When Contractors Outgrow QuickBooks: The Real Cost of Broken Processes | Kevin Jacobs

Rishi Srivastava (00:41)
Today our guest is Kevin Jacobs. Kevin, welcome.

Kevin Jacobs (00:45)
Hey Rishi, how are you?

Rishi Srivastava (00:48)
Very good. Good to have you back on the show.

Kevin Jacobs (00:50)
It’s good to be back. I appreciate you asking me back again.

Rishi Srivastava (00:53)
Yeah. Today’s episode, it’s on ERP migrations in construction. The first section here is when contractors outgrow QuickBooks. Many construction companies start with QuickBooks. What are the first signals you see that a contractor has outgrown it and needs a real construction ERP?

Kevin Jacobs (01:15)
You know, that’s a common scenario, because QuickBooks is very good at what it does, but it’s not really built for construction. So when you’re getting into more detailed job costing, WIP reporting, you really need to take a look at a construction specific ERP. And what we like to do is kind of walk on owners through

a question or three questions, however it’s broken down, but they’re, know, where are you losing time? Where are you losing control? And where are you losing margin? And you know, kind of the same pain points always show up, you know, so I make the joke that the construction industry is hounded by the same 10 problems. But then when you look at a specific contractor, those 10 problems affect that contractor individually so much.

differently than it does the next contractor down the road. So the pain points that kind of pop up is, you know, they’re running their company out of spreadsheets because their current ERP doesn’t have the capabilities they need. They don’t trust job costing until after the month the end is closed because of the delay that’s associated with these manual workarounds that they’ve had to lay on top of something like QuickBooks. So, you know, purchase orders are missing, change orders are missing or incomplete.

labor isn’t – posted – daily, know, and costs are batched and entered weekly instead of daily. So even if you’re getting a cost report this week that’s seven to 10 days old, that’s seven to 10 days of activity that you know nothing about and you’re reacting on old information. So more problems are like the billing is slow and it’s prone to error, which causes further delay.

there’s change order chaos, know, pending versus approved is unclear. The pricing may be buried in an email chain somewhere. Change orders may not be tied to the right job phase or cost type. And, then there’s always the risk of unbilled revenue. So you know, in that when you get scope creep, unbilled revenue, unapproved change orders, you know, your margin starts starts drifting down. WIP reporting is manual, which

takes up more time, which is more prone to error. And if the sureties in these bond agents, when I hear them speak, the first thing they talk about is having confidence and trust in the numbers that are presented to them. So if they’re finding more more errors, that that confidence erodes. Payroll becomes a hassle. If you’re dealing with certified unions, prevailing wages.

Rishi Srivastava (03:41)
Mm-hmm.

Kevin Jacobs (03:42)
those workarounds can start multiplying exponentially and all of a sudden your payroll is spending all week long on compliance. Committed costs aren’t always visible. Equipment costs are unclear. There’s integration bottleneck. if you’ve got QuickBooks in the back office, but your field is using Procore or something more advanced like that for project management, sometimes they don’t always integrate, you know, seamlessly. So

That’s a list. There’s more, but that’s probably the most prevalent problems that pop up.

Rishi Srivastava (04:12)
Yeah, as the revenue grows, the operations get complicated.

Kevin Jacobs (04:17)
yeah, revenue is a bright, blinding light when it comes to exposing problems.

Rishi Srivastava (04:25)
When you’re talking to an owner who is afraid of changing systems, how do you quantify the cost of staying on broken processes?

Kevin Jacobs (04:35)
All right, we’re gonna get a little nerdy, get a little technical right here. ⁓ all right, first thing you wanna talk about is labor. You wanna turn the efficiencies into dollars. And if you look at hours spent per week on inefficiencies, manual workarounds, rework, let’s break down an example. So you got project managers.

Rishi Srivastava (04:39)
We like it.

Kevin Jacobs (04:59)
Let’s say they’re spending 10 hours a week on manually tracking cost and following up on change orders. You got accounting that’s wasting 15 hours a week. You got payroll, say they’re wasting eight hours a week on some of the things we talked about, certified, union, prevailing wage. So if you’ve got five PMs at 10 hours a week,

and a fully burdened rate that you’re paying a PM say is $80 an hour. You got two accountants at 15 hours a week, you got an AP clerk at 10 hours a week. Those number of employees times those hours, that ends up being 90 hours a week of wasted, inefficient labor. And if you do $80 for a project manager, 65 for an accountant, 40 for an AP clerk,

that extends out to $6,350 a week on wasted, inefficient labor. if you multiply that by 50 weeks, we’re not going, I know 52 is in a year, we’re gonna take two weeks of vacation. If you do about 50 weeks, that’s $317,000 of wasted labor right there. Which, and you know, that’s not just obvious slap you in the face, you’re wasting money. That’s just…

Rishi Srivastava (06:03)
⁓

Kevin Jacobs (06:12)
If you go and sit with these people and watch how inefficient these processes are, then it can start becoming more clear how much labor dollars are going to just inefficiency. So that’s one thing. Margin leakage. So late change order approvals. if you got T&M contracts and you’re missing out on T&M billings,

if you’re under utilizing your equipment, if you’re missing possible billings for equipment, you know, a conservative rule of thumb is about a half a percent to a percent and a half of revenue that you could say leaks because of those categories. And 1 % leakage on $50 million of revenue is $500,000 in a year. So there’s half a million dollars of gross profit that’s just gone.

