How better job costing is the key to unlocking greater profitability for your construction firm
June 24, 2021 by Gordon Advisors
Job costing is the backbone of any construction project’s profitability, and how well you manage this process can make or break the bank on a project. However, construction companies often struggle to properly job cost and manage this area due to the unique nature of the industry. Material, work, and labor can all combine to create a host of issues for any construction project’s costs. But, with the right job costing system in place, contractors can eliminate these challenges and improve their profitability project over project.
What is job costing?
Job costing is the process of taking an overall construction project and breaking it down into smaller, specific tasks that happen over the lifecycle of a project including the first stages of estimating and bidding, through change orders, and into the close of the project. Each layer of the job cost needs to be carefully managed in order to maintain profit margins for the construction firm and stay on budget for the client.
Why is accurate and timely job costing important?
Accurate and timely job costing can save your construction business’s bottom line in several ways:
- Controlling costs: Contractors need to be able to compare the true expenses of a project with the estimated costs, and timely job costing allows them to see this data and make changes with field and office teams before things get out of control. It also helps to identify trends in the project that could be slowing down the project. Timely and accurate job costing allows contractors to make quick adjustments to control costs.
- Managing profitability: With proper job costing, contractors can see what’s optimized in their processes and what needs improvement, allowing them to adapt projects and procedures for increased profits.
- Supervising teams: Job costing reports allow contractors to see where performance is lacking so they can quickly identify, address, and mitigate the issue.
- Providing estimates: Having proper job costing in place means better estimates and bidding for future jobs. Contractors can more accurately predict costs and labor if they have a baseline and benchmark from which to work from.
What features should my job costing system have?
Contractors following best practices are applying job codes and phase orders to projects to manage budgets, but they may be doing this in spreadsheets or other clunky and risk-prone systems. The data is often not shown in real-time and can therefore lead to disparities in profit margins.
- Centralized, cloud-based technology: Modern job costing systems are centralized and cloud based. The right job costing software will allow for entry and updating from anywhere at any time, providing real-time updates from across the project. With one system, data is organized, and duplicate entry work is eliminated, meaning greater time and energy savings for your team.
- Useful reports: Your job cost report should include:
- Equipment and material so you can monitor use and costs in real time.
- Labor/subcontractors so you can see your labor and subcontractor costs as they rack up day over day.
- Overhead so you can see how your fixed expenses are faring.
It should be the goal of every construction firm to have optimized job costing practices in place with a system that can provide real-time data. If you haven’t considered upgrading your job costing system to a cloud-based solution now is the time. Contact Gordon Advisors for assistance with this conversion and financial support for your construction business.
About Gordon Advisors
Established in 1954, Gordon Advisors, P.C., is one of Michigan’s leading public accounting and business consulting firms, respected and recognized for our experience, dedication and commitment to providing exceptional client service. Our clientele consists of privately held organizations in manufacturing, distribution, real estate, medical services, construction, financial services, restaurants, engineering, and consulting and service firms.
Our construction industry experience, backed by a dedicated team of advisors, includes work for contractors, glazier, drywallers, paving, electrical, painters, HVAC, landscaping, demolition contractors, and more.
A trademark of Gordon Advisors, P.C., is the extensive involvement of senior management throughout the performance of the services we provide to our clients. We provide efficient, cost-effective service by selecting team members with appropriate skills and experience to handle your needs.
Gordon Advisors, P.C., offers a full range of traditional CPA assurance and accounting services, including employee benefit audits. Likewise, we provide tax compliance and tax strategy services with the capability to manage complex multistate and international tax issues. Additionally, we have a wide range of business advisory services ranging from information technology and human resources to business strategy.
For more information, visit gordoncpa.com/construction.