Job costing, which is the single most important task in an estimating systems process flow, is something that is often neglected by so many start-up, small and mid-sized construction companies. Failing to job cost effectively or failing to execute it altogether, would be similar to a pilot attempting to fly a plane through thick cloud cover without being instrument rated.
We just talked with a very agitated construction company owner. He has been doing business in Orange County and San Diego County for a decade, but his company has grown to where he knows he must keep a better watch over his ‘job costs.’ He was worried that his reports and financials we “not right.”
We decided to assist him by reviewing what his current QuickBooks file is doing for his business. He wants help to figure out if he’s doing his “job costing” correctly so he can know how much money he’s making on each job.
Rebecca Tervo, a CPA and QuickBooks expert in Michigan gives a through primer on the subject of job costing, here –Rebecca Tervo CPA
Job costing was part of my duties when I worked for a manufacturing company several years ago. I had to make sure the proper systems were in place to track all the employee hours and materials and supplies properly to each job. It was an ongoing process of reviewing data on a regular basis to check for flaws in the system and for inaccuracies in the numbers. I enjoyed it immensely, and learned a lot about how a breakdown in the RECORDING of information can really screw up the job profitability reports.
But, a manufacturing company isn’t the only business that needs job costing.
What is job costing? Simply put, it is a way to track the profit and loss on specific jobs or projects for your business. Knowing how profitable or unprofitable your work is will help you make better business decisions when moving forward.
Manufacturing businesses aren’t the only companies that can benefit from job costing:
Interior Designers can track profit by customer project
Road Construction companies can track actual profit vs estimate
Plumbing contractors can track whether they are making or losing money on each service call
Law firms can track profit and loss per case
Consultants can track profit and loss per consulting job
Online business managers can track profit and loss by project
As you can see, job costing can be very useful for many types of businesses. Figuring out the profitability of a specific project requries you to track several pieces of information.
Information that’s used to determine job profitability
In order to properly “cost” your jobs, you’ll need to have a way to track income and expenses for separate projects. One other note: All costs related to a specific job are also called ”cost of goods sold”. My choice to track job costs is QuickBooks. Here’s the information you want to track for each job:
Labor cost- including time for employees and subcontractors; and any taxes, insurance, and benefits you pay for this labor.
Materials cost- parts, supplies, products used on the job
Cost of equipment to get the job done- example: did you rent any equipment? Also, figuring out a way to allocate the use of your own equipment on a job is important.
Mileage, travel, meals-this is all an important part of getting the job done and needs to be carefully tracked
Licenses, permits, etc-any extra licenses or permits that are required for the job need to be tracked to the job
other-ANY expense that is directly tied to the job is considered a job expense.
The Job Cost Result
Now that you have a way to track expenses by job, you’ll be able to get a summary at the end of each job or project that will look like this:
Total income for the job
Total job expenses (from list above)
Job Profit or Job Loss
Job costing is extremely important for several reasons and helps you:
keep up on the current pricing of each job cost item
know if you’ve been overbilled by your vendors
point out inefficiencies in the work process
point to problems with subcontractors and employees
If you can’t figure out how to setup a job cost system that works for your business, please contact a qualified professional (CPA, accountant, bookkeeper, Certified QuickBooks Proadvisor) to help. The investment of time and money in setting up a proper job costing system goes a long way in helping your business be more profitable.
Are you using job costing in your business? If so, what type of recordkeeping system do you have? If not, what’s the holdup? Let us know in the comments below or drop us a line!