• For more information call 717.639.2550

  • Many companies in the construction industry start off small and as long as there is more money in their bank account at the end of the job, they are happy. Most companies do not know the true cost of a project, whether they do not take into account the true cost of labor or materials. Cost accounting is crucial for any business in the construction business that wants to grow the proper way. Proper cost accounting systems in place can help a construction company in so many different ways, such as more accurate estimates, knowing how jobs are doing, what level of experience you should hire and much more. The more you grow, the more you need to look deeper at the numbers so that you can continue to grow and not just hemorrhage money on each job.

    Job Costing is Essential

    At the very basic level, every job that you do should have some form of job costing on it so that you can at least see the labor and materials that go to each job. Most accounting software systems will allow any business to track expenses per job, so it is crucial to learn how to do this from the start. Going backward is very difficult, so understanding the software immediately is the key here. Quickbooks, while not the most robust accounting software, is certainly more than capable of basic job costing and can be set up with ease. Essentially, whenever a new job is set up, you are able to track all expenses and income, even labor, to these projects.

    Advanced Job Costing Methods

    Again, it cannot be understated how important it is to track the expenses, both material, and labor, that goes into a job specifically. But what about your trucks, tools and other items that you carry from job to job? Should you be tracking those costs as well? And if so, how do you properly allocate it and is it truly worth it?

    One common way this is accomplished is by setting up a separate division within the company that manages the vehicles and tools your company has. This can even be done for a company that has one truck and a few tools. The main methodology here is assigning costs to the truck and then applying it to the job properly. For example, let us look at trucks. You can assign a value to the truck that includes all maintenance and upkeep and then divide that over the potential useful life of the truck. That value could be, for example, $7/hr.  So, when you are on a job, if you use the truck for 40 hours, the cost of the truck for that job would be $280. The same could be done for tools. Say you have a set number of tools that are common for a job and you set that value at $3/hr. You would know that for every 40 hour week, your tools would be charged at $120/week.

    Also, you need to figure out the admin and overhead costs you incur and how to charge that as a percentage so you can get a true profit on each job.

    Value of Costing

    Yes, it is cumbersome to set up at first and to be sure that you are charging the correct values per job, but in the end, it is certainly worth it. Not only will you know the true cost and profit of each job, but you will also get historical data to help you build better estimates for the future. Better estimates will get you more job. Sure, you may not make as much profit on some jobs as you do now, but you can take comfort in knowing that you are bidding all your jobs much better. You need to be profitable and you need jobs that are profitable, so breaking down the numbers to properly see how your jobs are doing is the key to growing. Being able to look back at a job to see how you did is crucial to not only see your profit, but to see how you can either do better or replicate it again on the next project.

    If you are looking for help in setting up a cost accounting system for your construction business, please contact us and we can do a strategy meeting to see how it could work for your business.