Builders, Budgets, and Beers
The Builders, Budgets, and Beers Podcast is on a mission to make project financials less intimidating for commercial and residential builders. We aim to give builders the confidence to take control of their business’ cash flow by bringing on relatable guests who share real stories of financial wins and losses from their journeys in the building industry.
Produced by the team at Adaptive, this podcast is here to help builders build smarter—one budget, one story and one beer at a time.
Builders, Budgets, and Beers
WIP, Job Costing, and Cash Flow with Andrea Gallion
Andrea Gallion shares how builders can use Work-in-Progress reporting, real-time job costing, and clean month-end processes to actually see where their projects stand and protect profit. She and Reece dig into invoices and pay apps, QuickBooks realities, retainage, and percent-complete so you can spot over- and under-billing early and keep cash moving.
https://melton-melton.com
Video Notes:
00:00 Processing invoices and pay apps
00:54 Meet Andrea Gallion
06:13 Month end and reconciling cleanly
07:11 Job costing that actually helps decisions
10:29 QuickBooks realities for builders
18:02 Backlog and pipeline basics
33:29 WIP reporting and percent complete
36:11 Retainage and getting paid on time
48:46 Wrap up and where to find Andrea
Find Our Hosts:
Reece Barnes
Matt Calvano
Podcast Produced By:
Motif Media
Look at the amount of time it takes to process these invoices and create pay apps. You might need to reassess your current tech stack. How does your internal team deal with that software? Are they good at it? Are they efficient in using it? Do they really know what they're doing or just using a workaround that somebody taught them when they first got
Reece Barnes:hired? Welcome to builders budgets and beers. I'm Rhys Barnes and I started this podcast to have real conversations about money in the building industry, the wins, the mistakes and everything in between. I believe builders deserve to feel confident about their finances, and that starts by hearing from others who've been through it too. This industry can be slow to change, but the right stories and the right tools can make profitability feel possible. Let's get into it. Mics are hot. Andrea, we're rolling. We're rolling. Thank you so much for jumping on the podcast today. How are you I'm
Andrea Gallion:doing well. How about yourself?
Reece Barnes:I'm doing well. I'm doing well. It's actually kind of a rainy day here in Boston. A lot of rain, actually, the rainiest day that I've seen since I've got here.
Andrea Gallion:Something out there,
Reece Barnes:there could be they do get, they do get hurricane. After math, is that the word? But speaking of math, you're an accountant, and that's what we're going to be talking about today. I love it. Okay, so if you could just for the listeners, give them a little background on yourself. What role you what role you have over at Melton and Melton who you work with, and we'll, we'll just start from there.
Andrea Gallion:My name is Andrea Galleon. I am the Director of Client accounting services for Melton. And Melton. Our firm is known in the Houston area for their work in the construction space. They've been around for 63 or 64 years now.
Reece Barnes:I'm within a year, I don't think anyone will, anyone will get in the way of that. 6364 a long time.
Andrea Gallion:Yeah, a very long time. We have a lot of respect within the community, especially within the local construction organizations, and with clients. I in our department, we do a little bit of other things outside of construction. Okay, definitely, construction is one of our big spaces to play in. Um, that's it. We have a team of about nine.
Reece Barnes:Okay, perfect. So, okay, so when you're when you're talking about, like, Client Services. Like, what does that actually mean when you're and you're when you're talking about working with a lot of contractors, strong reputation, like, what is like? What is like, a day to day service that you guys provide for for builders and construction companies. So
Andrea Gallion:for some of our clients, we help them with their number one, their processes, where we can either put together a standard operating procedure when it comes to their accounting, or we can take that on and help them get a product at the end that they can then, in turn, use for a draw, so that could be their invoice processing, where Then someone from their team would come in and literally press a button and produce the draw schedule that they can submit for payment from their customer or from a lender. Okay, that sounds pretty nice. It is nice. Yeah,
Reece Barnes:okay, okay, cool. So you're like, so a lot of standard operating procedures um, are you guys like, actually performing the work more like, bookkeeper, controller, CFO, level services,
Andrea Gallion:yes, yes. A lot of them, we are performing the work for them.
Reece Barnes:Okay, okay, cool. So you guys are like, in the weeds. You're in the books with builders
Andrea Gallion:sometimes, yes, especially when we implement adaptive we have to kind of get in the weeds to make sure everything is set up properly. But like I said, some of our clients have some people in house that standard operating procedure will design it for them and lay it out and then come back and do true controller slash, CFO services, but the in house is doing the day to day. God, and we have some that don't have an in house person, so we kind of function as the in house, which would be the same kind of thing. As far as AP management, the biggest issue there is that you have to make sure that you're coding things directly to a project.