Cash flow and financing. So you show an owner how your days sales outstanding. So if it starts dragging, if your AR billing collection starts to drag, in today’s environment, every 10 days of extra drag

on $50 million worth of revenue, that ties up about 1.4 million NAR, and it extends, you know, which also, hurts your cash flow. But the cost of that capital, so if you multiply that 1.4 million times 8 % interest, that’s about 110,000 a year. And then retainage delays and unbilled change orders, they just add to that, they compound that problem.

Rishi Srivastava (07:27)
Hmm.

Kevin Jacobs (07:46)
when you’re talking about the world of compliance. So if you get penalties for payroll compliance, some of these prevailing wage, know, all this that we’ve discussed have very strict rules around them. Let’s say you get a $25,000 penalty one year for that. Not to mention that dirty books increases your audit cost.

because that CPA is spending more billable hours cleaning up your books before they begin the audit than if you just handed them a clean set of books. So say that’s an extra $10,000 a year. And then something else in this risk compliance world is what we were discussing earlier with sureties and bank relationships. It’s hard to quantify, but if you have a weak WIP report, it erodes trust.

and it can increase your bonding rates or it can limit your capacity, which leads to missed work. So if you can’t increase your bonding capacity to bid on that new larger opportunity down the road, that’s missed money. And then just opportunity costs. So lost capacity, say if these inefficiency gaps, this project manager that’s spending 10 hours a week

Rishi Srivastava (08:40)
Mm-hmm.

Kevin Jacobs (09:06)
on inefficient work rather than going out and getting additional work or making the work that’s there more profitable. So, you know, if those inefficiencies limit your company by one crew or one to two projects per year, that’s profit lost. And then by putting inefficiencies on your people, they can get stressed out, they can get burned out, and they can leave. And I was reading an article the other day,

that said today’s estimate now to replace an employee can be anywhere from 50 to 80 % of their salary just to replace. mean, it’s retaining talent has a huge effect on the bottom line rather than a constant turnover of paying to find these people, paying to train these people, waiting while they get up to speed and you’re paying them the whole time that they’re doing less work than their previous.

Rishi Srivastava (09:41)
Mm.

Kevin Jacobs (10:02)
person was. So when you add all that up, all right, that was a lot of different examples. I told you we were gonna nerd out for a minute. If you add all that up, the labor inefficiency was 317. The margin leakage was 500. The price of the capital was 110. There was 25 and 10 on the risk compliance. So that’s 35. And let’s just say on the lost capacity, the profit loss, just throw in 75,000.

If you add all that up, that’s a million and $12,000 of just due to inefficiency, broken processes, and manual workarounds. So you lay that in front of an owner and you go, okay, you’re wasting a million dollars a year. And here’s what a new ERP is gonna cost you. Now,

we can talk about the psychology side of everything because people are afraid of change. We were talking about that earlier. So you have to deal with that. But then just on the financial side, you’re looking at implementation cost, you’re looking at annual subscription, and maybe some additional training in there. depending on the size and the complexity of the business structure and the ERP that you select to bring in,

Rishi Srivastava (10:59)
Mm-hmm.

Kevin Jacobs (11:23)
That one time implementation can be 150,000 to 500,000. An annual subscription for a quality construction specific ERP, 120 to 250,000. Again, depending on complexity, the number of users, number of licenses, a lot of layers in there. so at the high end, that’s $750,000.

If you took the 500 for the implementation, the 250 for the annual subscription, that’s a quarter of a million dollars lower than what we just showed you, you were losing. And the 500,000 is a one-time expense. So then you’re down to the 250 annually. So your payback on that is generally gonna be less than a year. And then your ongoing return on your investment is gonna be, you know, if you’re paying 250 a year, but you’ve gained back a million,

You’re getting a three to five time return on investment every year.

Rishi Srivastava (12:19)
Yeah, that’s so good. We actually recently released an AP labor and workflow benchmarking tool. So for these construction companies, how they’re operating their AP department and how it can be improved. So showing really the quantitative effect of the change is so important to convincing the owners.

