What is Job Costing for Contractors and Construction Companies?

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The success or failure of any construction job is based on profit.

Profit margins are razor-thin in construction. Job costing helps you project job expenses to identify problems before they impact profit. Can work be completed with the money and budget available? What are the risk factors on the job? What do you need to do to be successful?

Job costing is the key to managing a construction budget and identifying if a job will be profitable. It simplifies the complexity of managing a contracting job. It gives you the power to focus on the work with the highest reward.

Job Costing and Construction Accounting

Precision and accuracy are required in construction.

You need to build with the right materials. You need to accurately follow blueprints. You need precision with every cut and measurement.

Job costing brings accuracy and precision to your construction accounting.

With job costing, you can accurately predict, record, and control the cost of each job. Your materials, labor, subcontractors, and equipment expenses are tracked and monitored during the job. You can see where the money is going as work is completed. You can more accurately predict future costs and build a precise record of expenses.

That record is data you can use. It’s the data you need to manage, and grow, the business.

The Benefits of Job Costing

Accurate job costing gives contractors the ability to grow the business. Here’s how it works:

  • Estimate jobs accurately and quickly: Without job costing, estimates are a best guess. With other bidders competing for the same work, many contractors end up underbidding. Without quick and easy access to historical records, mistakes are made that end up hurting the job and business. Job costing puts the data at your fingertips, so you can estimate jobs accurately and quickly.
  • Manage profit for every job: Job costing gives you control of the money you make for every job. You see how much a job is costing. There’s no more stress, worry, or guesswork in managing a job, because expenses are broken down accurately. You can see how you need to manage work to maximize profit.
  • Work better with customers and vendors: Over estimating and under estimating can lead to project delays, lost profit, and broken budgets. This causes stress between you, your customers, and vendors. Job costing eliminates that stress. You can better collaborate and deliver more value to customers. That means future work and business for your company.

Job Costing and your Growing Business

For many contractors and construction companies ready to take control of their business, job costing through construction accounting software is the key. It’s the tool that helps them leverage their ambition with the practical needs of the business.

To make money in construction, you need to stay on top of cost and expenses. That’s what job costing will do for you. You can accurately run labor analysis and measure productivity. It lets you select the most profitable jobs and find profit even when problems happen. It gives you the power to take control of your business.

For companies ready to stop losing money or breaking even with every project, job costing gives them control. It replaces guesswork with accuracy and precision for every job.

Have questions? Contact us at info@computerease.com.

Real-Time Labor Costs Improve Your Bottom Line

Real Time ReportingAny contractor knows that successful project management hinges on labor. That’s not to say that smart material purchases and inventory control don’t also play a role in job profitability. However, unproductive labor will always kill profit, which is why knowing your real-time labor costs can improve your bottom line.

Traditionally, labor costs have been notoriously difficult to track because of the time lapse between what was happening in the field versus what your office records reflected. It wasn’t that long ago when, if a project manager wanted to know the job progress, he had to look at the last payroll processed – which could be a week old or more. While this was good information for the time, it certainly wasn’t accurate.

Thankfully, technology has revolutionized how contractors manage labor – and the overall job. Today, project managers can get real-time labor costs that tie into their construction accounting software, like ComputerEase.

In the construction industry – where customer expectations are high, profit margins are slim and the pace is faster than ever – you need labor costs on a daily basis to make informed decisions. Today, you don’t have to wait until the paperwork is turned in; you have technology to help you.

Field-to-OfficeTimesheets, daily logs, change orders and job costs can all be captured from the field so you know what’s happening at all times. Mobile devices with internet access can transmit data from the field directly to your accounting system in the home office, eliminating the double-entry problem.

When a real-time field-to-office solution is set up, you can manage a job from anywhere. Imagine a workplace where your crew is out in the field during the day, and by night you know who worked on what job, what tasks they performed and even what equipment was used. It really is that simple when you have the right system in place.

Learn more about our real-time solution, FieldEase.

Is your CPA doing everything they can for you? 7 Questions to Ask

HelpThe construction industry is a difficult one – full of strategic planning, tight deadlines, demanding customers and lean margins. In some projects, just 2-3 percent can be the difference between profit and loss.

However, construction companies that navigate this industry expertly have learned to surround themselves with others who understand the business – especially their CPA firm. You look for subcontractors who have experience in a particular type of work; your CPA firm shouldn’t be any different. Don’t settle for just any old number-cruncher. To be on target in this business, you need a CPA that understands construction.

Certainly, no matter what business you are in, your relationship with your CPA firm should be active year-round, not just during tax season. But there are other factors that are unique to the construction industry that can help make you more efficient and more profitable.

