Tips to Manage your Job Costs

Job costs are the lifeblood of your construction business and accurately estimating them will determine if a project will make money. Managing job costs across the life of the project will ensure that your firm makes money on every job. Moreover, those job-by-job profits make the office and your executive salary possible.

Despite this, some CFOs don’t take job costs seriously. Some see tracking those costs as more trouble than it is worth, while others think that the costs are so obvious that tracking them seems like extra, unnecessary work. Neither is true and both can limit your firm’s profitability. Here are seven tips that can make managing your job costs easier than you might think:

Tip #1: Set priorities at the top

Tracking job costs is a process that involves every level of your organization. All of your valued employees intuitively know the value of tracking costs by job. If you begin to place an emphasis on the accurate identification of every cost by job for every purchase, they will gladly join in and help identify jobs with enthusiasm.

Tip #2: Set up solid communication between the field and the office

Cost tracking begins in the field, where teams deliver materials and make purchase decisions. Field staff know best which costs belong to which jobs. The trick is making it easy for them to flag the job name or number so that the person entering the invoice, credit card or debit card charge into the computerized accounting system can follow the process of assigning the proper cost code.

Tip #3: Provide information to bookkeeping staff readily

Bookkeepers may feel tempted to skip it when they don’t have the job information, promising to assign the proper job number later. This is the single most common source of errors. Making job information readily available to the bookkeeping staff is the best way to counteract this tendency for misinformation to cloud your reports.

Tip #4: Require purchase orders

Purchase orders are a good way to ensure the success of managing your job cost system, so have your accounting, finance or tax professional help you develop a good system. Purchase order systems work when the office must issue a unique order and all supplies must get purchase order numbers from field staff before providing materials to any job. An effective system helps ensure that no invoice will come to your office without a job identified on it.

Tip #5: Use caution handing out company credit cards

With credit and debit cards, there is usually no way to include a job name or number on the receipt. Provide cards only to responsible crew leaders. They should be required to send receipts right away to the office that identify the jobs. This can be done either by texting receipts as images, e-mailing scanned copies of receipts to the bookkeeping department, or dropping paper receipts off with the job name or number marked on them.

Tip #6: Clearly separate costs

Job costs differ from office and overhead costs by getting a job number that is distinct from the general ledger account number. The chart of accounts or general ledger can be a help or a hindrance depending on the skill of the accounting, finance or tax professional who develops your job cost system.

For example, general ledger expense codes typically start with the 5,000 series of account numbers. Managing job cost tracking then becomes easier for everyone if they are coded with 5,000 series numbers, while allocated costs are coded with 6,000 series numbers and office and overhead costs get 7,000 series account numbers.

If the chart of accounts and job cost ledger are set up professionally, cost allocations will become easier and more accurate and job cost reports will be more accurate and useful.

Tip #7: Follow best practices

You should carefully choose the actual job number by following best practices. For example, instead of picking the next number in a random sequence starting with an arbitrary three- or four-digit code, assign a job number that conveys meaningful information—such as the project’s start year, the specialty trade involved, and whether the cost relates to materials, equipment rental, labor, or subcontractors.

Need more information on how to manage job costs? Consult with your accounting, finance, and tax professionals who are familiar with construction best practices. This will make your life easier down the road as well as more profitable.

Beach Fleischman 2201 E. Camelback Rd. Phoenix, AZ 85016 | 602.265.7011 | http://beachfleischman.com | twitter: @BeachFleischman