Kevin Jacobs (12:42)
Yeah, it’s, you know, they’re contractors. They’re really good at their craft. They know how to squeeze money out of a job. But usually that back office is something that’s alien to them. And the more, you know, like we were saying earlier, as revenue grows, as your business gets more complex, that back office just gets murkier and murkier to them. And if you can point out, if you can quantify dollars that they’re losing in that back office,

Rishi Srivastava (12:53)
Mm-hmm.

Kevin Jacobs (13:09)
That’s usually a pretty good buy-in for it.

Rishi Srivastava (13:11)
What revenue or operational complexity do you usually see ERP migration conversations start happening?

Kevin Jacobs (13:22)
You know, we were saying earlier, revenue is a big bright light. It’s actually like a blunt instrument.

its complexity, you know, kind of reveals the actual story. But just just for some common ranges, you know, you’re looking at a contractor that’s in the specialty trades, it might be gross revenue of 15 to 30 million. You know, they’ve been they’ve been plugging along at 5 million for several years, and things have been good. And then all of a sudden, words got out there a great sub.

and they’re getting more and more opportunities and all of sudden they’ve gone from five to 15. Well, three times the volume stresses those processes. General contractors, it’s usually like 40 to 65 million. And then like heavy civil self-performing, it’s about 25 to 50 million. And that’s in a revenue range. Now, some operational triggers, the number of active jobs you’ve got going on.

you know, if you’re used to 100 and all of a sudden you’re up to 500, that stresses it. You know, if you start working in other states, so if you’re in multiple states where you used to just be in one, if you start taking on more union certified payroll, if you have moved into a heavier change order volume environment, where you’re used to very few change orders, now there’s just tons coming through every week.

If you’ve opened up other divisions, so you’ve got multiple divisions you’re reporting on now, public government work, the amount of equipment you’ve got rolling and you have to keep up with, especially if it’s T&M and you’re billing for individual pieces. And then if your billings are getting slower and slower and that days sales outstanding keeps starting to drag and drag, know, those are some triggers where people really start getting interested in new software.

Rishi Srivastava (15:16)
to a Deltek computer ease CFO who’s considering the move, but he’s looking to have another 10 million in revenue. So 30 to 40, you know, when he gets there, he’s saying that he’s going to make them.

Kevin Jacobs (15:31)
Well, that’s, it’d probably be a lot better if he’d go ahead and do it now. Put that framework in for that growth. Because the longer he waits, the more stress that’s going to be on that process, or those processes, and it’s going to be, you know, his employees are going to be burned out, stressed out anyhow, and then then to come in and ask them to do extra work each week on a new ERP implementation.

Rishi Srivastava (15:36)
Mmm.

Kevin Jacobs (15:57)
Might be a good move for him to do it now.

Rishi Srivastava (16:00)
Maybe I’ll to put him in touch with you.

Kevin Jacobs (16:02)
Yeah,

I definitely throw some ideas at him.

Rishi Srivastava (16:06)
Yeah. What types of contractors tend to delay migrations the longest and why?

Kevin Jacobs (16:12)
Well, going back to like some of the differences we broke down on revenue. So if you’re a sub and you’re working in one state, note you don’t deal with unions. Your jobs are short duration. They don’t usually overlap 12 months. They usually are a hard sell because there’s lower compliance burden.

you know, there’s the idea that they can get by with spreadsheets and quick books. And, hey, what we’ve been doing works. And kind of in that same vein are like family owned firms with a stable customer base, you know, they don’t have heavy external reporting demands outside of their bank and surety. They may not even have, you know, they may not even have surety, they may not need bonding. So it’s kind of the…

kind of the same mentality, if it’s not broke, know, this has been work, this work for my daddy, this work for me for the last 10 years, you know, why do we need to change? And then, so you get some contractors who have like some Excel power users who can do anything with Excel. And so if they go in and tell those people, hey, we’re going to switch to this new ERP because we need this old one to do this.

And they go, I can do that. I can do that in 10 minutes in Excel. They’re not gonna change. So then you got some service heavy contractors. may have a platform with their customer that’s doing what they need. And then…

you know, if they’re not, if they’re not using.

any external technology like Procore or any other advanced project management tool, they may not need to change anything either.

Rishi Srivastava (17:46)
Mm-hmm.

Yeah, there’s some companies now in the market who are out there connecting Procore with like stuff like Sage 100. So you stay with Sage 100 even though it’s like the software from like 50 years ago, we’re going to connect it to Procore so you can run both. Accounting is going to be in, dark ages and the operations is going to be in, new era.

Kevin Jacobs (18:00)
Yeah, yeah.

which I just don’t, I don’t see where that works. But like we were talking about, this world is changing fast. So we’ll see where that lands.

