If you're working hard and not making enough money, job costing can help you identify ways to become more profitable. Simply stated, job costing assigns expenses to a specific job or customer, allowing you to track profitability by job. Plus it works great with QuickBooks and does not require any additional purchase or third-party software.
General contractors, manufacturers, subcontractors, and estimators are probably already familiar with the concept of job costing, but you don't have to be a contractor to use this approach. Most businesses will benefit from the project-based reporting job costing provides. They will also find the ability to track expenses and compare them to estimates and job revenue valuable.
Benefits of Job Costing
- Report on project-based profitability
- Compare budgeted cost to actual job costs
- Determine which jobs are most profitable for your business
- Improve your estimating
How to Implement Job Costing in QuickBooks
- Commitment: Understand the rewards job costing offers your business. Ensure your staff is on board and fully appreciates their role in implementing job costing.
- Enable Estimates: Make sure you have estimates enabled in QuickBooks. Click Edit > Preferences > Jobs & Estimates > Company Preferences. Select Yes under "Do you create estimates?" Select Yes under "Do you use progress invoicing?"
- Assign Expense Account to Subcontractor Items: Click Lists > Item List. For non-inventory parts and service items performed by subcontractors or partners, double click the item and check "This service is used in assemblies or is performed by a subcontractor or partner." Assign an expense account to the item, this account will be used to track the cost of the service or item in question.
- Create Jobs: When job costing, jobs are nested below a customer record. You can create sub jobs to record change orders for a particular job. Record Expenses as Items: When using job costing, all expenses (both direct and indirect) must be recorded as items and tied to a job or sub job. This means related bills, checks and credit card expenses must be entered in the item tab, not the expense tab. Be sure to enter a customer: job for each expense.
- Use Estimates and Progress Invoicing: Be sure your company uses estimates and change orders correctly and consistently. Use reports to identify any training issues such as missing change orders, and retrain your team when necessary. Remember you can easily use QuickBooks to create invoices from estimates based on a percentage of the total estimate.
- Use Reporting to Compare Estimated to Actual Costs: Now that you have a team that is faithfully creating and updating estimates, and recording expenses as items, you have valuable reporting data. Track your estimating: click Reports > Jobs, Time & Mileage > Job Progress Invoices vs. Estimates. If you have the Contractor edition of QuickBooks, you can get even more specific: click Reports > Contractor > Cost to Complete by Job Summary.
Whether your business is a team of one, or you have 40 employees in the field, job costing can make an enormous impact on you company's profitability, with no additional effort or expense.
Here is a list of common mistakes:
- Outsourcing payroll (ADP and Paychecks)
- Entering job costs using the Expenses and/or Accounts tab
- Thinking or believing that every contractor can/should use the exact same Chart of Accounts or Items List
- Not setting up Items to track both expenses and Income
- Not using the built-in Estimate function or an estimating program that interfaces with QuickBooks.
- Creating a new customer file for each project/job
- Receiving customer payments incorrectly
- Not properly applying Vendor Credits to Bills.
- Not reconciling Bank or Credit Card accounts
- Not using the Ask My Accountant Chart of Accounts item for expenditures that are difficult to categorize.