“Materials were maybe $2,000, crew worked two days… yeah, we probably cleared $4,000 on that one. Not bad”
If you’ve been running your business for a while and have years of experience under your belt, you can probably do this basic calculation in your head and come up with a fairly accurate number. But this back-of-the-envelope approach to business analytics can only take you so far. Things are changing way too fast and in order to grow successfully, you need precise data to keep you from losing money.
The Problem With Running on Gut Feel
You take a glance at your year to date P&L and see that revenue is up and trending in the right direction, but you are unable to identify which jobs are generating profit and which ones are losers. Since profit is what matters most, you really need to know what to track and how to track it in order to get a clear picture of each job.
Tracking metrics from each current and previous job gives you the best tools and indicators for bidding future work. You want to make sure you are winning more bids, but also know that there will be an appropriate profit attached to them.
No one wants to run a busy business that is not making any profit.
What Job Costing Actually Is
Simply put, it’s an added layer of tracking expenses and revenue. You are just attaching the data to a specific job or project. It sounds more complicated than it actually is. The hardest part is setting everything up in QuickBooks and then getting everyone to make sure that invoices, timecards, receipts, materials and equipment purchases, and deposits all have the job number attached. The desired outcome is to be able to review reports by job periodically and see how things are trending, and once completed, you can see what the actual profit was.
The goal of job costing is not to add complexity to everyone’s workflow, but to actually provide clarity to the owner. It can take some time to get set up and adjust your team to a few extra steps, but the end result is worth it.
When is the Right Time to Start?
Earlier than most owners think. The most common scenario is “I know I need it, just haven’t had the time”. It’s like any other overhead related project that falls to the bottom of an owner’s To Do List, and I totally understand. Most owners are focused on operations, as they should be. But once they see how insightful the end results can be, most of them wish they had implemented sooner.
Every job completed without being tracked is data that you’ll never get back. The system does not need to be perfect from day one, it will be a living and growing process that you can fine tune over time.
How to get Started
You can start simple with just a spreadsheet if that feels the most comfortable. It will require more effort and is more susceptible to human error with input mistakes, but if you want to really dive in and get your hands dirty, this is a great way to start.
I would strongly suggest setting it up in your accounting software, most of them have step by step tutorials in their tools and learning sections. You are basically setting up a project and then as transactions occur, you are adding the project number to them.
Once you have the data compiled and the job is complete, you can review the reports and see exactly what was charged to the project (labor, materials, sub contractors, etc.) along with income that was generated from the project. Compare the two on your reports versus what calculations that you have been doing in your head and see exactly where the money went.
In Summary
The goal is to stop guessing and let the numbers tell you where your business actually makes money. You want to identify what that is and then start doing more of that. Your ‘back of the envelope’ calculations can only work for so long. In order to grow your business into something seriously profitable, you need organized data that is accurate and detailed.
If this has been at the bottom of your To Do List for a while, and you would like help getting it done, feel free to reach out.