Rishi Srivastava (18:20)
Yeah, there’s something going to happen here. I feel like there’s going to be a technology which is going to enable moves easier The next section here, Kevin’s on choosing the right ERP system. When companies are evaluating systems, how do you help them decide between platforms like Vista, Spectrum, Foundation, or Sage Solutions?

Kevin Jacobs (18:23)
Yeah.

You know, I generally like to get them to start with the end in mind. I want them to understand what type of reporting they want internally. I want them to understand what type of reporting they need to produce for external factors. And then they also need to have a healthy understanding of what type of budget is going to take to get that.

And then from there, you move into the operational fit. What’s their contract mix? Is it lump sum? Is it T&M Is it something else? Do they self-perform? Do they just manage projects? some softwares have nuances in there that are better than others. So if you start with those two and then kind of

if you thought of it as like a weighted scorecard, kind of look at eight or 10 packages that are out there, but then kind of narrow in on the three or four that gets you to where we just talked about. Then you take those three or four and do a deep dive on all three of them, which I know it takes up time and it’s kind of a pain, but to get…

demonstrations from all three. Now demonstration is not the end all, but to do a deep dive, you know, talk to people who use the software, find contractors that are similar to you because, you know, the construction industry is really unique in the fact that they usually don’t mind helping each other. And so you can find a contractor that you may or may not compete with that is set up like you, very similar to you, does a lot of the similar work.

they may have a good system and so instead of recreating the wheel, know, reach out to them and ask for advice. But that’s kind of where you start off and get them started down that road on deciding what they need.

Rishi Srivastava (20:37)
Do you take on these ERP migrations projects yourself?

Kevin Jacobs (20:41)
I have.

So I’m an experienced user in several platforms. I have been the CFO that implemented a large ERP package. And then I have been on the consultant side to where I kind of project manage the process for the contractor. Now, when it gets into,

technical side of the implementation, like making sure the software is set up correctly, the right boxes are checked, you know, we’ve got things, we’ve got cost codes tied to the right GL account, things like that. I usually partner with with an implementation company that I have a relationship with. But yeah, I’ve, like I said, I’ve kind of project manage and advise.

and along the way are helping the contractor set up financial processes around their new ERP system.

Rishi Srivastava (21:32)
sense. In your experience, what makes Vista a strong choice for many construction companies?

Kevin Jacobs (21:41)
okay. I guess the comments might light up with this one because I think Vista is by far the best system out there. ⁓ Because as you know, you can buy the best system in the world and if it’s not set up correctly, you’re gonna be unhappy because it’s not gonna deliver what you thought it was gonna deliver. I have seen Vista set up incorrectly.

Rishi Srivastava (21:50)
Hmm.

Kevin Jacobs (22:06)
and it did not work. I have seen VISTA set up correctly and it delivered more than what they even sold us on it. And it can handle T &M projects, can handle lump sum projects, it has a fantastic equipment module, it handles HR and payroll functions. It is a total package for, and

Rishi Srivastava (22:16)
Hmm.

Kevin Jacobs (22:32)
Where I implemented it was a self-performing general contractor who was in the world of civil and site prep, steel, erection, fabrication, had an E &I division, and so covered and also had an industrial services side. So we had a

Huge mix of contract types, billing cadences. We had almost 500 employees and Vista fit everything we needed it to do.

Rishi Srivastava (22:59)
Mmm.

We just onboarded a subcontractor who uses Vista for our construction AP automation solution, and they have a lot of work orders.

Kevin Jacobs (23:15)
Yeah. Yeah.

Rishi Srivastava (23:17)
So that will be like industrial services in your view, work orders. ⁓ What are some of the biggest misconceptions contractors have when selecting a new ERP?

Kevin Jacobs (23:20)
Yes, yes, yeah.

Probably the biggest is that this new ERP is going to fix all of our broken processes. ⁓ Which as you know, being on the software side, you know, what’s the saying? Junk in, junk out. ⁓ Garbage in, garbage out. That ERP is going to regurgitate exactly how you set it up and what you feed into.

Rishi Srivastava (23:37)
Hehehehehe

garbage in garbage out here.

Kevin Jacobs (23:57)
So like we were just saying, you can buy the best system that Elon Musk can deliver. But if it’s not set up correctly, it’s going to give you wrong numbers, wrong reports. It’s going to be inefficient. You’re going to be unhappy. And you’re going to be like, why did I spend this $750,000? So just thinking that just a new ERP system is going to make everything perfect.

That’s one thing, that’s a misconception we try to temper. And then, you know, when you start suggesting these robust systems that cost six figures a year, you know, the contractor pushes back and goes, well, any of these modern systems can handle construction. And it’s like, no, no, they really can’t. It’s kind of the situation where you’re at now. You’re with, say, QuickBooks.

and it’s not doing what you need for construction, well don’t go buy company X because they’ve just got a general package too. They’re not construction specific. So you have to remind them how specialized construction is with WIP and percent complete retainage. Other industries don’t deal with that. So if a software is not built for construction with construction people who are involved in programming, I would steer them away from it.

