It's like knowing where the goal post is, so you can strategize how to get there.
More and more businesses we work with here at Kerby Accounting & Business Solutions are seeking help calculating job costing, sometimes called project-based accounting. It's an activity we highly encourage!
Job costing, or tracking exactly what it costs your company to perform a job for a client, is how you get your organization on the road to profitability. Many companies put time and effort into activities such as marketing, new business development, and equipment investment while too often, job costing takes a back seat. But it's a crucial piece in terms of business success. It's how you measure if you are becoming profitable or not. After all, you don't know if you are making money without first tracking what you are investing into that job. Profit is what's coming in above that mark.
Some of the types of organizations that depend on job costing include construction companies, healthcare organizations, law firms and distribution companies. Other industries we see reaching out for help with job costing are private-investment companies, advertising firms and food-processing businesses.
What factors into job costing?
Costs tracked by individual jobs include the costs of labor, material and overhead for a specific project. With job costing, there are no one-size-fits-all templates at work. It's detailed stuff, best handled by a professional accountant, and operates within actual information, not assumptions. To paint with a broad brush when job costing negates the whole point, after all - the goal is to pinpoint the juncture at which you become profitable on a project to ensure you are doing so - and by how much.
Labor costs of a particular project are figured by adding up how much it costs your company in payroll on that project per day. How many employees and subcontractors are at work, and for how many hours each day?
Material costs are next - in an industry like construction, materials include the basic lumber, wiring, nails and screws. But then it can get more detailed from there, too, if you factor in other elements, such as delivery fees to a job site, and wastage expenses. Again, an experienced accountant will know what to consider.
Each cost consideration is of value in that it offers an opportunity to reduce these expenses on future projects, and improve the bottom line.
Overhead: Different approaches
Overhead costs are the costs you need to pay to stay in business. They will differ depending on your industry, but include rent, insurance, office supplies, equipment and utilities. Overhead does not include the direct costs of providing, manufacturing or selling of a product or service. (Flowers for a florist, for example, would not be an overhead cost, nor would food for a restaurant.)
Computing overhead costs can be done in different ways. Some businesses go with a straight percentage amount that they apply to each job performed for a client. Or you can go with an approximation for each job of the overhead costs that factored in, including the depreciation on the particular equipment used, for example. Your accountant can help you develop the best solution for your company.
Job costing is a logical, fundamental first step in determining where your business becomes profitable. It's how you then best strategize how to get there. But it can be a tricky process. Let Kerby Accounting help get you started in setting up some job costing systems and be your partner in business success.