Job Costing - Do You Know How?

Whats your job profitability? I meet with business owners every day that are unsure of their profitability at a company or job level. They think they are making money because they have a few dollars in their checking account. Having money in your checking account doesnt mean you are profitable. It might mean you havent paid all the bills yet, so you have a little cash. Cash and profit are two different concepts. If you arent profitable, you wont have longevity in your business.

It doesnt matter the size of your business or the industry. Profitability is something you should be monitoring on a regular monthly basis. No business is too small or too large to do job costing. Such an excuse is your way of not holding yourself accountable to managing your business wisely. Failing to plan is a plan for failure.

So what do I mean by job costing? You should know how much you make and spend on each job. Expenditures should be tracked for those direct labor and material costs to each job. In addition, you should also be tracking overhead costs and allocating them to your various jobs as applicable. There is always going to be some overhead that is considered general overhead. Though often times too many dollars are thrown into general overhead, when they could easily be tracked to specific jobs. If you dont know your exact income and expenses for each job and your overall business, then how can you know you are making a profit?

QuickBooks has easy-to-use features that allow you to do job costing for time and materials. So dont worry about having to track it all manually. Rely on tools to help you run your business more efficiently and effectively.

Are you curious how you are doing with job costing measurements? Here are some quick and easy questions to gauge your job costing performance:

1.Do I track each customers revenue information through a detailed invoice?

2.Do I have a way of breaking down my direct job materials cost by customer?

3.Do I associate all time spent to each job accurately with actual dollar amounts?

4.Do I have access to reports to monitor profitability on each job in a timely manner?

5.Do I have a way to trend the fluctuations in job profitability from job to job, month to month, etc?

If you answered NO to any of these, then its time for you to take an objective look at your financial goals. Its time for you to implement a job costing mechanism to help you answer YES to these questions. How can you track your profitability and long-term growth plans if you dont have detail at a job level?

Here are some quick and easy ways to utilize QuickBooks effectively to help you with your job costing process:

1.Set up the QuickBooks Item list so that youll have both an expense and an income aspect to each of the items. This will allow you to track your costs and your income; therefore, providing you profit by item.

2.Record your sales through the invoicing or sales receipt process. This will record the income aspects of the items.

3.As you purchase the product or service items, make sure that you utilize the Items tab so that it will record to the cost to the appropriate item. In addition, make sure to assign your customer/job information to each line item so that youll have the costs associated to the appropriate customer/job for job costing.

4.Utilize the time tracking mechanism in QuickBooks so that you and your employees can track their time by item and customer/job. No dollar value is associated with this time until you actually pay the employees within QuickBooks.

5.QuickBooks has preformatted reports that you can access to have job costing information right at your fingertips. These are found under the Reporting menu and the Jobs/Time/Mileage option.

6.QuickBooks has the ability to provide reports for any time period you select. This will allow you to have a variety of detail over the growth of your business and to produce trending reports. You can modify the report as needed to meet your needs.

One additional important aspect is that you have a good accounting professional on your team of resources. They will be able to help you understand what these reports are telling you in terms that you can use. Reports alone dont provide value if you dont understand them. So it is key that you understand the reporting information and how you can utilize that information to assist you in decision-making as you grow your business profitably.

Its all about how you set-up your accounting/bookkeeping software package and how you use it! What justification can you give for not knowing job costs within your business? None! Challenge yourself today to become more adept at running a financially savvy business through job costing.

Contact: Pam is the author of Out of the Red, a Certified Management Accountant, and a Certified QuickBooks ProAdvisor. QuickBooks is a registered trademark of Intuit. 816.304.4398. http://www.rppc.net

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