Tracking costs accurately is essential in construction. Unlike other accounting software, job costing offers both micro-level details and a macro-level overview. It focuses on three main categories: labor, materials and overhead.
Think of it like monitoring your utilities—if you notice a sudden increase, it can help you figure out the problem, whether it’s Junior running the air conditioner or you underestimating the amount of materials needed.
Construction job costing software gives you real-time visibility into actual costs for each project. This helps you make accurate labor and material estimates to protect profits. It also helps you monitor and manage costs to prevent profit loss as the project progresses. Labor expenses are typically the hardest to control and can quickly eat into a company’s profits. Job costing makes it easy to identify over- or under-staffed jobs and implement corrective actions before they wreak havoc on your bottom line.
The first step in creating a job costing system is to decide what type of data you want to receive. Depending on your goals, you can create a structure that is as in-depth or as simple as you need. For example, you can choose to code each transaction with a specific job name, like “pouring concrete,” or you can go with a more general term, such as “construction labor.”
You can then use that information to track budget performance and determine project profitability. Efficient job costing software also provides real-time budget monitoring so you’re always aware of where your money is moving, ensuring that projects don’t get out of hand and that you aren’t losing valuable profit margins. It also allows you to compare your budget with the numbers that actually came out of the bank. Performing frequent General Ledger tie outs can help you spot errors in your reporting and ensure that your data is accurate.
Construction projects work at the intersection of concept and reality, taking a design from an idea to a three-dimensional structure. But the two don’t always merge as smoothly as you might like. Sometimes bedrock is closer or farther from the surface than estimated, concrete turns out to have less strength in stress tests, or water infiltration causes damage that was not anticipated.
This is where job costing comes in. By tracking the progress of every task and comparing it to the original estimate, you can see how much has been spent, how far off your budget is, and make adjustments to stay within the project’s parameters.
Tracking expenses in real time is essential for keeping a close eye on your costs, and this is where construction job costing software is especially useful. It eliminates the need to manually compile a report and puts all of your data in one place so you can quickly see where you stand.
You can even compare your actual costs to the original estimate to determine how much you overestimated, underestimated or perfectly estimated. This will help you improve your estimates in the future. You can also run G/L tie outs to compare transactions between your job cost reports and your general ledger to ensure everything is recorded correctly.
Better Cash Flow
Just like your household budget, construction job costing gives you a view into the expenses of each project so that you can identify the underlying causes of costs creeping up. Using an example from home ownership, you might notice your utility bill is going up but not know whether it’s because you’re running the air conditioner more or Junior is leaving on too many lights. This level of granularity is only possible with a solid job cost system in place.
Construction companies that utilize a robust job costing structure enjoy easier, more accurate budget building, improved progress tracking and a better zeroing in on profit margins. While there is some initial work involved in setting up the job cost structure – breaking down projects, establishing consistent and accurate coding, training employees, etc. – once the job costing structure is in place, it’s relatively easy to maintain.
With an online payment processing system, you can take your job costing process to the next level and streamline it to create a smoother business workflow. Instead of waiting to receive payments from clients or sending invoices out to remind them to pay, you can get paid faster by allowing clients to make payments through an emailed link with the option to use their preferred method of payment. This eliminates chasing down payments and reduces the risk of late payment while improving client experience by eliminating the need for awkward texts or pushy emails.
A construction job costing system allows businesses to monitor their expenses in real time and ensures they are staying within their budget. This gives construction companies the opportunity to make adjustments quickly if a project is at risk of going over-budget. For example, if a project is under-performing or labor costs are rising rapidly, a construction business can address the issue by changing their estimate for similar projects in the future.
This type of tracking can also help to prevent costly mistakes that can happen during a construction project such as using the wrong material or overestimating labor costs. For instance, if a project is billed for too much concrete, it can be easy to correct the mistake by simply recalculating the cost for that specific phase of the work.
Generally speaking, all expenses that are unique to a particular construction project should be tracked in a job costing system. These include all labor costs, materials and overhead. The cost codes that are assigned to these expense types can be as broad or as detailed as the company would like, but a good rule of thumb is to keep all code names consistent and straightforward for easy interpretation.
By implementing a comprehensive job costing system, construction companies can benefit from accurate estimates and reports, improved cash flow and increased profitability on every project. The process of setting up a job costing system may take some time, but it can pay off in the long run.