Let look at something simple for the accruals as it is far to easy to muddle and confuse the explanation by being to complicated with accounting jargon, we will look at the household budget and a project for the decoration of three bedrooms.

The Project

The house is owned by a young working couple on a limited budget, it is a new build property and the walls are painted throughout, there are some settlement cracks that need filling and a couple of coats of paint are needed to refresh the bedrooms.

The couple will supply the materials and use a local tradesman who they will pay by invoice at the end of the project, the decorator will have access to one of the bedrooms each week for three weeks.

We will calculate the project accruals at the end of each week, now we need to look at what we would accrue.

 The Budget

Our local tradesman agrees to carry out the work for $300 a room, decorate one room a week so our couple can empty and move the rooms over the weekends, and has agreed to invoice at the end of the project.

The decorator gave our couple a list of materials required for the project and the couple spent $180 on the paint and materials to decorate the three rooms.

 What we accrue

The materials cost $180 and were paid for on the couples credit card so they have a liability to pay their credit card bill, this liability we will not need to accrue for in full each week, but we will accrue for any materials the decorator has opened or consumed.

If we look at the picture the decorator has not opened three of the paint tins or used the roller and brush, they have the credit card bill to come in later, so the unused materials could be returned and the credit card refunded.

 Accruals

We have a project budget of $1080 this will change from a budget to a liability and accrual over the three weeks of the project.

At the end of the first week the decorator has opened or consumed $70 of the materials and the decorators wages come to $300, so the couple have an accrual and liability at this stage of $370, that would be all they would have to pay if they stopped the project and returned unused materials.

At the end of the second week the decorator has opened or consumed $140 of the materials and the decorators wages come to $600, so the couple have an accrual and liability at this stage of $740, that would be all they would have to pay if they stopped the project and returned unused materials.

At the end of the first week the decorator has opened or consumed $160 of the materials and the decorators wages come to $900, so the couple have an accrual and liability at this stage of $1060, that would be all they would have to pay if they stopped the project and returned unused materials.

How nice, the couple have the project finished on time and $20 under budget, if they return the un-opened materials.

Business Accruals

Now we have a basic overview of accruals we can see that they are financial liabilities for goods or services the company has consumed but has not been invoiced for, lets look at another example of something a company would want to accrue, if our business collects upfront payments from customers, then this is deferred revenue and is also a liability until our company provides the goods or services the remaining liability and should be accrued in the management reports.

If we want to look at our management accounts to see if we are on our trading target we could calculate out liabilities that are not yet invoiced the remaining balances for prepaid overheads, deferred revenue and expected costs “as at” a date which are the accruals, we would have the “Sales to Date” values which would include any deferred revenue, and deduct any actual costs (Invoiced), plus any accruals for expected costs, deferred revenue and overheads.

So at period six we might have revenue of $1,300,000 but a true revenue of $1,100,000 as $200,000 is deferred revenue,  we take our revenue to date of $1,300,000 and deduct, invoiced costs of $800,000, deferred revenue of $200,000 and $50,000 of un-invoiced “expected costs” leaving a sales margin of $250,000.

Prepayment

As we can see accruals are financial liabilities for goods or services a company has consumed but have not been invoiced, so prepayments are the opposite financial accounting for goods or services a company has not consumed and have already been invoiced.

Prepayments are an asset as they might be able to be refunded if the goods or services are not required or consumed, these can be a number of things, prepaid insurances, rates or service charges, a full years insurance for 12 months we would calculate half as a prepayment at the end of period six, that is a calculated prepayment value for any unused months.

Hold that Thought

My advice might seem strange but I will encourage anyone to stop and think, write down a plan, deciding what they really want, “where they are now and where they would like to be”, take a realistic look at the steps required to get there and the timeframe.

Then when they are better prepared the first step is to talk to their existing employer first, discuss how they are feeling and if the company can provide the framework to achieve the goals they have set out, the company could think that they are “happy and settled” in their current role, the end goals might suit the company’s planning and future plans, thus opening up other avenues for discussion, it is far better to try to resolve any differences and work in a settled framework than start out contracting.

