What is job costing?

Here is a fact that will surprise a few contractors: Construction is the sector most at risk for the U.S. economy. There are more business failures in construction than any other industry, both in numbers and percentages. The reason for this sad statistic is the fact that most entrepreneurs are not able to monitor the costs of construction, in order to get out of control. Before the contractor knows, a job he lost money and the company has deteriorated against insolvency. If things did not look back, the house's owner, has been denied early marriage and the other ends up in divorce court. And 'bad!

Here's an example of real life, with a twist. A businessman had just finished a job that has bid $ 100,000 with a built-in profit. He complained that when he paid the bill last year, instead of $ 100,000, had lost $ 120,000. It was fortunate that this swing $ 220 000 would not have caused his business to fail. His great concern was the fact that he had no idea of ​​where things went wrong, so do not know what to fix!

In response to this risk, some reason contractors that the best solution is to keep their small business, thereby reducing the risk of failure. Surprisingly, the same study that has documented how the building was risky (by the U.S. Small Business Administration) has also concluded that to remain small in fact increase the likelihood that a business would fail. In fact, of all industries in the study, the one who most benefited from the growth was the construction!

How can an entrepreneur monitoring costs and grow, thus increasing the probability of success? The answer is that of use of labor costs. There is an old axiom, "Use the right tool for the job." When it comes to construction, the right tool for accounting and job costing. This is why the contractors they need.

Now, we come to the nub of the matter. What is job costing? Job costing is a special accounting process that is designed specifically for contractors. There is nothing mysterious and does not require a high-priced accountant or expensive software. It 's just a two-step process. The first step is to create a job and enter a "budget" for the job. Where does the budget come from? The budget is nothing more than the "estimate" that was created by the estimator when this wonderful visionary calculated the estimated costs for the line of work, by line, step by step, from beginning to end, for the work. Logically, an estimate is not a unique shape, but a series of estimates of small dimensions, each of which covers a different phase of the work. For example, the amount of cement per meter at what cost it will take to the foundation? How many hours of work, at what cost per hour to prepare and then pour the foundation? What are the costs for subcontractors, if any? You will need to rent some equipment, such as a concrete pump, and this cost me?

Every step of every job has a potential budget for labor, materials, subcontracts, equipment, and a general catch-all category "other." In addition, there may be a category "weight", which adds a portion of general and administrative expenses for each job, thus spreading the full cost of running again for every job. This is an effective way to determine if any work is taking its share of the load.

In practice, creating a budget is not as complicated as it sounds. Estimators do all the time. In fact, the construction Specification Institute (CSI) has created a numbering system to help entrepreneurs and budgetary costs of the track. This numbering system is called the CSI cost code. This is a tool designed specifically for businesses to help them do the work costs.

The next step is nothing special. In fact, the accountant does what he always does the accountant: Enter supplier invoices and billing subcontractors, enter the payroll, invoicing customers and make as usual. As the costs are "matured", they are recorded. "Accrual accounting" recognizes an expense is incurred once, not waiting until it is paid. With the software, job costing, it is not actually need to pay a bill or a payroll for that cost to be included. The fundamental difference in labor costs is that, like any cost is entered, it is assigned to one of the CSI cost codes for one of the jobs. The result is that individual actual costs are compiled and compared to the individual budget. Software costs actually do real work a step further and predict the "cost to complete" for each cost code, based on a series of "algorithms". If a contractor uses "field reports" that show what's left to do on each step of each process, the software can not ignore job costing algorithms and add numbers to the actual "cost-to-date" and and compared with the budgeted costs, line by line, step by step, job to job. The result is up-to-the-minute information on costs. This means that contractors can sleep soundly, knowing that they're making money with the progress of work. They never wait for the process to see if there is anything "advanced" for them. Job costing provides peace of mind to policyholders.

If a contractor uses the software labor costs and actual costs out of line, no time to find out why. This should be an ongoing process, not made after the fact. It was the contractor double turnover? He was paid an invoice twice? It was more work than originally planned? It 'a change order necessary? Just knowing that costs are out of line management can address the root causes in a timely manner. Labor costs allows management to monitor and control costs. The result is reduced risk, increased profitability, and something sweet, something called "success". Job cost is more than a tool that entrepreneurs need to avoid becoming a statistic, is the key to their success. Perhaps it is bold, but an accountant said: "The contractors who do not use cost jobs or are lucky or bankrupt, and no one likes to hang their future on luck!"

Yes, I'm really professionals, entrepreneurs need to use job costing. Taking another step forward, they need to use the actual job cost software to do it right .......