Could Your Business Use Job Costing?
I just got off the phone with a very frustrated contractor. He has been in business for several years, but his business has grown to the point that he knows he needs to keep a closer eye on his numbers. In fact, he said “I can’t sleep because I’m worried my reports are screwed up!”
I agreed to help him out 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.
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.
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 -and more.
As you can see, job costing can be very useful for many types of businesses. Figuring out the profitability of a specific project requires 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
MINUS
Total job expenses (from list above)
EQUALS
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.