And then we said that the demo wasn’t the end all. That’s another thing, know, that, hey, the demo proved it worked. So I know it’ll do it, but just reminding owners that demos are scripted. ⁓ And sometimes they don’t use company specific data. know, a good, I’ve seen good demos where they got actual data from the company. They spent time with them doing a deep dive on

Rishi Srivastava (25:24)
Mm-hmm.

Kevin Jacobs (25:35)
processes and operation flow and what type of work they did and how labor moved between these jobs and equipment. But then I’ve seen demos where people come in and you know, here’s the script, here’s how we do it, here’s how you need to do it and give me $85,000 and I’ll leave it with you.

Rishi Srivastava (25:56)
Hehehehehe

Kevin Jacobs (25:57)
So, then just some others like, you know, thinking that the license price is gonna be the total cost. You know, they don’t put much thought into implementation and data migration and training. And then thinking they’re gonna customize it. Like, hey, just let us get it in here and then we’ll customize it the way we want it. you know, that adds cost and complexity. And then the first time the company upgrades the software, all your customizations disappear. So it’s…

It’s just, you know, it’s walking them through all of that because it’s explaining to them what they don’t know yet. It’s not that they can’t understand it. It’s just that they’ve never been exposed to.

Rishi Srivastava (26:29)
Mm-hmm. Yeah.

Yeah, you know, our world has gone so much in GDP up because of the division of labor, right? I if we all started doing the same thing, we would not have the kind of conveniences and the luxury that we have in the world. So you do your best stuff, I do my best stuff, and the contractor does their best stuff too, you know?

Kevin Jacobs (26:56)
Yeah,

yeah, absolutely.

Rishi Srivastava (26:57)
The next section is what an ERP migration actually looks like. People often underestimate ERP implementations. What are the major phases of a typical 9 to 12 month migration?

Kevin Jacobs (27:12)
you know, it is pretty common to see, to get the question from an owner or contractor, you know, hey, why is this gonna take so long? I mean, I’m looking at having this thing in and going and my people using it in three months. And it’s just like, you you kind of have to remind them that it’s just like a job where you’re moving labor and equipment and material two states away.

you know, there’s the initiation and mobilization phase. So that’s the first couple of weeks, you know. And then you’re into discovery. So you’re doing your deep dive and you’re figuring out, you know, what’s really going on in your current system and then your future design on what you want your new system to do. So that can take, know, starting in week three, that can take two to four weeks right there. And then you get into

Rishi Srivastava (27:39)
Mm-hmm.

Kevin Jacobs (28:02)
cleaning up your data. you don’t, one, you don’t want to bring bad data over to your new system. And then two, you have to make sure that you’ve got a clean set of books to end with in your old system. that, depending on the depth of that data, how dirty it is, how complex it is, that can stretch on for a long time. And then you start building and configuring your new system. So you’re going through and

you’re creating your chart of accounts and your phases and your cost codes and your departments and you’re building all of that system just like you’ve poured the concrete. Now you’re putting the steel up, you’re putting the skin on the building, you’re putting the insulation in. It’s just like that. So I always try to get them to visualize one of their jobs. Just because you’re sitting at a desk punching keys on a computer doesn’t mean that it’s just data entry and you’re not really doing a whole lot.

So it’s the build and configuration would be the next step. Then you start integrating. So you start testing. You start looking at small pieces of the pie and how they’re working. Are they working like we thought they were? This test worked well. Okay, let’s move on to the next one. This test didn’t. Well, let’s take a step back. Let’s look at the build and how it’s configured and rework it. And so all of this, you know,

the length of it, when we say nine to 12 months, if you want to get closer to that nine month, all of these steps I’m talking about take planning, planning, planning, just loads. If you think you’ve planned and prepared enough, you need to look at it again. So then you get into actual testing. So once you’ve tested these small pieces, then you get into testing the entire system as a whole. And okay, it’s looking like we’ve got it put together.

Rishi Srivastava (29:29)
Mmm.

Kevin Jacobs (29:47)
Here you start training because you know you’ve built the system. You know the framework and how it works is about 90 % complete. So now you start training people and some people may say why didn’t you start training earlier? Well you may not have had the complete build on how things were set up, how this is entered here and not in this window. So you don’t want to start the training too early because there may be some major changes.

along the way. But so you kind of once once you’ve got it built and tested out about 85 90 % then you start your training and then you train and train and train because like we said earlier people are scared of change and the more you expose them to it the more you train it that that stress level decreases and then you start looking at your go live date. So you you you punch that go live date in a perfect world we would run

Rishi Srivastava (30:38)
Mm-hmm.

