444: Job Costing - Your Construction Company's Competitive Advantage

This Podcast Is Episode Number 444, And It's About Job Costing - Your Construction Company's Competitive Advantage Every contractor has a Job Costing Library; some keep it in their head, some keep it on paper with names like completed jobs, bids, estimates. Other contractors keep it in their QuickBooks For Contractors' software records. Still, other contractors rely on places like RS Means for comprehensive databases of construction costs. These are similar to the "Flat Rate Books" used by car repair shops for decades.   A tiny fraction of contractors understand the actual value of a customized cost library and invest the time, energy, and resources to build and maintain one. Having done several, I can tell you it is a painful, arduous task. I will tell you a story to make it crystal clear.  

The Treasure Box That Saved Four Contractor's Lives!

In the mid-1800s, an archeologist left New York City on a journey into the heart of the African jungle in search of a lost civilization. He intended to find and bring back treasures that would make him a wealthy man.

He recruited four physically fit and very intelligent contractors, one each from The Four Types Of Contractors, to assist him with the promise they would be paid a substantial reward when they returned the treasure box to his office in New York City.

All went well for the first two weeks, and as luck would have it, they stumbled upon the lost civilization resting undisturbed under a soft blanket of floral and vines.

The archeologist and the contractors worked feverishly to find the treasure without success during the next two weeks.

Late one afternoon, the archeologist was bitten by a poisonous snake, and before long, he began to get dizzy. He knew he had less than twenty-four hours to live, so he decided to spend his remaining time putting a plan in place to save the lives of the contractors he had brought on the journey.

While the contractors slept, he filled the Treasure Box and sealed it with a large, heavy padlock. When the contractors awoke the following day, he described in great detail how he had found not what he came for but something much more valuable, more valuable in fact than gold and jewels.

Everyone was very excited until he told why he would not make it out of the jungle alive. This news caused a great deal of sadness because everyone knew the archeologist was the one person who could keep peace and harmony when tempers flared and made sure everyone stayed focused and kept on track.

The archeologist struck a bargain with the contractors to be rewarded handsomely if they worked together and delivered the Treasure Box to his office in New York City. He gave them a letter written in Latin to be delivered to his partner along with the Treasure Box with instructions regarding the contents of the Treasure Box.

The archeologist made it clear the Treasure Box had to remain sealed until it was delivered, or else they would receive nothing.

Now getting four contractors to agree on anything is a miracle in itself, let alone work together. They were fortunate the Treasure Box was so heavy it required all four of them to work together to move it.

They fought their way through the jungle for three long terrible weeks, finally arriving at the archeologist's office in New York City and presenting it to his partner with the Treasure Box and the letter.

The partner read the letter and smiled knowingly before opening the Treasure Box. It was filled with rocks. The contractors were very angry and upset. When they calmed down, the partner translated the archeologist's letter for them, and it said:

"By Making You Work Together, I Saved Your Lives Which Is Worth More Than Gold Or Jewels"

Your Treasure Box is your construction company's job costing library. 

Building it is like taking that long, challenging journey out of the jungle, which is why so few contractors ever do it even though the results are more valuable than a Treasure Box full of gold and jewels; because a job costing library can turn a regular construction company into a perpetual money machine.

"If You Know The Answers The Questions Will Not Bother You" - Randalism

Knowing in advance which jobs have the highest probability of success and profit before getting involved moves your construction company from an unpredictable roller coaster to a peaceful merry-go-round.

The key to a helpful bid is accurate job costs. Your estimator needs to access the past job histories to calculate the construction costs accurately.

Contractors with annual sales volume under $5,000,000 are not likely to have a $100,000+ a year professional estimator on staff, so do not expect them to be 100% accurate. 

The key is to get the final job costs as close as possible to the project estimate and budget. The only differences between your bid and the finished project should be overhead and profit.

Job Costing Process Minimum Requirements:

Time cards that have spaces for job name and cost codes - Free Timecard Templates Have your bookkeeper provide labor burden rate - Labor Burden Explained Heavy equipment job allocation rates Job costing and job profitability reports

Job Costing Library Minimum Requirements:

Construction bookkeeping services system with QuickBooks setup correctly allocates transactions into direct construction costs, indirect construction costs, overhead, and other costs. Job costing reporting system based on one of these four foundations: account-based, item-based, schedule of values-based, or work-in-progress based (W.I.P.). It will depend on your particular construction company and what markets you serve. Professional construction bookkeepers and accountants maintain the construction bookkeeping system, and I don't mean the secretary who does everything, including the bookkeeping. The people are responsible for purchasing labor, material, other costs, and subcontractors to code every receipt with the correct job name and cost code.

The Fast Easy Way

Outsource The Hard Part And Keep The Easy Part

We have #1, #2, and #3 in place already, and all you have to do is #4, and we have processes to train you and your staff.

QuickBooks For Contractors desktop version is available 24/7 on a secure cloud-based server if you want to interact with it and monitor the data entry and additional reports in real-time.

You don't need to open your QuickBooks for Contractors file if you prefer not because either way, we will automatically generate your Job Costing and Job Profitability reports and send them to you on whatever schedule suits you best.

Our construction accountants can review the Job Costing and Job Profitability reports with you and answer all of your questions.

Final thoughts

Job Costing is much work, but the results are worth it. You can save money in the short run by doing it yourself, hiring someone to work in your office, enrolling in our online class, or you can spend a bit more money and outsource it to a company like ours, which specializes in Contractors Bookkeeping Services; the choice is yours. Just be forewarned to set up QuickBooks for your construction company, do the data entry, payroll, quarterly taxes, construction accounting, and Job Costing, and do it right will require a substantial skill.

About The Author:

Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com