Case Study: EV Charging Startup Accounting Setup

CASE STUDY

Introduction:

In the construction sector, particularly within the expanding fields of solar and EV charging infrastructure, accounting success depends not only on software solutions but also on streamlined operational processes. Global Finance Teams (GFT) partnered with an emerging construction startup specializing in solar and EV charging projects, aiming to optimize their workflows and improve data accuracy. This case study outlines the challenges, strategies, and outcomes of this collaboration.

Challenges in Construction Accounting

Complex Revenue Recognition: Construction revenue is based on project-specific contracts with unique terms, requiring precise tracking of deliverables.
Operational Alignment: Disconnected workflows across departments hindered seamless contract-to-delivery processes.
Limited Systems Utilization: The company’s existing software, including QuickBooks Online, lacked robust inventory management features.
Payroll Job Costing: Tracking labor costs per project was difficult, affecting profit margin analysis.

Planning and Timelines GFT developed a comprehensive project framework that outlined key milestones, timelines, and stakeholder responsibilities. This plan included:

Initial walkthroughs with stakeholders to identify process gaps.
Documentation of workflows using flowcharts for clarity.
Change management strategies to prepare teams for system updates and new processes.

Accounting Basics

The construction industry presents its own unique set of challenges when it comes to accurate and timely financial reporting. Revenue in construction is derived from custom building contracts with specific terms, specifications, and deliverables, which adds complexity to revenue and expense recognition.

To address these challenges and more, the Financial Accounting Standards Board (FASB) introduced Accounting Standards Codification (ASC) 606. This standard is guided by the key principle of allocating the revenue as work is completed rather than when the billing invoice is created.

We organized the company’s P&L consistent with construction business's P&L statement. The P&L begins with revenue from projects, followed by direct and indirect costs, yielding the gross margin per job. Sales and marketing, general overhead, and administrative expenses are then listed, culminating in the net profit, which is the revenue remaining after all costs are subtracted.

Process Flows

Leads to Contract:

Conducted in-depth discussions with the Sales team to map their lead generation and onboarding processes.
Recommended digital contract initiation through DocuSign, followed by verification via a subcontractor hub.
Implementation of Monday.com: GFT recommended and helped the company build out their project management processes in Monday.com, customizing workflows to enhance visibility and ensure efficient tracking of key milestones.
Ensured consistent updates to the contract database and project management system (Monday.com).

We initiated discussions with the Sales department, engaging in a comprehensive walkthrough of their lead generation process. This involved delving into the tools and methods employed during the nurturing phase, as well as the intricacies of the onboarding and contracting procedures. This walkthrough served as a crucial step in our efforts to pinpoint the precise juncture at which project tracking would commence upon contract signing. We recommended establishing clear timelines and protocols for creating project codes, all while synchronizing updates to the payroll and accounting systems. This also entailed defining specific roles and responsibilities within the process flow, ensuring seamless coordination and execution.

We recommended that the contract management and operations workflow to begin with digital contract initiation via Docu-Sign and proceeds through a series of verifications and updates to ensure process transparency and accountability. Once the contracting software “subcontractor-hub” updates to “contract verified” GFT will create project codes and update the payroll system along with the contract database managed on Monday.com. The process flow emphasizes the importance of distinct record-keeping for contract details and project statuses. The central recommendation is the integration of the contracting software and project management databases to facilitate precise analytical reporting and to prevent the overlap of information from Operations. The use of Monday.com is promoted for its comprehensive project management capabilities, ensuring that leadership receives accurate, real-time updates for informed decision-making, thereby streamlining the workflow from initiation to execution.

Site Survey to Contract:

Introduced a validation step where the operations team conducts on-site surveys to confirm project feasibility.
Implemented measures for recording changes in the contract database for additional billing if needed.

During our initial walkthrough with the operations team, we focused on the contract completion process. In this process, it was established that while the customer might sign the contract, a crucial step involved validation by the operations team. To complete this validation, operations would dispatch a representative to conduct an on-site survey. This survey was instrumental in determining whether additional work needed to be incorporated into the contract or if, in some cases, the project might not be viable and would need to be canceled. As part of our process enhancement, we introduced steps to update the project status on Monday and to record any contract database changes required for future additional work billing. These measures were designed to ensure a streamlined and well-documented workflow.

Installation and Service Delivery:

Streamlined the service delivery process, covering procurement, inventory management, and job costing.
Developed protocols for accurate revenue recognition and project milestone tracking.

We held multiple meetings with the operations department to delve into the service delivery process, which encompassed material procurement, inventory management, and project completion. This process flow played a pivotal role in various accounting entries including job costing for materials, inventory tracking and management, and revenue recognition. These discussions were instrumental in aligning operational procedures with accounting practices to ensure accuracy and efficiency. including job costing for materials, inventory tracking and management, and revenue recognition. These discussions were instrumental in aligning operational procedures with accounting practices to ensure accuracy and efficiency.

Materials and Inventory Management:

Created an Excel-based goods receipt system to compensate for the limitations of QuickBooks Online.
This system tracked inventory movements and maintained accurate records using average pricing calculations.

Materials and inventory management presented several challenges. Firstly, QuickBooks Online lacked a comprehensive system for effective utilization, and due to budget limitations, we had to devise alternative solutions. To address this, GFT created an Excel-based pull ticket system. This system, which we referred to as a "goods receipt ticket," operated in reverse. It was used to track materials leaving inventory for specific projects. By maintaining a starting inventory count balance, adding incoming materials, and subtracting outgoing materials, we were able to determine the value of the remaining inventory based on the average pricing of each item listed in the material master list. This approach allowed us to navigate the inventory management process more effectively while working within budget constraints.

Payroll Allocation:

Integrated project codes into the payroll system to enable accurate job costing.
Developed automated Excel tools to simplify payroll data uploads and ensure accurate allocation.

To ensure the company had a clear view of project margins, it was crucial to implement job costing for the payroll. The company had already adopted Insperity, and it was made mandatory for installers to allocate their hours to specific projects. To facilitate this, we introduced a step in the process: when a contract was signed, the project codes would be updated and integrated into the payroll system. This allowed installers to select the appropriate project codes in their application. Furthermore, we developed automated power query Excel tools to streamline payroll allocation and create files that is easy to upload. These efforts simplified the process, enhancing accuracy and efficiency in job costing for the payroll.

Revenue and Billing:

Established a database for tracking project milestones and revenue accruals in compliance with ASC 606.
Enabled more accurate profit and loss (P&L) reporting by reflecting work-in-progress revenue.

Outcomes and Benefits

Operational Efficiency: GFT’s process improvements reduced manual errors and enhanced cross-department collaboration.
Enhanced Financial Reporting: The integration of systems allowed for timely, accurate financial reports, improving decision-making.
Scalability: The implementation of structured workflows and digital tools enabled the company to scale operations effectively.
Staff Integration: GFT successfully onboarded two staff accountants, increasing the company's capacity to handle financial processes.
Improved Project Management: By building out and customizing Monday.com, GFT empowered the company to manage projects more effectively, providing leadership with real-time insights.

Conclusion GFT’s partnership with this solar and EV charging business showcases the transformative power of aligning operational workflows with financial goals. By focusing on data integrity, workflow optimization, and system integration, GFT provided a blueprint for achieving both structural and financial success. This case study serves as a testament to the benefits of strategic process alignment in the construction industry.