May 20, 2016
Most Construction Accountants that talk about Job Costing are
speaking to large contractors with dozens of employees, doing
millions of dollars in sales every year. This podcast is not about
them it is about you!
I care deeply about all Contractors. However, since I have a limited time on this earth and it my mission to help small contractors like you become wealthy because you bring value to other people's lives!
Owners of small construction companies like you are the men and women who keep everything moving in the right direction. When the economy changes, you quickly adapt because you are a survivor, not a large giant behemoth dinosaur unable to respond quickly and dies in its tracks.
Job Costing links the money you spent on a job against the money
you received to do a particular job.
In Construction Accounting, there are two types of Cost of Goods Sold (COGS) Direct Construction Costs and Indirect Construction Costs. Both are equally important to generating useful Job Costing Reports.
There Are Four Types Of Direct Job Costs L.M.O.S.
#1 Labor costs for your construction workers including your
#2 Material you purchased for the job
#3 Other charges like permits, inspection fees, and utilities
There are several types of Indirect Construction Costs. Everything that is not Overhead or Other Income and Expense. For more on this ask your construction accountant.
Job Costing Reports can show you where you are making and losing money which is the foundation for finding out the answer to the most important question you need to know to grow your cash flow and profits "Who Is My Prime Client And Who Is Not?"
For purposes of clarity since most accounting software and other related marketing software uses the word “Customer” instead of “Client” which as many of you know is the term I prefer. For more on this click here Customer vs. Client.
Estimates vs. Actuals Report Compares These Key Metrics
#1 Money out, what you thought the job would cost and what it
#2 Money in, how much you collected.
#3 The difference between money in and money out
Weighted Average Of Indirect Costs And Overhead
Next, you need to calculate the weighted average of Indirect
Costs and Overhead, ignore Indirect Income and Expense as it has no
bearing on Job Cost Calculations, to determine a metric you can use
to allocate those costs to find the fully burdened Job Cost.
Example Job 001
Money In $1,000
Money Out $500
Annual Sales $100,000
Annual Indirect Construction Costs $20,000
Annual Overhead $10,000
Job 001 = 1% Of Annual Indirect Construction Costs $200, ($20,000 X 1%)
Job 001 = 1% Of Annual Overhead $100, ($10,000 X 1%)
Job 001 = Burden $300 ($200 + $100)
Job 001 = Profit $200 (Money In $1,000 - Money Out $500 - Burden $300)
With this information, you can create more accurate quotes when you bid on future jobs. Job Costing will help you identify the most and least profitable areas of your Construction Company and most profitable customers and projects and outsource or subcontract the less productive aspects of your Contracting Company.
If your Construction Company is not paying you an owner's salary, what it would cost to replace you, and at least 15% return on your investment then you need to rethink the intrinsic value of your Construction Accounting System.
What Your Construction Accountant Needs To Generate Useful Job Costing Reports
#1 Uniform Naming Convention (UNC) a simple method for naming
> First Name, Last Name
> Last name, First Name
> Company Name
#2 UNC to identify different jobs and projects using a numbering
system or predetermined project titles
> 001 to 99999
> Remodel, Drain Cleaning, Replace Electrical Panel, etc.
#3 Every field worker’s time card must have the Job Name, and preferably the task performed.
#4 Every expenditure for Labor, Material, Other Costs, and Subcontractor needs to have a Job Name on the document, no exceptions. Any document without a Job Name will be assigned to “zCustomer Unknown” or worse yet, no Job Name at all.
Job Costing is a lot of work for contractors and field workers,
and since most contractors do not see an immediate benefit they
tend to slack off on providing the information their Construction
Accountant needs. Later when the contractor begins to ask
themselves why am I working so hard and earning so little do they
begin to ask about Job Costing Reports, and that is when they
understand why the “Bean Counters” Construction Accountants kept
asking for Job Names on every document and accurate time cards.
I have used several construction accounting software products since the mid-1980’s and tested dozens more accounting software programs in the years since, including QuickBooks Online.
As of today, May 20, 2016, in my expert opinion, QuickBooks Desktop in the Cloud installed on an Intuit Approved Hosting Provider like the one we use is the only viable option for owners of a small construction company like the one you have.
You can save money in the short run by doing it yourself, hiring someone to work in your office or you can spend a bit more money in the beginning and outsource it to a company like ours Fast Easy Accounting, which specializes in Contractors Bookkeeping Services; the choice is yours.
Just be forewarned to setup QuickBooks for your construction
company, do the data entry, payroll, quarterly taxes, construction
accounting and Job Costing and do it right will require substantial
If you can find someone or preferably a team with each member having at least 10,000 hours combined training and practice in regular accounting and another 10,000 hours combined training and practice in Construction Accounting and provide them will all of the office equipment and software.
I trust this podcast helps you understand that outsourcing your contractors bookkeeping services to us is about more than just “doing the bookkeeping”; it is about taking holistic approach to your entire construction company and helping support you as a contractor and as a person.
We understand the good, bad and the ugly about owning and operating construction companies because we have had several of them and we sincerely care about you and your construction company!
That is all I have for now and if you have listened this far please do me the honor of commenting and rating podcast www.FastEasyAccounting.com/podcast Tell me what you liked, did not like, tell it as you see it because your feedback is crucial and I thank you in advance.
I trust this will be of value to you and your feedback is always welcome at www.FastEasyAccounting.com/podcast
This is one more example of how Fast Easy Accounting is helping construction company owners across the USA including Alaska and Hawaii put more money in the bank to operate and grow your construction company. Construction accounting is not rocket science; it is a lot harder than that and a lot more valuable to construction contractors like you so stop missing out and call Sharie 206-361-3950 or email firstname.lastname@example.org
Thinking About Outsourcing Your Contractors Bookkeeping Services?
Click On The Link Below:
This guide will help you learn what to look for in outsourced construction accounting.
Need Help Now?
Call Sharie 206-361-3950
Thank you very much and I hope you understand we really do care
about you and all contractors regardless of whether or not you ever
hire our services.
Bye for now until our next episode here on the Contractors Success MAP Podcast.
Randal DeHart | Contractors Accountant