Kevin Jacobs (30:45)
concurrently for a month or two before the go live date. you’d run, you’d have your new system set up exactly like you think it needs to. And so you start running in it while you’re running your old system as well. And if you can identify problems, if everything reconciles out between the two systems, then you know that you’re probably on, you’ve built a pretty good system. And so then you hit your go live.

And then it turns into, my God, I forgot all my training. So you’re stabilizing, yeah, and people panic. So you stabilize, you revisit some training. Problems are going to pop up because no matter how much you do prepare and plan and test, there’s gonna be one little situation that slipped through that you didn’t think about. One exception to the rule that pops up once every

year and a half, it pops up during that time. And so it’s retraining your people, it’s stabilizing the system, it’s making small tweaks to make sure that everything is as efficient as possible. And then, and so that’ll last, you know, a month to three months, you know, you’ll start seeing, you should start seeing those efficiencies in some areas immediately, but really after 90 days.

People should be comfortable and know their job and know what to do and the efficiency should be pretty relevant. And then, here, and this step right here is kind of out of that nine to 12 month implementation window. But after about a year, when all the users are used to the system, their confidence is back to where it was.

Rishi Srivastava (32:15)
Mm-hmm.

Kevin Jacobs (32:25)
in the old system before you made the change, they know their job, they know their processes. That software, would almost guarantee you that software is not being 100 % utilized. So then you kind of revisit. You may want to bring in the team that helped you implement it and go, hey, here’s how we’re using it. Here’s how it worked according to plan. It’s working great, but…

Rishi Srivastava (32:41)
I’m out.

Mm-hmm.

Kevin Jacobs (32:52)
how can we make it better? How can we optimize it? And so there may be parts of the software that you’re not using. There may be upgrades since then that can bring in that can make it better. Or it may be part of the plan that my people are gonna need more training. And here are some pain points that we are experiencing with this software. What can we do? It’s something maybe we didn’t think about or it’s a new situation that popped up.

How can we make that pain point less of a pain? And so bringing in, like I say, after about 12 to 14 months, revisiting everything and seeing how you can make it better because I wouldn’t want to pay $150,000 a year and use half the software. Even if that half is better than what I was doing, I would want to push that up to, I want to be using 80 % or 90 % of this package.

Rishi Srivastava (33:24)
Mm.

seen so many migrations where I’ve not thought about this entire process as deeply as you have.

Kevin Jacobs (33:49)
Yeah, some of them, like I say, some of them think it’s gonna take about a month and they’re gonna be running in it.

Rishi Srivastava (33:54)
What roles inside the construction company need to be involved in a successful ERP implementation?

Kevin Jacobs (34:01)
you can approach this from a couple of different ways.

from the idea that it’s an investment and money is going to be spent. You need to have ownership. Maybe, I don’t wanna say anyone in a leadership role, but definitely, you your CFO, your controller, your head of operations. Anyone in accounting needs to be involved in this. You need project managers.

you need IT, you need HR, and this all depends on how you’re set up. A lot of times an accounting department handles HR functions. Sometimes there’s a separate HR function. So estimating and purchasing, procurement, they all need to have some kind of role in this. then on the other way to kind of approach it is employee adoption.

If you get, now you can’t just open the floor to every idea, but if you do get, especially the field, the project managers, the supervisors, the foremen, if you let them have some input, if you go to them and figure out what issues they’re having with the flow of data from the field to the accounting office, let them have some input, let them have some ownership in this process.

you probably have a more successful adoption rate throughout the company than if you didn’t do that and you just went to them and said, here, here’s what you’re using now because we told you to.

Rishi Srivastava (35:32)
Yeah, yeah. Involving people, they also feel like they’re getting their say in the process, even if they don’t say anything.

Kevin Jacobs (35:39)
Yeah, yeah, yeah. If you just invite them to the meeting. Some people are happy just being there.

Rishi Srivastava (35:42)
Yeah.

You mentioned companies sometimes dedicate around 10 hours a week internally. What kind of work does that actually involve?

Kevin Jacobs (35:53)
And you know, that’s, it’s kind of an average over the life of that implementation. You know, it’s going to vary by what system you’re building and testing. Say like payroll, you know, during that time, payroll is going to be working a lot of hours a week, because they’re going to have their normal processes. And then they’re going to be asking them to work 20 to 30 hours more.

Rishi Srivastava (35:59)
Mm-hmm.

Kevin Jacobs (36:22)
building and testing out this new system. So there are peaks and valleys within that. But you know, you can safely bet on about 10 extra hours a week. And and that is that’s actual work that’s cleaning up data. That’s building a new chart of accounts, building a new phase and cost code library. it’s testing.

data migration, so you may be reconciling the new system to the old system. It’s validating that all of your vendors and your customers have come over to the new system completely and without duplication. So it’s just testing, reconciling, and verifying is how you could sum it up.

