Learn how job cost accounting can help small-business owners take control over each job and their profits through cost and profit analysis.
As a small-business owner, one of the best ways you can track the real progress of your business is through job cost accounting. In other words, if you keep track of your income and costs for each job, you can determine on a case-by-case basis if a job is worth taking on, and you have more control over the profit you make on each individual job.
Job Cost Accounting: Putting You In Control
Small-business owners, especially those in the construction industry, face many unpredictable factors. If your accounting system is not able to adapt, you leave the success and profits of your business at the mercy of outside factors such as weather, changing supply costs, and unpredictable labor hours.
Through job cost accounting, you put yourself in a position to be better able to adapt, thus giving you more control over your business.
Factors Involved in Job Cost Accounting
Job cost accounting takes into account all of the income and cost related to a particular job. In general, this usually includes:
- Predicted labor hours per employee
- Labor rate (gross pay per hour plus labor burden costs)
- Trade contractors and their rates
- Other job-related costs such as rentals, professional fees, permits, etc.
- Other non-job-specific costs such as liability insurance, shop supplies, vehicle depreciation, etc.
- Anticipated income
- Change orders and/or allowances
- Estimated income vs. job cost reports
To put it in the context of your own business, single out a recent job you completed.
- What was your estimated profit from the job?
- Did you reach that profit, fall short, or surpass it?
- Depending on your answer to no. 2 what factors lead to that outcome? Think about:
- Employee costs (did you include labor burden such as payroll taxes, paid time off earned but not yet taken, tools, other benefits?)
- Were there ‘over-runs’ on labor hours – or did they meet goals for hours required?
- How much did job materials cost?
- How did your outside contractor costs compare to estimated?
- Did you face any setbacks, such as an unanticipated increase in material costs, employee turnover, vendor or customer ‘issues’, inclement weather, etc.?
- Did your estimator make any major errors in estimated job costs? Or totally forget to estimate for any job costs?
Now let’s look at how you can frame your accounting in order to keep an eye on these elements and manage them in your favor.
There Are Two Ways You Can Go About Job Cost Accounting…
- Simple Job Costing records transactions by indicating the job and account, such as labor, trade contractors, materials, and so on. You can then obtain reports that summarize job costs by these accounts.
- Process Job Costing records transactions by job and account, plus it indicates the process that generated the cost, such as site preparation or framing. You can then obtain reports that summarize transactions by job process as well as by account.
If you create and enter job estimates for either level of job costing into your accounting system, you can obtain variance reports that summarize your income and costs and compare them to your estimates.
Are You Ready To Achieve Greater Control Over Your Profits?
Great! Job cost accounting truly will give you a step up. I teach accounting workshops for small- and midsize-business owners and bookkeepers to help them improve their in-house accounting through implementing tracking and monitoring strategies like this one. If you’re ready to learn more about job cost accounting and how you can best implement it for your business, please take a few minutes to look through our full list of individual QuickBooks online accounting tutorials.
Take a few minutes to check out this affordable Subscription training series. (Or, if you’d like individual coaching, or have any questions, please give me a call or send me an e-mail today.) I’ll be happy to help you in any way I can!