Job Costing Is Your Key To Profitability
Job costing is the foundation of financial control for your construction business. When done correctly, job costing gives you the real numbers. Real evidence to base your negotiations, mitigate risk, price change orders, and support billings.
On the other hand, inaccurate and inefficient job costing is the silent killer of contractor profitability. Without an accurate cost history, estimating becomes a guessing game.
Real-time insights are essential for informed decision-making. Think of job costs as the GPS for your construction process, allowing you to see (and prepare for) what’s ahead.
For more on job costing and profitability:
Your Numbers Might Not Be Telling The Truth…
Your numbers might look accurate, but they might not be telling the truth. Are you frequently surprised by higher costs at job closeout? Are you unable to pinpoint why a job is going over budget? Are you struggling with miscommunication between the office and the field?
If you’re not able to identify where the problem actually lies, your job costing systems aren’t working. But why is that happening? Most likely, your costs aren’t posted in real time, they’re being coded to the wrong jobs, or your revenue is not recognized to match the costs.
It all comes down to having clear systems and processes in place to quickly and accurately enter costs.
For more on troubleshooting job cost discrepancies:
When It Comes To Cost Codes, More Isn’t Always Better
When your cost codes are too vague or inconsistent across projects, you’ll be leaking profits. You could go all in on collecting data, but more isn’t always better.
The more standardized your structure, the more powerful your job costing and historical reporting will become. But remember: You’ll only get out what you put in.
Job costing that’s too complicated or without a consistent process might leave you worse off than when you started. With the right structure, you can spot overruns early, compare jobs, and tighten your estimating process over time.
For more on organizing job costs:
Free Smart Cost Code Format
Simplify job costs and standardize your structure. Our free Smart Cost Code Format provides a construction-specific approach that’s easy to implement, featuring straightforward cost code categories.
Overbilling Might Be Setting You Up For A Cash Crisis
Ultimately, you want to be overbilled. You don’t want to be the one funding your projects, and you definitely want cash coming in to pay for payroll and materials on your jobs.
But if that cash isn’t managed correctly (or you’re borrowing across jobs), you could be headed for a spiraling cash crisis.
What you need is an accurate WIP report and a consistent routine for analyzing it. This will give you the visibility you need to stay in control of your projects and your cash.
For more on the impact of under and overbilling:
Cost To Complete Is Your Missing Metric
Your team is job costing. They’re reviewing reports and using cost codes, but how can you tell if it’s actually working?
It’s not about what you’ve already spent on a project, but what you have left to spend–your cost to complete. However, if you don’t have accurate and timely job costing to begin with, you’ll struggle to get an accurate estimate for this metric.
Focus on building a strong and consistent job costing foundation first, then focus on your cost to complete.
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Inaccurate Job Costing Is Why One Project Profits While Another Loses
You’ve got two projects with the same type of work and the same crew. The only difference is that one is making money while the other is bleeding cash.
Sound familiar? If you’re seeing these dramatic swings from job to job, it’s probably your job costing.
More specifically, it’s probably a consequence of incorrect cost codes, failing to track change orders, or inconsistent labor tracking.
For more on project profitability
Free Job Costing Clean-Up Checklist
Your kickstart to cleaner financials and better job performance. Our free Job Costing Clean-up Checklist will help you identify gaps in your current process, assess your job cost accuracy, and clarify what to fix (and where to start).
You CAN Catch Profit Fade Early
You start a project with a healthy profit, but by the end, it’s gone. That’s called profit fade, another silent killer of construction profitability. But there’s good news: You can catch profit fade early by monitoring a few key indicators.
Are your labor hours outpacing the progress of a job? If you’re burning through your budget faster than a job is moving, you’ll see profit fade. Have a construction labor schedule so you know how many hours you’ll need at different phases of a project.
Change orders are another area to monitor. If you’re performing work on change orders, incurring costs on changes that haven’t been approved, you’ll see profit fade.
For more on catching profit fade early:
Bonus: QuickBooks Isn’t The Problem
There’s a fair share of CPAs, lenders, and surety professionals claiming that QuickBooks is the culprit for their messiest clients.
However, with many of our contractors successfully managing their finances in QuickBooks, these third parties are likely unhappy with the presentation of the data, not the platform itself.
While it’s not the most robust construction accounting tool, it works just fine for many contractors–so long as it’s set up correctly, used properly, and supported by a construction accounting expert.
For more on optimizing QuickBooks:
Solve For Today. Prepare For Tomorrow.
New Lyfe Accounting is a specialty firm helping commercial construction organizations navigate the industry’s unique financial landscape. From bookkeeping and controller engagements to advisory services, we’re more than just an accountant. NLA operates as an extension of your team, strengthening your firm with financial services suited to your goals. Get started today by completing our short application.
