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Making Sense of Job Costing and How it Affects Your Construction Business

Karine Woodman
CEO

Job costing is often portrayed as one of the most difficult parts of the accounting process when it comes to construction.

However, some will argue that it is one of the most difficult parts of construction in general!

Today, we’ll talk about what exactly job costing is, why it’s such an important part of your construction operations, and finally, how QuickBooks can make job costing much easier for you.

Job Costing Definition

In its simplest terms, job costing is an accounting method that is used to track the expenses of each unique project, as well as estimate how much money each job will cost.

Job costing is needed because in construction each and every project will be different from the next — and job costing can help the contractor know how much money they made on the project. Accountants use this method to keep tabs on the expenses of each job in order to use that information for analysis and tax needs.

For this methodology, there are three different major cost categories to consider.

Labor

For labor, you’ll start by calculating out how much it costs per day/hr in regards to your direct employees who will work on the job — eventually multiplying that number by how long you expect the project to take.

Next, you’ll need to the same for any subcontractors that you may need for the project.

Material

Next up, you’ll estimate the cost for all the direct materials you’ll be using, as well as equipment. You might also charge a margin on these materials to cover things like delivery and wastage.

Overhead

Your overhead will concern such things as the depreciation of equipment, office rental, admin, etc. Because these costs aren’t exactly related to the job itself, they are more of an approximation than a calculation.

A professional accountant is usually a great resource to help you with how to treat overhead expenses.

Why Job Costing is Important For Your Construction Business

Job costing is extremely important for a construction business because, as we mentioned, no project is the same — whereas if you were creating the same product over and over again (like a laptop, car, or toy), it is easier to account for manufacturing costs because it will be relatively consistent.

By using the job cost method, you can figure out which tasks take more time as well as better understand where you may be losing revenue.

It’s important that you can accurately predict, record, and control the cost of each job. Between materials, labor, subcontractors, and equipment, there is a lot that must be tracked and monitored for each and every job.

Benefits of Job Costing

Overall, job costing allows you to price jobs more accurately. This is because you’ll be working through each of the specific costs for an individual job, giving you more assurance that your estimation is accurate.

By using accounting software, you can get estimates done much faster. While job costing used to take much longer, using software like QuickBooks or a project management software like BuilderTrend or RedTeam Software can help streamline the process.

In fact, by using QuickBooks to help with your job costing, you can find more realistic profit margins, track progress and costs in real-time, and avoid customer conflicts because your estimate upfront will be closer to the actual cost

How We Can Help With Your Construction Business Accounting

We can help out with as much (or as little) of your financial workflow as you’d like.

We aim to bridge the gap between QuickBooks and construction management software and collaborate with you to create a simple and streamlined financial process.

Here is a list of the following services that we provide:

Construction Software Integration
We are experts in integrating QuickBooks and construction software together. This allows for a streamlined workflow — everything from estimating to project management and bookkeeping. If you’re not working with QuickBooks, today is the day to start!

Update Financials
We’ll bring your financials up-to-date so that they are accurate, current, and verified. Be confident in your financial reports.

QuickBooks Training
Learn to use, understand and confidently navigate QuickBooks Online with one-on-one or group training.

Workflow Advisory Services
We create customized step-by-step financial manuals to identify financial management and workflows — this includes the utilization of QuickBooks and construction management software, as well as staff responsibilities.

Monthly Bookkeeping
We manage your financials in both QuickBooks and your construction software. We’ll handle accounts payable and receivable, payroll, reconciliations, and review for real-time financials and job costing.

Give us a call today to get started on streamlining your construction business accounting!

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