Want More Profits? Take Job Costing More Seriously

How did that project you were so excited to win end up? Ideally, the clients are happy, you and your team are feeling proud and accomplished, and you turned a profit. You probably have a good handle on client satisfaction and worker well-being, but how sure are you that the project made money? Construction pros underscore the importance of taking job costing seriously. Doing so is essential to both your day-to-day cash flow decisions and your long-term success.   

Precision: Expenses and Profits Per Project

Unless you regularly assign expenses to projects, you have no way of knowing exactly where the money in your business is going. Absent job costing, you will also find yourself hamstrung in your bidding efforts as you try to grow your business. At Construction Business Owner John Meibers of Deltek ComputerEase explains: “Construction job costing means accurately tracking all costs associated with a job, including expenses for labor, materials and overhead. It provides a detailed breakdown of an entire project so you can track expenses in real-time and easily calculate future profitability.”

Though accurately accounting for all expenses on every project requires attention across your business, over time, the discipline can lead to dramatic improvements in performance, because, as Shauna Huntington of Small Business Bootcamp emphasizes, job costing “allows you to see the profit you’re making on each specific job instead of only seeing your revenue and costs in total.” To reap the value of job costing, be sure you are allocating these costs to every project: labor, materials, equipment, subcontractors and overhead. Emphasizing that when properly done, job costing will make it “easier to spot trends, control expenses and improve future bids,” Meibers recommends using construction specific accounting software, and shares these six best practices: 

1. Use a Detailed Chart of Accounts

Set up a well-organized chart of accounts that breaks down costs by category….This …makes it easier to analyze where money is being spent.

2. Track Labor Costs in Real Time

Use time-tracking tools or field apps to record hours daily, ensuring that labor costs are tied directly to specific projects….

3. Assign Costs to the Right Job & Phase

Every expense…should be coded to the correct job…This level of precision helps you see which parts of a project are over or under budget.

4. Integrate Field & Office Data

Connect your field teams with your accounting system so that information flows seamlessly….

5. Monitor Job Costs Regularly

Schedule regular check-ins…. Early detection of overruns allows for corrective action before profitability is affected.

6. Include Overhead & Indirect Costs

Allocate a fair portion of overhead expenses — such as insurance, equipment depreciation and administrative costs — to each job. 

Analysis and Informed Action

Implementing a rigorous approach to job costing is no small feat for business owners, but don’t get so busy that you forget to actually analyze the new data it yields. You should be able to use job costing intel to identify and rectify profitability challenges in real time, and over the long haul. For example, you’ll want to leverage job costing data for “better estimating, budgeting and forecasting, ensuring that future bids are more precise and competitive.” You’ll also use job costing data to inform your overall business strategy:

You could be making a significant profit on certain types of projects and losing money on others. Job-costing can help you determine the types of work you want to take on. It can also help you to refine how you price your work. As you review your job performance and profitability, you can see where you’re setting prices well and where you might be missing the mark. If you realize that your labor costs are always coming in higher than you had budgeted for each job, you may determine that you haven’t set your burdened labor rate high enough. 

Tools To Leverage for Growth: A Line of Credit and Financial Scores

Many builders find that one of the most powerful tools for a growing contractor isn’t a bigger piece of equipment, it’s a surety line of credit. Having your bonding limits in writing gives you the strategic control to bid on larger, more profitable projects with total confidence. Colonial Surety Company is here to help, with the bonding programs builders need, and knowledgeable experts too. 

For Bonds up to $500K: Use our Hometown Bond Program. It is credit-based, with no financial statements required. 

For Larger Bonds: Get armed with single and aggregate bonding limits, in writing, and even issue your own instant Bid Bonds, via The Partnership Account® for Contractors. Once qualified, get a surety bond line of credit for up to 20 million single, and 40 million aggregate. Receive free financial scores just for completing our easy pre-qual.

Put your business on a growth path with a few clicks, now: 

Bonding Programs at Colonial Surety Company

Founded in 1930, Colonial Surety Company is a leading direct seller and writer of surety bonds and insurance products across the USA. Colonial Surety Company is rated “A Excellent” by A.M. Best Company and U.S. Treasury listed. Let’s connect today: Colonial Surety Company.