Rishi Srivastava (37:02)
Makes sense. The next section here is on data migration and system structure. When moving from systems like QuickBooks to Vista, how do you approach transferring financial and job cost data?

Kevin Jacobs (37:17)
You know, really, you adhere to three principles. You want to move any open items and active jobs in detail. Because as you know, especially with the WIP reporting and revenue recognition, you’ve got to have all of the details of any active job. Any historical data, you can usually keep it in summary.

The next point is you want to make sure that your job costing is mapped correctly. So your WIP your progress, billings and your retainage work on day one. That is kind of like payroll. That’s something that you don’t want to be working out the kinks and the problems down the road. You want it clean and working the moment you push the button on the new system. And then third one is just you want to tie out the general ledger to the sub ledgers and job cost.

with a strict reconciliation plan. if your trial balance on the last day of your old system matches the trial balance on the first day of your new system, you know that that data has come over correctly.

Rishi Srivastava (38:18)
You often recommend starting with clean beginning balances instead of migrating historical transactions. Why is that approach usually better?

Kevin Jacobs (38:29)
You know, it’s dependent on how you want to look at your historical data. So if you have access to your legacy system, there’s no reason to bring over transactional data for closed items if you can always go back into the legacy system and look it up. You know, it’s rare that you’re going to go back

more than two years in the past, especially once any kind of audit or review is finished. But I mean, you may, but it’s rare. So if you can access your legacy system, leave that historical information there. And even too, you can, if you’re gonna lose access to it, you can download information. You can GL…

Detailed activity can be downloaded in an Excel file. Bank recs can be downloaded PDF. And you can have that stored somewhere safely. I recommend a copy stored on site and a copy stored off site. And the reason you wanna look at doing that is because if you migrate transactional level data from the old to the new,

It’s going to be very, very labor intensive and it’s going to be more expensive. It’s going to require more intense mapping. It’s going to require more testing. And like I say, it’s just going to cost a lot more money than if you just had clean ending balances in the old system so that you have clean beginning balances in the new system.

Rishi Srivastava (40:07)
I like the two years marker that you gave Most of the time, you’re not going to get audited past two years.

Kevin Jacobs (40:16)
Yeah.

Rishi Srivastava (40:17)
What are the most common mistakes companies make when mapping chart of accounts, cost codes, phases, and cost types?

Kevin Jacobs (40:26)
The biggest thing I see is that everybody wants to put all of the detail on the chart of accounts, which anyone listening, that’s your general ledger account codes. there are sub-ledgers, and we’ll take payables, for example. There’s a payable sub-ledger that houses all of the detail.

and feeds into one general ledger account on the chart of accounts, accounts payable. I see people that want to design the chart of accounts to where all that detail lands. So you may have 20 accounts payable general ledger accounts on the chart of accounts. So then you multiply that by all the different categories in that chart of accounts and all of a sudden you got 1500 general ledger accounts when you could get by with 200.

That’s probably one of my pet peeves. the reporting that you get out of these systems is how, the chart of accounts is kind of like your backbone to the entire system. It all feeds into your chart of accounts to drive the reporting that you need. So use the system, use the subledgers. Use

what’s in there, how it’s supposed to be used. So that’s number one. I see chart of accounts that don’t make a clear distinction between direct job cost and indirect overhead. I see some that start off, you know, they’re missing some construction specific general ledger accounts. The most obvious one is like an over and under billing account.

Rishi Srivastava (41:52)
Mmm.

Kevin Jacobs (42:04)
And then if they’re ignoring like a multi-entity or an inter-company transaction, if they’re ignoring that and then they’re trying to go back later and add general ledger accounts to make an inter-company reconciliation easier, that’s all problematic. Cost codes. Usually your legacy cost code system can be built, cleaned up and built upon.

for the new system rather than just trashing it and building an entirely new one. So that’s an issue I see. Another issue is letting project managers just freely create cost codes. And I know this gets into the world of, well, it’s my job. This is how I wanna see it happen. But then that also, that’s part of

Rishi Srivastava (42:35)
Mm-hmm.

Kevin Jacobs (42:56)
Let’s talk about how that affects the company overall as well. I understand the project manager has a job to do on this job. But then let’s see how feeding that into the system affects the company as a whole. And let’s see if we can compromise somewhere. And then not aligning those cost codes to estimating. Estimating may have 10 cost codes, but the project managers are using 35.

that makes any kind of, actual to estimated analysis almost impossible. And then phases, you know, don’t treat phases like duplicate cost codes. So I see that out there. And then as far as cost types, you know, just keep them simple. Labor burden, materials, subs, rented equipment, owned equipment and other that’s that’s really all you need.

Rishi Srivastava (43:33)
Thank you.