Reece Barnes:You know, what job those costs go to a job? Yeah, I mean, that's, that's, that's the blocking and tackling that you guys are doing exceptionally well. Um, question that I have, okay, so some engagements you're working on, they you. You're doing, like, full service, call it like you're doing, like you're performing the bookkeeping, the controller, the CFO level work. Some of them, they have an in house or an on site bookkeeper performing the day to day, and then you guys are doing more of the controller CFO level work. How, I guess, over your experience, how do you explain, like, what option is better for a builder? Like, how do they really start to decide if they should do, like, full outsourced bookkeeping, if they should have someone internally and then they should outsource the controller work? What are some of those situations that you would be like, yes, this would be a great fit. Or this is something you should consider if you're this person.
Andrea Gallion:So it all depends on how strong your in house staff is. Okay? I've had a couple of clients to where their financial person was that was in house was retiring. From a cost perspective, it worked for them to outsource 100% of the accounting and not have any in house. I've got others who do okay with the bookkeeping, so they just need those procedures designed for them and a workflow like, Okay, this is how you handle this invoice from the moment it hits your inbox till it's actually paid. It kind of depends if your books haven't been reconciled in five years. You probably need to outsource that.
Reece Barnes:That seems just bizarre to me. Books not being reconciled for five years, half a decade. How does it even happen?
Andrea Gallion:They don't have anyone in house that has accounting or bookkeeping knowledge. I don't understand why anybody would do a tax return off of that, but that's another conversation. But yeah, that it exists. I actually had this conversation yesterday.
Reece Barnes:What was the conversation?
Andrea Gallion:Small construction company, they were looking for a compilation so because they had a potential buyer, but their books hadn't been reconciled in five years.
Reece Barnes:Okay, okay, go ahead. Sorry. I don't mean to cut you off. Was there more?
Andrea Gallion:So just that alone tells me that there was no job costing there were no projects set up. It was just nothing. It was just because they were on desktop, so there was nothing there, and I'm like to do that to reconcile I would need a very large retainer up front, because there's so many other rabbit holes that I could go down with that, because we're missing
Reece Barnes:processes. Okay, okay, so processes, okay. And then, so, okay, you mentioned, like, it all depends on, like, how strong the individual is, or the accounting team is. It's performing this work. Now you're talking about, like, this example where, like, they were, they being, the business was in a position to get bought or acquired. And now it's kind of like this, oh shit. Moment, I need to get, like a compilation put together. I need to, like, someone's doing due diligence on my business. I need to show them that it is a healthy business, that it's a business worth buying. And now we get this like, what am I gonna do? Moment because they haven't been reconciling their books. Let's take a step back, because I think there's probably a lot of builders out there that are in that situation when you say books haven't been reconciled in five years, let's just even take a step back, like what is reconciling books mean?
Andrea Gallion:So reconciling books, meaning just for bank accounts or credit cards, just means whatever cleared the bank, meaning cleared actually, the bank release funds to another third party or charged to a credit card. It means that you're taking a statement every period, which is typically a month, and you're checking off, yes, I meant to pay that. It cleared the bank. It adjust your bank balance, so if you haven't done this and say your bank balance is showing that you have$100,000 but you didn't reconcile to make sure that whatever you paid actually cleared the bank, but your bank balance is showing you have$5,000 where's the difference? Where's the money? Because you don't have, in most cases, transactions that are in the register or slash on the books to show where the money went.
Reece Barnes:Okay? So when you're reconciling, you should effectively be seeing $100,000 that has cleared the bank in the situation that you used. Or am I missing something? Yes, no, yep. But. Okay,
Andrea Gallion:you don't see it because your bank on your books is showing you have $100,000 but what's over here in the bank says it's only five
Reece Barnes:so your books
Andrea Gallion:match what's in the bank. Okay?
Reece Barnes:And so that's where it's like, when you have these builders that are like, Well, I just operate out the bank account. Or like, whatever's in the bank account is what we have. That's where it can get problematic with all the nuances of construction accounting and why it's important to have somebody in the seat to know that we're using QuickBooks, our general ledger software, to track an account for all of the dollars and cents that are coming in and out. So then that ultimately lines up with your bank account. It's like QuickBooks is telling a story, like the bank account is reality the books are telling a story. Is that a fair way to look at it?