Agency or Direct

Most companies will have recruitment companies they work with, so getting your CV up to date and published is a first step, keep the CV down to three pages maximum, the first page should have bulleted lines with your main strengths, we will look at realistic rates in the next section, but remember agencies will add between fifty to one hundred pounds a day to your rate.

Once you CV feeds down to the agencies you might get a few phone calls, beware some of these could be fishing for information and not an offer to put your CV to a client, as I rule I will not discuss an agency I am working through and will never discuss the reseller or end client.

If you know of a company that might be looking for a resource and before you put your CV out to the agencies, contact them direct with a copy of your CV, if they have had your CV from an agency then they are unlikely to take you on directly.

Another way of letting people know what you are doing is the social media websie, LinkedIn, it takes a while to get setup, but you can link to companies and people you have worked with, I have had a few messages asking if I am looking for a contract.

Realistic Rate

So what is a realistic rate for a Dynamics NAV contractor?

Let us have a look and see what IT Job Watch is saying, at the time of writing for a Dynamics NAV contractor the average rate is £345, this will be different for a Project Manager, Consultant and Developer.

If you are looking for your first contract then you may have to come in at a lower point to secure a contract, anything from £275 – £450 depending on your skillset.

If you are working through an agency remember that they will be adding on £50 - £100 a day to your rate, if the project end client is retail then it is possible that they are paying a lower rate than a financial services company, all these factors will impact on who they take on.

Is it worth it?

There are a number of variables to consider, four weeks holiday, Bank Holidays, Sickness and out of contract downtime, a few years back I finished a contract in mid-November it was February before I was working again, so my income that year was hit.

Let us look at a possible average:

• 365 – 52 weekends = 261
• 20 days of unpaid vacation = 241
• 9 unpaid days public holidays  = 232
• 10 days unpaid out of contract or unplanned absence = 222
• Make the average salary £300 per day, 222 contract days = £66,600.
• Divide this by the  261 employee paid working days = £255.17 a day as a contractor.

The cost of employing someone excluding company overheads, basic salary, employment taxes and benefits are typically in the 1.25 to 1.4 times base salary rate, employing a contractor negates these,and equates to employing someone on a salary at around £47K.

Pro’s and Con’s

Employer Pro’s

• The cost of employing a contractor is not that much more than an employee
• A contractor can be employed at short notice, and often works faster and better
• Contractor can be let go at short notice or when the contract ends without penalty
• No hand holding should be required the contractor will hit the ground running
• Project costs can be budgeted more tightly
• Agency fee should be smaller than taking an employee

Contractor Pro’s

• Contracting opens up new contacts and channels, with more freedom
• Project work is more intense, diverse and varied
• Less non-productive hours, the employer wants to maximise the use of a contractor
• More respect from other members of the employers Dynamics NAV team
• No team building or social events to attend
• Expenses can be claimed in real time, both chargeable and non-chargeable

Employer Con’s

• Short term projects planning as they cannot plan for a contractor
• Slightly higher project cost, often negated by higher production
• End Client’s might not agree to the use of contractor
• End Client might find out that the project resource is contracting
• Endless calls from the agencies
• Poor candidates from the agencies (both contract and permie)
• Long term support, not having quick contractors feedback

Contractor Con’s

• Unpaid holidays, sickness and bank holidays
• No longer term job security as a contract can be ended at short notice
• Could be working for long periods away from home
• Dealing with some agencies is harder than expected
• Self-employment can affect access to other financial services

Conclusion

I can not say if moving into contracting would be a good or bad thing, the employee needs to consider more than the financial gains, do they have a family or need to be local a lot of the time, do they have health issues that could affect working away.

Ask yourself as a contractor could I stand on my own skills, could I hit the ground running, am I prepared to work away or travel, are my skills and experience at a level that a reseller or end user would expect from a contractor, most important would I be happy contracting.

This new website is a WordPress based website, as I write tutorials for WordPres developers I though that I should be using WordPress on this website.

The initial thought was to purchase a business theme, but after some searching I could not find a good theme out the box, so I have decided to use my own Digital Raindrops Color Master Twenty Eleven child theme for now, and use this to design a resonable custom theme later.