Using Customer Type
The Customer Type list may be accessed in the List menu under the Customer & Vendor Profile Lists section. The Customer Type selection is made in the Edit Customer dialog box on the Additional Information tab.
The Customer Type setting is primarily used to filter P&L Reports so you may see just the income, costs and profitability of your projects by a specific type of customer.
The Customer Type setting may also be used to create separate columns on a P&L Report. This capability, along with the fact that you can select or change the Customer Type in the Edit Customer dialog box retroactively and at any time, presents a unique potential for using the Customer Type to manage the completed contracts status of your projects and provide completed contracts tax reports.
Of course, one may observe that you can also use the Rep List or even the Terms List to create columns on a P&L Report, but in the Customer List these are just the default settings used when creating invoices and can be changed on each invoice. In addition, changing the Rep or Terms in the Edit Customer dialog box has no effect on past transactions, which renders them ineffective for the monitoring the changing tax status of your projects which will change from “Current Contract” to a “Completed Contract” as they are completed.
From outward appearance there is little difference between the Customer Type list and the Job Type list. Technically, Customer Types are types of customers (New Home Buyer vs Private Homeowner) as opposed to types of jobs (Custom Home vs Room Addition). However, because you can use Customer Type to create columns in a P&L report, I recommend it for tracking completed contracts tax status and using the Job Type list for filtering the P&L to ascertain profitability and gross percentage by Type of Project or whatever other category you choose to utilize.
STRATEGIES for USING CUSTOMER TYPE
There are three potential uses for the Customer Type setting in QuickBooks:
- Track P&L by Completed Contracts status.
- Track P&L by Type of Customer.
- Track P&L by Type of Project
TRACKING P&L by COMPLETED CONTRACTS STATUS
One alternate use of the Customer Type setting is to use it to filter P&L Reports or even create columns on a P&L Report for the completed contracts for each tax year. This works by adding a Customer Type for “Active Projects” and for each tax year such as “2001 Completed Contracts” and “2002 Completed Contracts”. New Customer:Jobs are first set to “Active Contracts” and as they are completed (or simply at the end of each tax year), you change the Customer Type setting in the Edit Customer dialog box to reflect their status as completed contracts.
The result of this strategy is that you can quickly filter P&L Reports to show the P&L based on your completed contracts for tax purposes. You can also create P&L Reports with separate columns for the completed contracts in each tax year, along with another column with your active contracts. All of this is designed to make your accountant’s job easier at tax time, but is also useful when making the General Journal entries to move income and construction costs to your Balance Sheet as necessary from time to time (see Tax Strategies for more info).
You can also achieve very similar results to what is described above by filtering a standard P&L Report by “Selected Customers” for the contracts completed each tax year and then memorizing the report, so don’t feel that the strategy outlined above is your only option to achieving the Completed Contracts reports. Of course, the filtered and memorized reports will not allow you to compare every year side by side, but that’s not generally an imperative.
If you wanted to use the Customer Type List to track your projects by their completed contracts tax status, you might want to use some of the following Customer Types:
- Active Contracts
- Current Spec Inventory
- 2000 Completed Contracts
- 2001 Completed Contracts
- 2002 Completed Contracts
- 2003 Completed Contracts
- 2004 Completed Contracts
TRACKING P&L by TYPE of CUSTOMER
The Customer Type setting is most commonly used to filter P&L Reports so you may see just the income, costs and profitability of your projects for a specific type of customer. There isn’t anything wrong with using it for this purpose, and if that’s all you want to use it for, that’s fine. However, as stated above, the Customer Type’s unique capabilities present some interesting alternate uses.
If you wanted to use the Customer Type List to track the income, costs and profitability of your projects for a specific type of customer, you might want to consider using some of the following Customer Types:
- Architect / Designer
- Attorney / Law Firm
- Bank / Financial Institution
- Charitable Organization
- Commercial Property Owner
- Commercial Tenant
- Condo Association
- Custom Home Builder
- Executor / Probate Court
- General Contractor
- Government Agency
- Home Owners Association
- Institutional Organization
- Insurance Company
- New Home Buyer
- Private Homeowner
- Production Home Builder
- Property Manager
- Real Estate Broker
- Real Estate Developer
- Real Estate Investor
- Specialty Trade Contractor
TRACKING P&L by TYPE of PROJECT
Another use of the Customer Type setting is to use it to filter P&L Reports for one type of project, or even create columns on a P&L Report for each of the different types of projects you build. This works by adding Customer Types for each type of project you perform (Custom Homes, Room Additions, Commercial Tenant Build Out, etc). New Customer:Jobs are set to a type of project as they are first setup, but they can be changed as management reporting requirements change.
The result of this strategy is that you can quickly filter P&L Reports to show the your P&L for specific types of projects. You can also create P&L Reports with separate columns for each type of project, thus allowing you to do side-by-side comparisons.
Now, the first thing you have to ask yourself when reading this is “Why not use the Job Type List to make these distinctions?” The answer is, believe it or not, that if you filter a standard P&L Report by Job Type, the income numbers drop off the report unless you also switch the columns to Customer:Job, which of course means that you will have a separate column on the report for each one the projects that fit the Job Type, although the last column with the totals will be correct. In addition, you cannot use Job Type to create a standard P&L Report with separate columns for each type of project, although this is not an absolute necessity.
You can also achieve very similar results to what was described above by filtering a standard P&L Report by “Selected Customers” for a specific type of project and then memorizing the report, so don’t feel that the strategy outlined above is your only option to achieving a P&L Report by Job Type. Of course, the filtered and memorized reports will not allow you to compare different job types side by side, but that’s not really an imperative.
If you wanted to use the Customer Type List to track your projects by their completed contracts tax status, you might want to consider using some of the following Customer Types:
- Apartment Building
- Apartment Complex
- Basement Remodeling
- Bathroom Remodel
- Commercial Project
- Commercial Remodeling
- Condominium Building
- Custom Home
- Design Contract
- General Remodeling
- Historic Restoration
- Insurance Work
- Kitchen Remodeling
- Production Home
- Property Inspection
- Rental Property
- Residential Renovation
- Room Addition
- Small Jobs
- Spec House
- Specialty Project
- Townhouse Complex
- Window Replacement
If you are a member of an NAHB Builder 20 group, you might also consider using the Customer Type List to track your sales by type of project as required by the Builder 20 reporting format, as follows:
- Custom Homes (with Land)
- Custom Homes (without Land)
- Lot Sales to Others
- Production (Spec)
- Semi-Custom (with land)
It really depends on the specifics of your business and the mix of Customer:Jobs you perform. However, I have concluded that most Builders should use the Customer Type to assign each project to a tax year and to track P&L by Completed Contracts status based upon the following observations:
- Most construction companies report their taxes using the Completed Contracts basis.
- My other strategies for using QB all revolve around posting the income and construction costs directly to the P&L accounts.
- If your tax liability is being calculated by the Completed Contracts method, then there is a need to assure that every project is properly included in at least one, but only one, tax year.
- The side-by-side comparison of each year’s Completed Contracts P&L and the Customer List itself will serve to assure that every project is properly assigned as either an Active Contract or as a Completed Contract in a specific tax year.
- The Job Type List, which is similar to the Customer Type List, is not well suited to identify the Completed Contracts status of your projects because you cannot use Job Type to create separate columns on a P&L report.
- You don’t need to use Customer Lists to serve the separate need of distinguishing between and reporting profitability of different types of customers and/or projects because that can be done with the Job Type List.
- You don’t need to use Customer Lists to compare the P&L of groups of projects because that can be easily done using memorized reports filtered by Selected Names.