Bookkeeping: Difference Between Bids, Estimates, Proposals and Quotes

Small business owners often need to acquire the services of other businesses. When inquiring about the services a company provides, you may be presented with a bid, quote, proposal, or estimate. Many companies often use these terms interchangeably. However, the definition of these terms can mean different things to different people and in different industries.

It’s a lot like the difference in what people call soft drinks. They may call them Coke, cola, soda, or pop – it just depends where you are and who you’re talking to. Therefore, when requesting information from a company, you need to make sure you and the company you’re talking with are interpreting the term the same, so you don’t get a Pepsi when you really wanted a Coke. Because these subtle differences can affect specifically what information you’re requesting, which can affect your budget and accounting later.

To help reduce some of the confusion, here are the most widely accepted definitions of each term.

Bid

Compared to estimates and quotes, a bid is a detailed document a company provides that states a specific price to perform a specific job within a specific timeframe. To receive an accurate bid, the client should clearly define the scope of work that needs to be done. A bid can also refer to the actual dollar amount listed in the document.

Additionally, bids can be submitted to perform certain parts of a larger project. For example, if you require a new company website, a website designer may solicit bids from writers for the creation of the content for the website.

Clients may request several bids for a project. The winner is often chosen from the bids based on the lowest cost to complete the project.

A bid may become a contract if the customer signs it. Bids can help you determine the actual cost you will pay for a specific job. Therefore, you can budget accordingly and expect to pay this amount once the job is completed.

Estimate

An estimate is an estimation of what the supplier expects the costs to be. It’s a rough figure based on limited information about the project. An estimate can help you determine how much a specific project may cost and if it’ll be within your budget. However, you need to remember that estimates aren’t firm figures. The price could go up or down once the vendor has more details about the project, which could affect your budget and accounting later.

Typically, estimates are provided for free, but some vendors may charge for the time it takes to prepare a thorough, accurate estimate. If you request an estimate, make sure you understand whether you will be charged or not.

Proposal

Compared to a bid, a proposal is a much more detailed document. It outlines the exact scope of the job, the timeline, any materials to be used, the deliverables, and the exact costs. If the vendor is working with any subcontractors to complete the project, each subcontractors’ portion of the work and costs will be included, too.

Proposals allow companies to provide suggested solutions to specific needs the client may have. Often, a proposal may detail the value you can expect to receive from the supplier. Proposals also may include examples of past work and customer testimonials.

Since a proposal is very specific, you will know exactly what work you will receive and what you are expected to pay for the project. Therefore, you can budget accordingly. From an accounting standpoint, you’ll know what payments are expected by a specific date. Often, a proposal can turn into a contract when you sign it. Or, the vendor may require you to sign the proposal to accept it.

Quote

Like an estimate, a quote is a non-binding document which provides a price for a project within a specific timeframe. Once the timeframe is up, the price may go up. Often quotes are provided when the price of materials needed for the project fluctuate from one day to the next. This enables the vendor to protect themselves from rising material costs.

If you accept the quote, the vendor must complete the work for the price quoted. However, if you wait, you need to realize the price quoted may change in the future.

A Bookkeeper Can Help You Make Sense of Bids, Estimates, Proposals, and Quotes

 As you can see bids, estimates, proposals, and quotes have different meanings, even though they can overlap. When it comes to your company’s bookkeeping and accounting, here’s what you need to remember. Estimates provide an approximate cost. Quotes provide a fixed dollar amount within a specific timeframe. Bids are more detailed and provide the actual cost to complete the project. Proposals are even more comprehensive than bids, provide actual costs, and focus on showcasing the value the supplier can provide.

When you work with a bookkeeper, like Grace Walker, with The Payroll Department. She can help you understand the intricacies of each and how they can affect your company’s bookkeeping processes as well as your company’s bottom line. Contact The Payroll Department to learn how we can help you manage your costs when working with various vendors. So, you can make sure you’re getting a Coke when you want a Coke – and not a Pepsi.

– Ariane of The Payroll Department Blog Team