revenue
• Expenses

Each shelving unit then as a custom bin where we place our expenses.

So, an asset account will have the bin cash account, accounts receivables, land (as applicable), and tools and equipment (for certain purchases), as an example.

The specific chart of accounts that a home builder uses varies depending on the home builder’s business model.

For example, a spec-builder will have a different chart of accounts than a custom-home builder. A spec-builder will need an account for Land to track their land purchases.

On the other hand, a custom-home builder likely needs to track work-in-progress and money from the lenders or home buyer.

Things can get complicated quickly when home builders mix different models inside the same business. It’s often the case that spec-builders are also custom-builders. Tract builders may also do speculative building.

Some builders may even mix in remodeling or house flipping into their business model.

Without proper set up, a builder risks overpaying income taxes, paying penalties for inaccurate tax returns, and poor financial insights for your business.

Going back to the warehouse analogy… Imagine if supplies are misplaced in bins and shelves. So, when you go looking for an item you cannot find it.

You have a disorganized warehouse. Inefficient.

In addition, you need to make sure you have a good warehouse organizer who knows where to put the items.

Bookkeeping Services For Home Builders

Hiring a cheap bookkeeper is one area where you can gain some short-term savings, but will find yourself paying substantially for inaccurate reports and Quickbooks.

Keeping with the warehouse analogy, your bookkeeper is the warehouse organizer. Your organizer needs to understand exactly how transactions are supposed to be categorized.

Let me give you a simple example I see people make when it comes to mortgages.

A mortgage payment should consist of two separate payments going to two separate accounts. First, there is the interest portion which goes towards an expense account. Second, there is a principal payment that needs to get applied to the debt.

Unfortunately, cheap or inexperienced bookkeepers will place the mortgage payments under the debt account or assign the whole amount to an expense account.

Both have negative tax implications and can put you in some waters if you were to get audited.

It’s worth the effort of finding a good bookkeeper. But, how do you really know if you’re hiring a qualified bookkeeper or not?

We recommend learning as much as you can about Quickbooks for home builders. Not enough to make you an expert, but enough to know that your potential bookkeeper knows what they’re talking about.

You can learn all about Quickbooks for Home Builders through our partner Nick at Income Digs. He created an amazing bookkeeping course for builders.

His course helps home builders:

• Establish a bulletproof bookkeeping setup
• Become an expert in Cost Codes and job costing
• Gain control over owner payments and draws so you don’t leave your business strapped for cash.

Analyzing Your Books

Home builders tend to have a large revenue size and a seemingly small profit margin. That’s generally due to the nature of work being subcontracted out. So, it’s important to make sure that you’re analyzing your margins correctly.

There is a general advice that most businesses should operate on a profit margin of 15% of revenue. However, you have to get an accurate picture of your revenue.

We borrowed the term from Greg Crabtree, and it’s called Contribution Margin. In this case, you are taking out all of your subcontracting costs.

Because at the end of the day, your business may or may not be a “home builder”. Rather, you are a construction management company.

So, the value you create to the market is managing the building of a home — from contractors, to finances, etc.

That is the real service you provide and your contribution margin will reflect that. Once you figure out your contribution margin, it’s common for home builders to go from $2 million in revenue operating on a 3% profit margin down to a $500,000 construction management company operating on a 12% profit margin.

Builder Books

Gain control of your home builder financials today and every single day after that. Learn how to grow and scale your business without getting buried in disorganized and inaccurate accounting data.

Quickbooks wasn’t created specifically for home builders. Learn how to unlock the power of Quickbooks for your home builder business.

In Nicks, “Builder Books” course, you will learn:

• To establish a strong foundation
• Lay the foundation and make money
• Establish a scalable bookkeeping process
• Reporting
• And more

As a bonus, you will get access to a live call with Nick to answer your bookkeeping questions. A perfect option for builders who are looking for a done-with-you Quickbooks solution.