Andrea Gallion:It's the best way to look at it. Okay? So
Reece Barnes:then when you're not reconciling your books, or this individual hadn't reconciled books in five years, there was basically, like, five years, effectively, of that business that didn't exist. Basically, okay. And so then that's where it's like, okay. Now that seems like a pretty big deal. And obviously, like, I literally just did a podcast I should be releasing here soon, um, with a couple of individuals, um, about, like, more CFO work as well as more tax strategy work. And they had brought up like this acquisition concept as well, of like, poising the business to be ready for acquisition. Um, I mean, this is when you're when you're not taking these steps, and then you finally get into a position to someone want to someone want to acquire you. Why? Why is it such a challenge for builders to just do this regularly? I mean, this kind of seems like a no brainer, not that you start a business to sell it, or that's like your immediate intention, but that's kind of like it's a very logical avenue to take as a business owner, is to build something to then sell it at some point, right? Whether it's to a like a child or a business partner or someone else, how Isn't this like Job Costing and tracking and reconciling just second nature? Why is it such a challenge? Why does it get neglected?
Andrea Gallion:Because most business people aren't good financial people. You have to have someone to sit in the background and manage what you're doing or manage the numbers to match what you're doing, just like you said, accounting for your business should tell the story. It should tell when you had actual jobs going on versus when you didn't have any jobs going on. But you still carry the overhead. You have to make the two match. If you don't, it's hard to get someone to really understand the value of purchasing your business, unless they're purchasing it for a license or relationships. But ideally you want to show Yes, I have. I've I've made money here. This is a profitable business. In order for that person to truly see the dollar value
Reece Barnes:totally okay, so now when, like, you're talking about, like, in house and outsourced and honestly, do you know how hard it is to, like, say, in house and the not outhouse, it's so hard, it's so hard, but in house and outsourced, like, the difference is, is, like, the strength of an in house team, when you're looking at clients and, like, again, all of this context in the background, of like, really, you need to have someone in the background that is a going to take things seriously enough to track and categorize things appropriately, knowing that the intention is to paint an accurate picture that reconciles out to the reality of the dollars and cents that have moved to this business. But when you're like, talking to a prospect, like a builder comes to you and they're like, hey, like, I think we need some services here. I don't quite know what it is like we evaluate my business and, like, put together a scope of work. What does a strong in house team look like, for you, what are just some of the checks and balances? Because if we do have some, like, accounting, bookkeeping, office management people listening, they can kind of, like, run, like, a little self audit of, like, what they're doing well and like, maybe what they could pick up the slack on.
Andrea Gallion:So to me, a strong in house team would be individuals, or one individual, that's able to document the day to day events that occur, especially when they pertain to the finances, meaning, someone writes a check. Well, did you record the check in the accounting software? Did you tie it to a job should have been tied to a job. What was it for that's strong day to day, in my opinion, because if you have enough experience and the right tools, it's easy for the controller or the CFO to come back and clean everything up and pull it together in a nice, pretty financial package. Do. That day to day, person has to record all the financial transactions. Did you take? Did you keep the receipt? Do you have the receipt? Is it noted as to what it was for? Is this just meals and entertainment, or did you take a customer to lunch? All of those different items need to be handled every day, not every week. Every day. It's that important because it builds up fast and quick.
Reece Barnes:Okay, so you're pro daily, you're not pro weekly, with like, tracking receipts, and that's because it builds up quick. But what are some of the downfalls of that? Because I talked to a lot of builders, lot of office managers, lot of bookkeepers, and they're like, Yeah, you know, like, I stay on top of weeks receipts, like, once a week, or like, yeah, you know, I'm trying to get my guys to, like, come in and drop off, you know, their receipts in the shoe box, or the filing method, whatever it is, right? So then I can, like, stay on top of it and categorize it and, like, as, like, an individual who's telling them, like, Okay, I mean, that sounds reasonable from a professional standpoint. Why doesn't that weekly concept work? Why does it have to be daily?
