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JOB COSTING 101

How to use technology to set up job costing effectively

 

If you’re a contractor or if you own a construction company, you want to win the jobs you bid on and remain profitable to sustain your business long term.

However, I’ve observed a common problem in recent years among contractors when they first came to me for help – many were underbidding projects to win jobs and struggling to keep their business solvent as a result.

While they knew under-bidding consistently below the break-even point wasn’t sustainable, they didn’t realize JOB COSTING IS THE SINGLE MOST IMPORTANT TASK in creating an effective estimating process and the key to building a successful contracting business.

Why Developing An Accurate Job Costing 

System Is Smart For Every Contractor

The reality is, if you’re running a contracting, construction or any kind of business you need a way to accurately estimate and measure the real costs of every job or project you complete.

Because when you know the true costs of running your business including overhead, labour and parts or materials you can stay within budget, on schedule, maintain a healthy cash flow and ensure you are actually making money.

And since technology makes it so much easier to access all your job information in a glance, developing an accurate job costing system using your accounting software is the cheapest, most cost-effective solution.

Getting Started: Set Up Job Costing

I recommend Sage 50 accounting software to all my clients and help them get a handle on the real costs of overhead and materials or parts.

The first step to setting up job costing is easy with Sage 50. Create a project name for each job you want to track in the project section and set it to “in progress”. Assign that project name to each job, which your employees use to track hours as well as to all of your purchases and sales invoices associated with that project. When entering information into your accounting software ensure you allocate to the appropriate project.

Sage 50 software stores all your information in one place and makes it easy to break down your costs in detail so you can track the status of jobs in progress, compare projects and set targets or milestones.

Just going through the process of setting up job costing is an enlightening and valuable experience because it gives you the space to clearly identify what’s working, what isn’t, what’s missing and next steps to improve results.

When I first started working with some of my contractor clients they had not been accurately accounting for overtime, payroll deductions, early payment discounts or other small expenses in their estimates, which eroded their profit margins or worse it actually cost them money to complete a job.

Developing an accurate job costing system is so crucial to building a sustainable contracting business and can help your company grow. I can’t stress the importance enough.

I’ve met too many owners who were passionate about building their business but didn’t have the accounting skills or financial understanding they needed to succeed. They tried to do it all on their own to save money and ended up either going bankrupt or closing their business.

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