As a construction company, there are many benefits to using job cost accounting vs. standard financial accounting. In short, you get better tracking of specific cost information. This data helps inform future decisions about what materials to use, which vendors you prefer, and what types of jobs to bid on.
Here are some of the main benefits of job costing for a construction company:
For a company like Coca Cola, it makes sense to track profits based on time. They can see how their quarterly sales have improved based on advertising campaigns or various partnerships. For a construction company, on the other hand, it makes more sense to track profits by job. Construction is a project based work, and job cost accounting is built for that purpose.
As management reviews its finances, they will want to see each job's data. They don't want it all combined into one bucket, so to speak, because they cannot properly assess the profitability of each job.
If a home building company finds that it's making a profit at the end of the year, they may be content to just take the profit and keep going on with business as usual. A wise manager, however, will be looking for ways to further optimize their work and increase that profit. One way to do this is to look at the job types and compare their profitability. After looking at the prior year's projects, they may discover that each time they built a home they made a modest profit, but each time they renovated a basement they made a great profit in a short period. Management can now consider this data and decide if they want to focus more on basements. The data seems to indicate they have a knack for it, and it's great for their bottom line.
If the company's jobs hadn't been separated out in their books, it would have been really difficult to make this discovery. Fortunately, thanks to job costing, they were able to find a way to increase their profits.
Any contractor knows that one phase of a job is not the same as others. Pre-construction may involve site clearing and excavation, while another phase involves subcontracting out plumbing and electrical. Each phase is unique, and so are the people and costs involved.
Expenses from one phase should not be lumped together with other phases, otherwise you may miss out on valuable insight. You may notice that you're spending way too much money on your electrical subcontractors. This could lead you to doing the work yourself, possibly saving money and raising your profit. This data can be found in your job cost data.
A construction company burns through materials constantly. If there's nothing in place to scrutinize each purchase, costs could quickly spiral out of control.
Having the right vendor can make or break a construction job. Profitability is at stake, so there must be a way to check on those purchases. Fortunately, construction companies can use cost codes for their expenses, allowing them to track materials in detail.
A good job costing software will allow the contractor to track material usage each day. They can regularly see if something is off, like if too much material is being used. That could be a sign that there's a defect in the product, and that's why more material is being used. These are problems that you want to clear up as soon as possible, and job costing makes that possible.
Does each one of your employees do the same level of work as the next? Why does Larry take 20 hours on a project that Mike gets done in 8? If you're not tracking your jobs closely, you'll never even know to ask these questions.
Once you review your labor data you can identify anything that seems out of place. Maybe every time Ron does a certain type of work, it ends up being redone later. Your labor tracking will make that more clear, and now that you've found this, you can fix the situation. Maybe you can get Ron some additional training and avoid having to rework his part of the job. Little decisions like this all add up to make bigger profits.
Anyone who has balanced a checkbook by hand knows that it's easy to get behind, because the work is a little tedious. Software can take the manual work out of budget tracking so you don't get behind.
In A-Systems JobView, you can import your job estimates. Those estimates are setup as your job budget. Now, every time you enter an expense, it is compared with your job budget. This is done automatically so you can see your progress throughout the job. Now you know if you're staying profitable during the project, rather than having to wait until the work is done.
Part of tracking your budget is estimating how much is left to spend. This can be really difficult to do by hand, but job costing software will help you out here.
Because your accounting program already has your budget, it knows basically how far along you are in the job. It can forecast out your cost-to-completion, giving you an idea of your progress and profitability. You can see if you're on track, and if you're not, you've got time to fix the issues. We don't like surprises when it comes to our money, and using a solid job costing tool will take the guess work out of it.
Because cost info is tracked so precisely, you can run reports in a number of different formats. This allows you to send custom-tailored information to various parties, according to their needs. Everyone can get the specific data they want, and it can be formatted and emailed from your accounting software.
A-Systems has spent the last 46 years helping construction companies with their accounting. We can get you moved off of a generic accounting package, like Quickbooks, and into a robust job costing application. You'll be glad to have the proper job tracking tools at your fingertips.