I like that phases don’t make them duplicate of cost codes.

Kevin Jacobs (43:52)
We see that a little bit.

Rishi Srivastava (43:54)
The last section here, Kevin’s on war stories and practical advice. Can you share an example of an ERP implementation that went wrong and what companies can learn from it?

Kevin Jacobs (44:08)
Okay, we were helping a contractor implement a new system. They were on their legacy system. They had been on it for 15 to 20 years.

They’re going back to the chart of accounts, their chart of accounts was just not set up correct. And especially for the new system for the reporting they wanted out of the new system. And so we we advised that we structure the chart of accounts in a certain way, and the cost codes and phases and and showed them that this is why we need to do this to get to the reporting that you told us you need it.

and everything was cleared, everything was approved, everything was good. We get into the implementation and we’re deep into the implementation and they start receiving pushback from their employees. Well, I’ve always posted this to account 1000. Why am I having to post it to 1500 now? And what they did was they caved on that pushback.

and they wanted to go back to their, the same structure as their legacy system in their new system. We advised against it. They said they wanted to do it. So we went back and as best we could matched up to the old one. But those errors that that old structure created in the old system started presenting themselves in the implementation in the new system. And so

That caused a significant increase in the cost. It pushed their go live date by eight months. It was, and of course, because of the delayed schedule, you know, there was friction from them. You know, hey, you said we were gonna be done by now. And so it made the implementation very contentious. And so that was, I would not recommend.

change in midstream like that at all.

Rishi Srivastava (46:03)
Yeah, I was talking to an IT company owner and she does these ERP migrations all the time. She was telling me in these migrations, you got to be very kind to people who are undergoing this process. And usually there’s one or two employees who either leave or get fired or there’s something, happens in these migrations. They’re very tense people-wise process as well.

Kevin Jacobs (46:29)
is that’s true. I’ll tell you what I’ve seen.

was on the CFO side and we were beginning to implement our new system. I had someone tell me, know, hey, watch everybody in the company. You’re gonna have your early adopters. You’re gonna have those who adopt very fast. You’re gonna have those that you bring along kicking and screaming, but they will adopt. And then you’re gonna have that three to five percent who won’t adopt.

for anything in this world and you’re gonna have to let them go. And I saw that play out in my own experience and it was, mean, you talk about someone who had been there for 20 years, they just absolutely refused to go to training, to be a part of building the system, having any input. And then once it got there, still trying to work with them to let them be a part of it and just, and at that point they try to jump in, but then they’re just,

make an error after error and then just to get to a point where you just had to separate.

Rishi Srivastava (47:32)
It’s a very tough project ERP – migration.

Kevin Jacobs (47:36)
Yeah,

yeah, it is. But, you know, the lessons that they can take from that story, other companies can, is, you like we said earlier, you plan, plan, plan, and then stick to the plan. Don’t panic. You know, the plan is good. It was good three months ago. Now that we’re in the weeds and things are hard and there’s some resistance, don’t panic, just push through.

Rishi Srivastava (48:06)
In software world, when someone is building a new software, there is a phrase pivot or persevere. So I guess in ERP implementation, you only persevere, you don’t pivot.

Kevin Jacobs (48:19)
That’s right. You persevere. Push on.

Rishi Srivastava (48:22)
The last question here, Kevin’s, after the system goes live, what metrics tell you that the migration was successful?

Kevin Jacobs (48:30)
You know, accounting functions are working as expected. you’re like, like we were talking about earlier, your trial balance reconciles to the legacy system. Subledgers reconcile to the general ledger. Your AR and your AP are aged correctly. Your bank recs are working. And then you go to the operational side. You know, if we automated field input in any way, say like labor hours or equipment hours.

make sure that one, that the field is able to use that as you trained them and as they expected to be able to use it. And then two, to make sure that that information is feeding into the system like you planned. And then you want to look at the data quality, you know, your vendors and your customers are in the new ERP system, complete and without duplication, your equipment.

has moved over all your pieces of equipment and everything is set up correctly to calculate your depreciation. You know, and that that’s matching up to what your expectations were. Critical users have access to every part of the software that they’re supposed to have access to. And the reporting is as planned. You know, the owners wanted a very specific style of report. The sureties in the banks wanted a type of report and you’re able to get that out of the system in an efficient manner.

And then, like we were talking about earlier, those efficiencies that were promised with this new system start showing in everybody’s processes, you know, in the first 30 to 60 days. And then after 90 to 120 days, everybody’s really, really happy with this new system that you forced on them and they love their job.

Rishi Srivastava (50:04)
Yeah. Kevin, thank you so much for your time. I had a fantastic conversation with you.

Kevin Jacobs (50:10)
Thank you, man. I enjoy being here. I appreciate it.

Rishi Srivastava (50:14)
Thanks