Andrea Gallion:We're all humans, and a lot of us tend to forget. For instance, you went to, let's say, Home Depot, and you needed fasteners and some other small ins and outs. Are you going to remember a week, two weeks from now, exactly how much should have been allocated to each project? No, yeah, in real time, when you're purchasing, you probably had a list,
Reece Barnes:yeah, and that goes, I'm sorry, no, no, go ahead. I think there might be a little bit of a lag. Continue. Go ahead,
Andrea Gallion:whether that was a PO that you called ahead and ordered or you just went to the store free and just purchased everything you had a purpose when you went to the store, document it same day, because it's so stressful for that in house person who's responsible for gathering those receipts to get you to remember what it is you you bought it for, and where it should go, how it should be allocated. Okay, sorry, no,
Reece Barnes:that's perfect. No, I think that's like, I think like this, just the simple truth of it is like, the the gap, the weak link, is just Human Reality of you're going to forget things, and that's where we like, I don't remember the exact client prospect, whoever it was that I was talking to, but they had made a comment that they were, like, three months behind on receipts. And that's kind of, that's what I'm alluding to. Is like being the gap, the short or the the weak link in the chain. It's not that like you're like, yes, of course, three months behind is brutal. But the gap is that the reality is, if we're not being consistent on a daily basis of getting this information in, you open up more and more and more room for opportunity and error, for that situation to get to a three month delay, and then at that point, like, what do you do, honestly, Andrea, like, three months of, like, backlogged receipts. How do you even get through that accurately? Or do you just cut your losses and move on? Like, what do you do?
Andrea Gallion:I tend to make the superintendents and project managers mad at me, because I'll go and export, for instance, the credit card transactions by credit card. Hey, I need you to code this for me. Hey, I need you to code this for me. Oh, all this stuff missed the draw. Yeah, they don't. They tend to understand it's important that you submit this in real time, really quick, especially when I'm sending you three four. In some cases, I've sent six months of transactions for them to code, okay.
Reece Barnes:Time out. Hey, that's great. Like, accountability is like the answer to nearly everything. But for those of you that are just listening, I'm rubbing my head because I'm sitting here. Even just from like, a business efficiency standpoint, you talk a lot about processes like, Okay, we've got one individual in the back office that's tracking all the costs daily, right? That's the design. That's what it's supposed to be doing, right? As Brother, they are supposed to be doing, right? But they can't do what they need to if they don't have a team of people that are in the field, project managers, Supers, business owners, other individuals feeding them that information. Now, if we get into a position to where we're not staying on top of this daily, and we have project managers, which I'm sure there's only a few of them out there that aren't getting receipts turned in. Now we're from a process and efficiency standpoint, it's not just the cost of the individual that is, by design, supposed to be taking care of this, but now we're incurring the cost of project management labor times X individuals, times the hours that it takes for them to go through months of transactions. And they're not. Managing projects, and they're dilly dallying around with a statement and an Excel sheet that there's going to spend half an hour to 45 minutes complaining about being frustrated that they even have to dig through before they ever even start looking at it like you're paying for all of that, right? Sorry, that was just a tangent I had to make because, like, it's just like, it's one of those things where it's like, it's, of course, by design, it's supposed to be daily. But the challenge is, and I'm sure, like, the project manager would be, like, you got to empathize with me, like I got 1000 things going on, and I'm running to Home Depot, and then I gotta run over here this job, and then I have my little folder, and I collect my receipts, my envelope, and it's all, you know, the whatever in my dash. But it's also like the importance of this could be compounding, not just from the daily, weekly, monthly standpoint, and then potential getting behind, but the bigger picture to tie this back is it could prevent you, as the business owner, from being able to sell an asset that you've spent years, decades, building.
Andrea Gallion:Yeah, so it gets even better. Go ahead, 123, months of the receipts that you get from anywhere they're made with those thermal printers. What do you think that receipt when it sits in the heat? Yeah.
Reece Barnes:Geez. Nothing done Blank, blank receipt be blank. So that is like truly, almost impossible, unless you call home depot. You can call home depot, right,
Andrea Gallion:and get receipts if you didn't with an account. No, you can't if someone just happens to make a stop at Home Depot, yeah, and it's not tied to an account, Po, or any of that. No, how are you gonna get the receipt? There's no, it's blank. Yeah, there's identifying markers on it, yeah. Okay,
Reece Barnes:so that's just, like, makes it, like, almost completely impossible, which actually brings up, you know, you get some when you talk to builders, you talk to a lot of people, and I love the fine Contractors of America, as I call them. And what happens to the individuals that are saying that? Like, well, we don't even track receipts anymore. We just categorize the transaction, because you can categorize transactions, but your eyes are wandering. What's going on? What's your what's your take on that?
Andrea Gallion:Are we certain what it was for?
