Attention Builders, this one’s for you!
Job costing allows for accurate estimates to be provided to your clients, and in turn, protects you from getting short-handed. You do not want to start a project with a cash discrepancy; the best way to protect yourself is by using previous data to calculate costs on labour, material, subs, equipment rental and any other variable costs that may affect your profits. The historical data will also let you know where the losses and gains were on the previous project. When you are estimating on labour rates and hours, make sure you consider the level of difficulty the project will be for the crew, and how much time is required to look after them on-site. You also want to keep in mind any indirect costs such as taxes and benefits. Take your time to provide accurate estimates on labour and material costs, so that you can stay profitable!
Job Costing lets you know the status. One of the main purposes of job costing is to create a better schedule so that you can manage the crew more effectively— knowing exactly what the crew is doing on the project. This process eliminates waste in labour cost because you will be allocating your crew time properly, while it indicates where you are within your budget. You don’t want to go over budget and run into problems that cause you to go into a deficit. A schedule and job cost calculation will also indicate where you are at with the progress of the project and if you are on track. Make sure you are tracking the status of the project by creating reports and setting up red flag alerts in the system to spot potential issues, ex: if you are behind schedule and coming close to going over budget.
Job Costing lets you get more details from the field. Job Costing is about creating actual cost categories. Once you have the categories setup and communicated to your crew, the information coming from the field will be more relevant. The time cards will not just include the time coming in and out, but also what tasks they worked on each day. In addition, those that have access to the budget in the field will also include actual-cost-to-date information in their invoices, inventory receipt, and time card. Getting this extra information from the field will provide you with a better measurement of the actual cost associated to the categories you created for your project. The information will also help prevent overspending. Initially, the details and paperwork will be a lot, but once it is done, habits will be formed and your staff will get used to it, then the amount of work on your part will be reduced.
Job Costing will make you profits. It is in the details with job costing where it will save you money and lets you stay on track with the profits you wish to make on the project. Job costing is especially useful when you are tight on cash because you will be gathering actual costs associated with your project, therefore you will always be aware of how much cash flow you have on hand and know when you need to bill your clients so that cash doesn’t run out. Since you will be billing accurately, you will ensure that expenses never get ahead of income for a project. The ability to predict cash flow and know where money is being taken out from can make all the difference on how successful and profitable a project will be to your business.
Conclusion— Job costing allows you to manage your jobs more thoroughly because it takes in account the complete picture on cost. The system demands you to look into every detail from labour costs per task, to costs per cost category on a job. The biggest benefit of job costing is that it will protect your cash flow because you will have a better understanding of scheduling and cost. Too many times when contractors run into financial problems, it is because they are not profitable on jobs and run out of cash flow.
If you’re a builder looking to improve on this area in your business, sign up for a free Business Growth Strategy Session with Contractor Specialist Andrew Houston to discuss which areas you need to improve upon in order to maximize profits and scale your business. Click here for more details.