Job costing is a core practice in business. If you are in construction, it’s beyond big. It is at the center of every healthy action you can take to tune up your bidding process, budget management, cash flow management and banking relationships. Want to know why?
Keep reading. Below are the primary actions you can take to master your job costing.
1. Establish a strong purchase order process
Use Purchase Orders. This is the best way to track which materials go with what project. This allows you to run a report on costs during the project and track to budget, manage cash flow and plan for the ongoing work. Also, it’s the best way to track estimates vs actuals. This can really tune up your bidding process.
The use of POs in construction accounting allows for a streamlined ordering process in which the only time orders are placed are when POs are generated. This eliminates ordering by unauthorized field personnel and materials “slipping through the cracks” and makes sure that the items ordered are already tagged to the project they are ordered for to make job costing easier. Using POs also makes certain that the price that was quoted is the price that was billed. When the bill comes in and is compared to the PO, you know right away if the pricing is correct. Lastly, when using POs in QuickBooks, you can turn a PO directly into a bill and thus eliminate any errors that may occur with double entry, incorrect project allocation and save time.
2. Use estimates
An estimate is the amount of revenue you expect to receive for completing a project. You enter the whole project. This way you can keep track of your total contract value both for projects in process and future work. This helps with tracking your project pipeline which will help with bank financing and bonding.
In construction, the estimate is like the starting point on a map. Creating an estimate and having it accepted by a client gives a clear, written detail of what everyone is expecting from this engagement. Any changes that occur during the project that affect the cost can be documented by creating additional estimates to coincide with change orders issued. Invoicing from estimates is quick and easy and in QuickBooks can be done for the project in entirety, by line item or by percentage complete. At any point during the project, you can pull a report to review how much of the estimate(s) have been invoiced to date and how much of the project remains and what costs have been incurred thus far. This helps to ensure a client isn’t under or over-billed and that you have a very detailed paper trail to refer to for any questions that may arise. Estimates are the beginning of a clean, well-organized workflow.
3. Build a naming convention
Use a smart naming convention that makes sense so that sales, operations and accounting can talk about projects accurately and concisely.
This one practice will save more time than just about any other. Naming conventions are as varied as the companies that utilize them but implementing one and making certain that EVERYONE in the organization understands and uses it is imperative. Developing a naming convention and using it on estimates, POs, bills and all other project documentation helps reduce/eliminate the incorrect allocation of costs to projects. It also eliminates a great deal of time while everyone tries to figure out what everyone else has called a particular project. When the same job is called Bob’s Gas Station, The Gas Station on Main Street and Bob’s Super Stop no one knows what is happening and the record keeping is difficult and likely incorrect. When everyone is calling this job 113, and that job number is on every document generated for the project, record keeping becomes easy and accurate and the costs associated with a particular job get applied as they should.
Naming conventions also become a huge issue when you decide to automate your time tracking or receipt management. When your staff is loading their time or expenses to a project, the name of the project is going to need to sync up exactly with the name of the project in your accounting software or the data won’t pull over properly and the time and financial benefit of using that app is diminished.
4. Use a receipt tracking software
There are multiple apps out there that sync automatically with your accounting software and allow your field personnel to take a picture of a receipt right as they make a purchase, select a job to apply it to and send it off. Any fee associated with this software is going to be mitigated by accurate job costing and time saved both by your accounting staff and by the dirty, grumpy foreman standing on his head in his truck at the end of the month trying to dig a receipt out from under his seat. Getting receipts from field staff is a huge issue for every bookkeeper and handling lost or misapplied receipts just no longer needs to be an issue.
5. Automate your time tracking – this is a labor cost
Accurate job costing is essential for a construction company. Future bidding is tightly tied to current performance and inaccurate job costing now can continue to cost you money down the road. The last thing you need is your employees sitting around at the end of the week trying to fill out their timecards from memory. This is the definition of junk in, junk out. Most employees are on their phone multiple times a day, so it isn’t going to be difficult to get them to use an app and the increase in accuracy is likely to help mitigate the associated costs. Some of these apps even have GPS to allow for very easy job identification and allow the foreman to log into and approve the timecards for their crew each day. This improved data will aid with future bidding and decision making.
QuickBooks and QuickBooks Desktop (is a touch better at WIP) can manage all this detail and it keeps your reporting in one place. One challenge we see is figuring out what the budget should be.
6. Implement a project management software (optional)
Good communication between team members helps provide accurate data, good customer service and good team morale. Project management software like Basecamp can help your office personnel and your field personnel work together by having everything they need in one place that is easily accessible. Schedules, blueprints, change orders, inspection reports, supplier information, client information, hotel reservations, site locations, receipts, etc. can all be stored in the system by project and accessed by anyone needing the information. To-do lists and chats are also available, so all communication and expectations are documented, and questions only have to be answered once. Any improvement in communication creates an improvement in the accuracy of your data and in turn, better job costing information.