Reece Barnes:And what? What if they come back and be like, Yeah, my guys just, they go through a statement and they say, Yeah, was for the shop, the shop, the shop, the shop, just shop. We do it once a month.
Andrea Gallion:So what if your customer asked for the receipt?
Reece Barnes:We're a fixed price builder, and we don't, we don't give them any proof of cost.
Andrea Gallion:How do you know that your employee isn't stealing?
Reece Barnes:Guy's been with me for 15 years. No way John the project manager would steal from me. What is this IRS concept? Like, what it like, what if you get audited? Like, what's the reality of that happening? And then, like, like, you actually needing to have proof of all this stuff?
Andrea Gallion:I don't know what the percentage is now, but I would think that because there are fewer auditors, because they've been downsized, that the chances of an audit are going to be less lessened, yeah, but if you are audited, you're going to be required to produce receipts. You might get lucky and get an auditor that is willing to accept a credit card statement or a bank statement. But what happens when you pay cash? There are a lot of contractors that walk around with cash, and they pay for cash, you know, whatever they might need for cash, totally, and that receipt is now blank,
Reece Barnes:yeah, brutal, how do you direct that? It's just, it's a risk. It's all about like, mitigating risk, right? We're mitigating risk. We're talking about like, the IRS, like, I think you bring up a good point. I think a lot of like builders, they are not to say that they're like, like, out of malice, not tracking documentation, just being like, Yep, the auditor wants to come like, I'll give them a box and tell them to go for it, right?
Andrea Gallion:But I've seen some that will, yeah, Oh, totally.
Reece Barnes:I've heard of them. I've heard of them. The guys will literally be like, Yeah, we keep everything in paper. I've got just, like, file cabinets full of documents. If they ever want to come and, like, audit me, I just give them the keys and tell them, good luck. Go for it, right? And it's like, Okay, that's great, but it's all about mitigating risk. Okay, the audit at my the audit IRS side, might not be that big of a deal, but I think, like more personally. To make this more personal is like this, the daily tracking of these costs, if done with a system in a process, is going to insulate you so much better than anything that you could, like, put off or, like, slack off on, and the outcome could be selling a bit. Business. It could just be understanding the profitability of the business you mentioned, like taxes, right? Like someone who hasn't reconciled books in five years, they're running taxes on that business. It's like, I don't know why you would actually, what was your comment towards that you made that comment earlier.
Andrea Gallion:So if your cash is off, that tells me that you're missing transactions, whether it's a deposit, which would typically be considered income or an expense. So you're not doing yourself a favor by not reconciling you're actually hurting yourself. Yeah, you're just hurting yourself. Or you could have things that are sitting in the register for expenses that you paid but they never clear. And that's one that I find all the time they call in accounting. We call them stale checks, or stale payments, like they were never cashed. So your expenses, essentially for a period, are overstated because you never actually paid it, because the money never left your bank
Reece Barnes:Interesting. Okay, keep going,
Andrea Gallion:um, it also, you know, skews the bank balance by letting it sit there long, a long time. I've seen some that have gone back 10 years. I'm like, Yeah, you wrote a check, but you never actually remitted the money to anybody you know. Some states like Texas, there is a what is it unclaimed property site that you can remit the funds there. When you have checks where people didn't cash them, you would then void it and then issue it to the state and disclose who it's for. But a lot of people don't do that. It's just your big picture is skewed. Is
Reece Barnes:there a benefit to that? Like, if someone doesn't cash a check, like, it doesn't really benefit the business, it, like, almost makes it no so. And the reason why this is resonating with me so well because this is an angle that I haven't, frankly, considered when it comes, like, ACH payments, I think, like these builders that are, like, running with, like, wow, I'm a check guy. I'm a check I'm a check guy. Cut checks. Cut checks. Want to sign all the checks. I want to know. But then it's like, well, that's just opening you up to someone not cashing the check. Granted. Granted, like a lot of these people that are running checks is typically because they've got, like, I don't know if this is politically correct, but it's just like, like, more like a hand to mouth subcontractor, like a small business, or like they need the funds, right? And like they want the check, so then go cash it immediately. So that might not be all the all the challenge, but I'm also seeing just that concept that you're sharing of funds, like check has been wrote, given to somebody that never actually got cashed as, like, a huge reason why to just even go back into ACH payments, like the transaction is documented, the funds are released. They literally, it's impossible for them not to go into the account. Impossible. I mean, I don't know why they wouldn't. But point being is, like, everything's clear now you have healthier books. You know that money that was supposed to go to them is getting there, and you're not having to go through this like big remittance process once it's uncovered with stale checks.
Andrea Gallion:So the other side of that is, you know, your bank register, in your accounting firm, in your accounting software is showing that you have X amount of dollars, right? Well, my bank balance is significantly more. I can't tell you how many times I've seen builders get into financial trouble because they watch the bank balance versus what's in their checkbook so they overspend.
Reece Barnes:Say that again, they their bank balance. Go
Andrea Gallion:ahead, talking about those stale checks, right? They've been there, been written, and they're just hanging out in the checkbook. So my checkbook balance might be, let's say, back to that 5000 but my bank balance is showing that I have $60,000 I've seen builders make decisions based on what's in that bank balance versus what's in their accounting software balance. They didn't take into account that money is already allocated. Yeah, so they tend to overspend or take out one too many draws for themselves.
Reece Barnes:Got it and then what does that typically result in for the builders that are operating that way? Is it floating cash? Is it like, basically, effectively working for free, like what?
Andrea Gallion:I don't think it's floating cash. I just think it puts them in a bad financial position, because now money that you allocated for someone is no longer available for you to do what you need to do with it. You can't pay that contractor that comes up. Hey, I never got the check. The mail never showed up. Or it's just, it's bad business that's. Why you need to reconcile
Reece Barnes:totally. Okay. No, this is great, um, and it so it's like, basically, like, honestly, like, as a builder, correct me if I'm wrong. But like, almost like, advice that I want you to clear to a builder would be, don't even look at your bank account. Just look at your accounting software like that needs to be your source of truth.
Andrea Gallion:I would say, look at your accounting software if you're taking the basic steps to make sure that your money is accounted for, which includes reconciling. That's
Reece Barnes:basic. Okay. Can someone who's running like cash based accounting operate that way, or is it still important for them to be running
Andrea Gallion:QuickBooks? I always recommend running QuickBooks because more it's easier to point out where you actually spent money. Okay, when you use a basic software and QuickBooks now can range from super basic up to more sophisticated, but it's easier to track those totals if you have it in accounting software. A lot of people like paper and pen. I don't, because you could also forget to log something. I've seen that happen totally.
Reece Barnes:Okay, so whether you're cash based or accrual based, you got to be on QuickBooks. Doesn't matter. That's like, just like a ridiculous comments like, I'm cash based accounting, it's money and money out. It's like, well, you still need to be tracking it exactly. Cool. Okay, so this was actually great. I'm curious though, like, okay, so aside from, like, what the strong back office looks like, what does that actually mean internally? What has to take place for that to be deemed as strong as like, effectively, to boil it down, is you need to be tracking costs daily, not weekly, because it's a pile up on you, and you have to be reconciling books monthly. Is that fair? Like a monthly reconciliation? Closeout, that's
Andrea Gallion:that's look at it. If it's construction, I would definitely say yes, because that way you can catch the items that haven't been job costed. And because I don't know, I know, for me, I see a lot of construction companies too, that have horrible whip schedules, or they really don't have a whip schedule, because nothing was ever allocated to a project, if you're reconciling every month, you can add that as an extra step to make sure that the expenses incurred that hit a that was job costed are allocated to a project at the same time.
Reece Barnes:I think it's going to be worth digging into whip here. And I say that because, well, a we just released like, a really snappy whip reporting tool. Thank you. But I also don't know if like, whip is, like, totally understood or leveraged as often enough as it should be. Can you just give me like your general high level on whip, your your your stance on whip? Go ahead.
Andrea Gallion:WIP basically tells you where your project in is is, as far as if it's how close it is to come being complete. It's probably the easiest way to say it, and it's based on the expenses that you've estimated versus the expenses that you have actually incurred. It then does a little calculation and gives you a percentage, and if you allocate the expenses in real time, it'll show you how close you are to completing that estimated budget that you had at the beginning. It's probably the easiest way I can put that.
Reece Barnes:Okay, so if you're keeping track of your costs in real time, then that's going to tell you how close you are to completing the estimated budget. Yes. Why is that important?
Andrea Gallion:I'm always going to go back to a tax perspective. It'll tell you how much of the revenue you're required to acknowledge in that that year, or if you can defer some of it to the following year you'd like the two of those to tie together. It also lets you know, from a cash perspective, how much more you need to complete the project.
Reece Barnes:Yeah, that's a big one. Okay, so primarily is, like, a it's a tax advantage because, like, if you know your cost in real time, that's going to be telling you how close you are to completing the estimated budget. You need revenue or income to cover those costs. So you should be billing. You should be billing respectfully of your cost incurred to prevent over billing having too much money, which you would then get taxed on, or is that when like percent complete comes
Andrea Gallion:in, that's where percent complete comes in. Okay, so say you have completed the project. You've build a let's say 90% of the project, but you still got this receivables, okay, yeah, receivables, but you've still got an additional, you know, your retainage to come in when you can't defer the income to the next calendar year or tax year because you've completed the project. So they kind of have to line up, so you're going to be taxed on the full amount of the project, versus deferring to the following year. So it's it's important totally when completing the tax return. That is a big picture for any CPA
Reece Barnes:that makes sense, because, then, like, because, like, again, if you have, like, a tax someone who's doing your taxes is the right term, tax provider. Yeah, repair a tax preparer. Somebody preparing your taxes like their best interest is to make sure that you're paying the taxes that you have to pay, and nothing more, nothing less. Is that fair? Yes, finding areas and ways for you maybe to not have to pay taxes. Is that fair? Absolutely, yes. So then that's like, even again, that goes back to this, like, like the daily compounding into the necessity of making sure that you're not overpaying on taxes. If you know your cost in real time, that's going to tell you how much of your how far along you are in your estimated budget. That's going to point towards Are you properly billed, and when you are in a tax situation getting ready to pay taxes you don't want to be paying on more income than you actually need, and that's going to be reflected based on the costs that you've incurred. Fair, absolutely, okay, okay, and that's where, like, I think this is helpful, because the the perspective is important. Now, what are the struggles with whip? Because, again, is this a monthly thing, quarterly thing?
Andrea Gallion:Ah, I see some that are annual,
Reece Barnes:annual it could be an you're laughing. Is that a bad thing is annual whip a bad thing?
Andrea Gallion:Think about it, if somebody is especially someone making over $100 million Think about how many transactions it requires for them to incur cost. Right? How many transactions is that? And you didn't jump in real time? Yeah, yeah, your whip schedule. You don't have a whip schedule.
Reece Barnes:Essentially, it's just like, it's like, hold your breath and see what happened at the end of the year. Type of thing. What do you advise? Do you advise? Monthly whip. What do you advise?
Andrea Gallion:Absolutely, because you're more inclined to figure to remember what that cost was for and what project so someone in house is where it's crucial to have a good, strong person in house that as the data entry, or however it's entered, is occurring in real time, they can make sure that those job costs are allocated to a project. It is very hard, especially for someone who makes, whose gross revenue is over $100 million for them to say, defer it to their CPA, for them to figure out the whip schedule. Your CPA wasn't there every day. They have no idea what project went on, what the project entailed, the moving parts to the projects. No idea. Do you know how many months it takes to figure that out?
Reece Barnes:Probably until the next year
Andrea Gallion:it takes? Yeah, a lot of times, if that's not the only thing that they're doing, probably to two months if that's the only thing that they're doing. But most CPA agency. Have how many clients, right?
Reece Barnes:Yeah, there we go. Okay, um, okay. And that's where, like, I think this is like, even, like, helpful for me, because I'm like, kind of this dynamic of, like, well, you get your whip, and I know, like, putting whip together is kind of a pain. And, like, I know there's like, surfacing Uncategorized transactions, whatever, but this is really, like, kind of, like the final stamp to a call, like a premium reconciliation. It's like, kind of like the last we're good to go. You can reconcile your accounts. You can reconcile QuickBooks, and if you just run whip on top of it, that's like the final you're good
Andrea Gallion:standard operating procedures.
Reece Barnes:We're outlining SOPs here for the listeners of builders budgets and beers, which we don't have beers. No, we don't, we don't have beers, but we like we've checked two of the three off. But I think, no, I think this is good. Now, why don't people do this monthly again, like, the daily transactions thing is just a pain to put together the whip report. Like, why don't they do it monthly? Or do people do it monthly?
Andrea Gallion:I don't know. Some do. Some don't. Some don't think about it. If your in house person is at best, AP clerk. They might not know. They might not have that oversight to give them process improvements. They might be the office manager that's doing bookkeeping as a function of her office manager position, but has zero accounting knowledge, especially construction accounting knowledge. So it just, it depends. It depends on, you know, what business, how much experience that person has in that position, and how involved your CPA is, or your auditor, like a lot of people, have to have reviews for bonding purposes. If you don't have someone to give you that advice in your day to day processes to help for that final product, they wouldn't know
Reece Barnes:totally, I'm just, I'm even go ahead. Do you have more? Okay, I'm just thinking like, and of course, I'm biased, but with adaptive, like, the ability, there's such a stronger opportunity for builders to stay on cost on top of costs in real time, like daily, right? And then you've got the whip reporting function in adaptive that's just like, going to be like, live fed whip? Is there really, like, an excuse or a reason not to be following these practices with an adaptive because that's kind of how I've always looked at software, is like, Sure, it could be, like, exciting. You can get excited about the, you know, features and functionality, and it does this really cool thing and that really cool thing, and like, adaptives ai, or like, I can template x, y and z in this feature. But really, what it is is giving you a framework to establish a process around exactly, do you think that, like for anyone who's struggling with this or that is on adaptive there really shouldn't be a reason why they're not running extremely tight reconciliation processes and they're not running monthly whip
Andrea Gallion:there is no reason not to. There's no good excuse. No, none, none, none at all, because adaptive also gives clients the ability to where you don't have to be that one person in that seat. Okay, yes, I can understand, like the receipts not getting coded in real time. Well, if you're anyone with the credit card should be able to code their stuff, because all they have to do is snap a picture. If they snap the picture, sometimes it'll try to auto code it, but it's sitting right there waiting for someone to look at, and they have a picture right? Probably better than you get without adaptive or some other means that can do that. No, there is no good excuse.
Reece Barnes:And that's where I've always like, I think like adaptive has some really like strong components, and this is me being modest. Try not to be super biased. But I think like adaptive has some really like compelling functionality. But I've always seen the value of adaptive not as much being like, like just an AP or an expense tool, but really more of a holistic tool. What's your take? I
Andrea Gallion:definitely see it as a holistic tool. What it takes for me to blow through the. Everything in the adaptive inbox. And that would be any type of receipt, pay apps, from other subs, etc. Is mind blowing, like today, I think it took me 15 minutes and part of that and I had a full
Reece Barnes:inbox. What's a full inbox? Let's like, how many, how many bills was it? So that was probably 30
Andrea Gallion:transactions that I did. It was like 30 transactions that I coded, sent for approval in under 15 minutes. Go ahead. Go ahead. I had a new vendor, so I had to set the vendor up. That was my small amount. So that went from taking a piece of paper and manually keying in everything, line by line and pressing send for approval, I didn't have to go and scan the document to get it in. I didn't have to do any of that, those extra steps. I didn't have to stamp it and give it to a project manager and say, Hey, can you sign off on this? I'd have to do any of that. I just processed what was in my inbox and it was over 30 transactions in under 15 minutes.
Reece Barnes:Sounds a lot like 30 seconds per transaction. Like again, I Yeah. I mean, I don't know. I think this was great because, like you, you, I mean, you being the director over there of Client Services at Melton. Melton, like you see this all the time. I really appreciate your perspective on here. I thought it was very tactical and and helpful for the listeners, which is what I always gun for. And you've got the credibility. You talk to a lot of builders. You've seen it all. You know, construction accounting inside. Now, if there was any advice that you would give builders out here, and remember, I think you know, based on our user base, we're talking to builders anywhere from like, call it 2 million to 100 million. Most of them are falling in that, like 10 to 30 range. I'd say eight to 30 million range. What advice would you give them before we call it?
Andrea Gallion:Look at the amount of time it takes to process these invoices and create pay apps. You might need to reassess your current tech stack. I know there are other more sophisticated software out there, but how does your internal team deal with that software? Are they good? Are they good at it? Are they efficient in using it? Do they really know what they're doing, or just using a workaround that somebody taught them when they first got hired? All of those things are worth looking at when you want to save on time and cost, because the faster they can get through their AP to produce a product for AR, you should see your money just as fast. So start by looking at your tech stack. Start
Reece Barnes:looking at your tech stack. I have a tear in my eye. That was great. That was great. 100. This was this is an absolute pleasure, pleasure, you know, we talked about, and all, like, kind of compounded on top of each other, right? Like, it really boils down to, like, track your costs on a daily basis, and if you're not, or you don't have someone that can do that, you should call Andrea. Yeah. But it all boils down to knowing your cost in real time, and that's what we're about. So everybody, thanks for tuning in. Andrea, thank you so much for jumping on I hope this was helpful. I'm looking forward to catching up with you here soon.
Andrea Gallion:All right, thanks.
Reece Barnes:All right, you bet.
