Hello builders, Jon Markee here, founder and CEO of MyBuilderCPA. Today, I want to talk about allowance reconciliations on your jobs, particularly those involving homeowner allowances for items like light fixtures, plumbing, and more.
Understanding Allowance Reconciliations
Allowance reconciliations are crucial, especially in homeowner jobs where clients have specific allowances for various purchases. This process usually needs to happen to close out a job, regardless of whether you are on a fixed bid, hybrid, or cost-plus model. Homeowner allowances need to be reconciled at some point to ensure the project's financial accuracy and completeness.
Setting Clear Expectations
It's essential to have a conversation about allowances with your homeowners before starting the job. Homeowner expectations can vary widely, and some may have specific formats or templates they want to see their allowances in. Establishing a consistent and replicable process for handling allowances is crucial to avoid misunderstandings and errors.
Establishing a Consistent Process
Set Allowances at the Beginning: Establish clear allowances at the start of the contract and avoid changing them mid-project.
Limit Homeowner Purchases: Discourage homeowners from making their own purchases, as this can complicate the reconciliation process and affect your markup application.
Consistent Format: Present data consistently and avoid adapting to every homeowner's preferred format. Ensure the information is clear and understandable within your established format.
Transparency and Communication
Allowing homeowners to access their budget through the job software using their owner profile can reduce the number of emails and questions you receive. Transparency in budgeting helps homeowners keep track of their expenses and understand any variances as the project progresses.
Meeting with Homeowners
While transparency is important, it's usually not a good idea for us to meet directly with your homeowner clients. We might not be familiar with your specific style or the details of your negotiations with them. If a meeting is necessary, it’s best if you, the builder, are also present to ensure consistency and clear communication.
Handling Allowance Overages
It’s common for homeowners to go over budget, resulting in a balance due at the end of the job. To manage your cash flow better, consider processing a change order for significant allowance overages. Homeowners should pay for these overages immediately to keep the project financially on track.
Importance of Change Orders
Always get a signed change order before ordering materials or starting work on a significant allowance overage or any major change. This helps avoid disputes and ensures everyone is on the same page regarding project costs.
Conclusion
Allowance reconciliations are a vital part of managing homeowner jobs. Establish clear processes, maintain transparency, and handle overages efficiently to ensure a smooth project completion. If you have any questions or need further assistance, don’t hesitate to reach out.
Cheers to your success, and thanks for watching!