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Four Signs Your Government Contracting Business has Outgrown QuickBooks

Accounting-Software

QuickBooks is the most widely used accounting software for small businesses, and for good reason. QuickBooks is easy and efficient to use, it gets constant upgrades and patches to improve functionality, and can be a very powerful tool if used properly. However, if you are a government contractor focused on growth, you will likely reach a point in the lifecycle of your business where you have outgrown QuickBooks and require a more powerful and sophisticated accounting system that is designed specifically for the government contracting industry. The following are four areas that might trigger the need for a change in accounting systems. There are no hard and fast rules for when you should change from QuickBooks, but a combination of the following might help you identify an appropriate time to make the change.

Cost-Reimbursable Contracts: Don’t let the marketers fool you – you do not need an accounting system more robust than QuickBooks in order to pass a DCAA Pre-Award Accounting System Survey. DCAA will be looking at whether you can properly accumulate, segregate, and record costs on government contracts. This can all be done within QuickBooks, and you can learn more about passing your pre-award audit here. With this in mind, don’t let the possibility of a cost-reimbursable contract, or an IDIW that requires an approved accounting system, be the reason you switch from QuickBooks to a different system.

However, once you actually have that cost-reimbursable contract awarded and operating, your invoice generation becomes more complex and your need to track indirect rate calculations closely becomes far more important. You can stay on QuickBooks and still accomplish this, but it becomes a lot more difficult and requires quite a bit of manual work. The more robust accounting systems like Unanet and Deltek Costpoint have features that will allow you to set up your rate calculations, including pools and bases, and then the system does much of the work for you. Those systems will also produce outputs that can be used to assist in the preparation of your incurred cost submission at the end of the year.  

Volume Increase: There’s no headcount or revenue level that suddenly makes it imperative that you switch off QuickBooks. But eventually, as you grow to a certain size, a more robust accounting system built specifically for government contractors will end up saving a significant amount of time for your finance and accounting team. Functions such as processing labor allocations, generating project reports, and creating invoices will all become easier, quicker, and more accurate with an accounting system such as Unanet or Deltek.

Consolidation & Multiple Entities: Consolidation is one area where QuickBooks is lacking. Rightfully so, as it was built for the small business in mind, and most small businesses do not need to perform consolidations. If you have subsidiaries or multiple entities that require consolidation and are using QuickBooks, it will probably be necessary to do manual consolidations outside of the accounting system itself. This can be a tedious and sometimes burdensome task, that could also lead to errors. When you switch from QuickBooks to a higher-level accounting system, that new system will likely have the functionality to house multiple companies or entities within one system. The system can then be programmed to perform a consolidation within the accounting software itself, taking out the majority of processing and reducing the risk of any manual errors.

Forecasting and internal reporting: QuickBooks does have a budgeting function within their software, but it is limited in functionality and of course is not built specifically for the government contracting industry. If you are looking for more advanced forecasting and reporting, QuickBooks will likely fall short at a certain point. Areas and functions that will benefit from a more advanced system include the following:

  • Resource planning: As a government contractor, specifically under Time & Material type contracts, you want to avoid leaving money on the table or exceeding funding on any of your contracts. This often requires careful resource planning. The robust accounting systems will let you schedule out budgeted, or planned, hours throughout the course of the contract or contract period. This can be done at the individual level and can factor in headcount, expected paid-time-off, holidays, and a number of other factors to properly forecast and track you incurred cost.
  • Limitation of Costs: Certain contracts will require you to notify the government when you reach a certain point of incurred costs in that specific contract. Instead of having to manually track this, you can set triggers so that the accounting system alerts you when you reach these points.
  • Strategic Planning: As a business grows, there will be more contracts, more service offerings, and more divisions. It will become more important to closely monitor margins. It is also critical to monitor which contracts, divisions, and services are generating the most profit so that resources can be properly allocated.

These are just a handful of the items you will want to consider when evaluating your accounting system. QuickBooks is drastically cheaper than the other accounting systems mentioned in this article and pretty much any advanced or industry-specific accounting software. If implementing a new system, you will incur significant costs for the implementation itself and ongoing license fees. Your current staff might also require a lot of training under the new accounting system. But if you have grown to a certain size and complexity and QuickBooks is no longer meeting all of your needs, the long-term benefits of switching off QuickBooks may far outweigh the cost of the new system.

LRZ Consulting is a full-service outsourced accounting and bookkeeping firm specializing in the government contracting industry. We provide support for QuickBooks, Deltek CostPoint, and Unanet Financials. If you are looking for a free comprehensive analysis of your accounting system, please contact us here.

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