Job costing is an important function for every business that has employees, sells good, or provides services to customers. Job costing is especially important for contractors, because you need to know if you are making money on the jobs that you have been awarded.
While the start of a busy construction season may not be the right time to do a full-scale revamp of your current job costing system, it is certainly time to give it a thorough review for the upcoming season and perhaps make some modifications to your existing systems within QuickBooks. As you read through this article, take some notes and see what things you can change now and what should wait until you are in “off season” before tackling.
Implement job costing for your company using the following 13 steps:
1. The QuickBooks Customer Center provides you with the ability to track your Customers (project owners, awarding authorities, or general contractors) that you perform work for. For each Customer you can then track the various Jobs (projects) that you are working on for that specific customer. For each Job that you are working on you can also track Sub-Jobs (your Change Orders or Extra Work orders) that are specific to the original job.
If you are going to use Jobs and Sub-Jobs, each one should have its own Estimate; the Estimate that you create at the Job level should be for the Original Contract, whereas the Estimate that you create at the Sub-Job level should only be for the items that are specific to the change order/extra work order.
ALL costs that are entered into QuickBooks should be posted or job costed to either the Job or to the Change Order/Extra Work order.
Sometimes the contract owner wants the Change Order/Extra Work Order to be added or included with the original contract for billing purposes. In this case it is recommended that you still set up both the Job and Sub-Job records in QuickBooks for job-costing purposes and also add the Change Order/Extra Work Order (in whatever sort of detail required) to the BOTTOM of the Original Estimate for billing purposes.
RELATED: 10 Common Mistakes When Using QuickBooks for Contractors
2. NEVER, I repeat, NEVER simply open the original QuickBooks Estimate and just change the dollar amounts of any line item to reflect the new amount after a change – this will NOT provide you with a good documentation system.
3. Review your QuickBooks Chart of Accounts and make sure that you have suitable accounts listed there for Direct and Indirect Job Costs
4. