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Use Job Costing to Find the Problem When Numbers Don’t Add Up

By: Alex Morales

Have you ever wondered “what went wrong” when your actual profit margin fell short of your target? It’s time to identify the exact sources of the problem.

Job costing is the preferred accounting methodology for construction businesses to track material, labor, and overhead costs specific to each job. Construction companies often manage multiple jobs at a time, which could result in disorganized expenses and inaccurate customer billing. Through accurate and timely job costing, you will be more in control of your finances for each job and find ways to stop your slipping profit.

Four Reasons to Use Job Costing for Your Construction Business

  1. Course-correct before it’s too late.

    It is best practice to track your expenses and allocate your costs to each job throughout the job process rather than waiting until the job is closed. As you allocate the costs, compare the actuals to your budgeted cost for each item. Be sure to identify when the actual cost is higher or lower than the budget.

    Jobs are unpredictable and your profit shouldn’t suffer as a result. The best way to protect your profit is to stay “in the know.” The last thing you want is a punch in the gut when you realize you failed to meet your target profit and it’s too late to make adjustments. Highlighting discrepancies along the way will help you identify threats to your budget that could impact the rest of your job and give you the opportunity to make changes and course-correct before it’s too late.

  2. Find any excess costs incurred that can be billed to a customer.

    If you’re not using real-time job costing, your business is likely to have time overruns, expense leakage and/or change orders that will go undetected and unbilled. You might spend months not knowing you are underwater on a job or project and by the time your missed expenses are discovered, it’s too late to bill the customer for the overages.

    Missed opportunities to bill your customers can have a dramatic hit on your profit margin and your business as a whole. Knowing exactly when and where you are falling short or coming in high gives you the chance to make sure you are properly billing your customer before the job is finished.

  3. Discover where cost overruns can be prevented in future jobs

    While it is ideal to do job costing throughout a job, at minimum, be sure to perform job costing at the closure of a job. Take a moment to ensure your costs are allocated correctly and note all mistakes or corrections. Doing so allows you to drill down into the details of which line items were estimated low or high and use the data to perfect future estimates.

    To gain a true assessment of your performance, commit to a more in-depth review of every 5 jobs. Identify patterns of budget items that fell short, the frequency and types of cost overruns, and labor productivity over time. A thorough review can prompt adjustments for bidding and managing your jobs to improve your overall business success.

  4. Identify opportunities for improvement across your business

    Some of the best learning comes from analyzing the past. Through proper job costing, you can find ways to continuously improve your business and make better decisions, faster. As an owner, here are a few important questions you should be asking about your business now that you have been doing job costing effectively.

    To gain a true assessment of your performance, commit to a more in-depth review of every 5 jobs. Identify patterns of budget items that fell short, the frequency and types of cost overruns, and labor productivity over time. A thorough review can prompt adjustments for bidding and managing your jobs to improve your overall business success.

    • Are jobs remaining on budget?
    • Do we have operational inefficiencies?
    • Who are the most profitable and least profitable clients?
    • Which clients do we need to re-price? Or fire?
    • Who are the most productive people, employees, teams, and departments?
    • When is the right time to hire more staff?
    • How often are we within our target margins?
    • Where should I invest my marketing dollars?

JobTread for Job Costing

Get a handle on your job costing and improve your billing accuracy with the help of our streamlined software and knowledgeable support staff today!

JobTread can guide you through the job costing process. Sign up for a live demo to find out how JobTread can improve your job costing accuracy.

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