This Podcast Is Episode Number 461, And It's About Construction Companies Who Fail Have One Thing In Common Every contractor who goes out of business has one thing in common, bad financial reports or none at all. Does this sound familiar? Contractor opens a business because they are so skilled at trade. With a small amount of cash, less than $10,000, a few credit cards with $5,000 available credit, they are off to the races. You tell friends and relatives about your new adventure and get lots of jobs. Of course, you wouldn't take advantage of friends or relatives at meager prices, would you? You open supplier charge accounts credit cards from Home Depot and Lowes. Your working capital increased by $20,000. "Wow, life is excellent! I should have done this a long time ago!" You were earning $25.00 an hour working for someone else. The contractor was charging $50.00 an hour for you. What a ripoff! You charge $30.00 an hour to be fair and undercut your competition. In six months, cash is gone, credit cards over the limit, and suppliers cut you off. What happened? You're an honest person doing good work at a price people can afford, and you're punished for it! Your reality check bounced! Outgo exceeded income. Friends and relatives asked you not to mark up parts over what you paid. Because doing so would be dishonest and unfair. They're on a "Budget"; someone needs to rescue them, so you paid the price. Let's run some numbers.  You make $5.00 an hour more than what you are worth as an employee. Payroll taxes on your labor run roughly 25%. $25.00 X 25% = $6.25 an hour. You are in the hole $1.25 an hour. Driving a truck of any kind costs $2.50 to $5.00 a mile. Divide by miles driven to get cost per mile. Add up truck payments, fuel, oil, car washes, insurance the rest of the expenses. I know because I see thousands of contractors' QuickBooks files. Bad Records = Bad Reports Picture this: a material receipt arrives at a lumber supplier's regular bookkeeper's desk. They open the QuickBooks contractor file, look up the supplier to determine how the previous lumber purchase was coded, and code the new transaction the same way. The problem is each transaction is unique and could go into any one of a dozen accounts or item codes depending upon whether it is a direct cost, indirect cost, WIP, retention, warranty, overhead, administrative, other costs, or simply an expense. The cumulative effect of these bookkeeping errors in one month can do enough damage to the financial and job cost reports to eventually bankrupt a contractor. For example, suppose the bookkeeper generates job costing reports that are off by 10%. In that case, it could cause the contractor to make radically different decisions based on what they believe about the job costing reports. If the contractor believes the company is undercharging, they may raise bid prices, lose jobs, eventually run out of cash and file bankruptcy. If the contractor believes the company is overcharging, they may lower bid prices, lose money on all jobs, eventually run out of cash and file bankruptcy. Many bookkeepers have lost their jobs and are freelancing as Jack-of-All-Trades and Master-of-None bookkeepers doing whatever work they can find, and I understand that everyone needs to eat. I would prefer they stay away from contractors and stick to regular bookkeeping like retail stores. The net result is more contractors are going out of business due to inadequate financial and job costing reports just when construction demand is growing. It is heartbreaking to see so much suffering due to incompetent bookkeepers, especially those with good intentions destroying the construction companies of the men and women who depend on them to take care of themselves and their families. Construction Company failure is always preceded by bad bookkeeping. Too often, contractors are led down the primrose path into bankruptcy and business failure by relying on inaccurate, false, misleading financial and...