How do you determine whether or not your CPA firm is meeting all of your needs? Here are 7 questions to ask:

  1. Does your CPA simply prepare your information? Your CPA firm should be doing much more than the bare minimum quarterly tax paperwork. They should be analyzing the data and providing you with information that your team can use to make educated decisions moving forward.
  2. Does your CPA add value to your internal accounting department? Your accounting department is your eyes and ears on your jobs and the overall financial well-being of your company. Those job costing numbers need to be accurate, which is something that our construction accounting software specializes in. Your CPA firm should be willing to share valuable insight with your accounting staff to help them see the bigger picture. This, too, will go a long way to providing you with the information you need to make higher-level decisions with confidence.
  3. acctdeskcomputerDoes your CPA firm conduct or have access to benchmarking? Here in the Cincinnati area, the CPA firm VonLehman conducts an annual construction survey, analyzes the data and then shares the information with others. This report helps construction firms benchmark how they are doing in comparison to the rest of the regional construction industry. If you are located in a large metro area like Cincinnati and your CPA firm specializes in assisting construction clients, they probably have access to information to help you benchmark where you stand.
  4. Does your CPA have a proactive approach to bonding? As a construction firm, you need specific information to present to your surety company to secure the bonding capacity you need. Your CPA can proactively help you through this process by reworking your financial statements and restructuring your debt to give the surety the specific information they need. Being proactive allows you the opportunity to bid on a large project when the right one comes along.
  5. Has your CPA firm talked to you about your succession plan? Developing a succession plan is a long process, and your CPA should be helping you through it. Furthermore, a succession plan is more than your legacy. The surety and financial lenders will want to know your succession plan, too. This gives them the assurance that if anything happens to you, your company’s projects will be completed.
  6. Does your CPA help you understand your financial statements? When you work with the right CPA firm, not only will the numbers be accurate, but you will understand where they come from. Intelligent overviews of your financial statements are crucial when meeting with surety or banking representatives.
  7. Does your CPA understand work-in-progress reports? Job costing isn’t an after-the-fact item; it is an ongoing task. When you review your work-in-progress report on a monthly basis, you see what happened in the last 30 days and can make any needed adjustments immediately. The right CPA firm will also hone in on over- and under-billings and work with you to get the project back on track.

The right CPA firm will proactively analyze pertinent information and provide you with the data you need to make business decisions with confidence. Any CPA can crunch numbers, but wouldn’t you prefer a firm that can be an active participant in your business? To discover more ways your CPA firm can be helping you, view our “What Your CPA Should be Doing for You” webinar.

If you want your CPA firm to work with ComputerEase to provide the best possible accounting services to your company – or if you are a CPA with the same goal in mind – find out how our CPA Partnership Program can help!

 

3 of the Most Deadly Job Cost Mistakes You Can Make

Most contractors start out having the owner act as the project manager on jobs, which makes it easy to oversee a job and make sure nothing is going terribly wrong. With success and growth, the “owner as PM” model starts to become unrealistic, and deadly mistakes start to crop up. Some problems are minor, but some are deadly to your bottom line. Here are the deadliest mistakes, and how to avoid them:

3. Using a Cost-to-Cost Method for Work-in-Progress Reports

If you’ve incurred $50,000 in costs on a $100,000 bid item, does that mean the item is 50% complete? Not necessarily. Yet many contractors make this mistaken assumption, leading bonding companies and bankers to be on the lookout for it. The amount of cost incurred often has nothing to do with how far along a job is. Sharp contractors know that unexpected costs arise, so measuring their percent complete by cost is probably the worst method.

Avoid this mistake by using units in place or an estimate of hours needed to complete, or anything other than cost when you’re drafting a work-in-progress report. Once you know the estimated percentage of completion, you can recalculated the estimate by adding actual costs to date to the projected cost derived by your informed estimate. With projected costs, you can know what your profit is likely to be when the job is complete.

2. Not Knowing Where You Stand on a Job

If you’re a project manager and you don’t know where you stand on a job, you may be under the false assumption that all is well, your job is on track, and you’re making money. Your estimator has a responsibility to give you a break down of the hours and units used in his estimate so that you can project the hours to complete. For example, if the estimate is to complete 1000 square feet in 500 hours and you’ve completed 500 square feet in 300 hours, you could be running 20% behind schedule and not even know it. If you use projected job cost calculations, you will know the status of your jobs before the end, when it would be too late to do anything about it.

1. Not Using Projected Job Cost Estimates

Job Cost eBook

9 Deadly Job Cost Mistakes

You’ve probably realized at this point that there’s a common thread in these deadly mistakes – job cost estimates. The importance of job cost estimates cannot be overstated. If you’re calculating your profit and loss without an accurate job cost estimate, your profit projection is just plain wrong. If you’re going to know anything about what your profits will be by the end of a job, you need to use projected job cost estimates.

To learn more about projected job costs and what other deadly mistakes you should avoid, check out 9 Deadly Job Cost Mistakes by Bob Mattlin, CPA, founder and owner of ComputerEase. You can request a free copy of the ebook on the ComputerEase website!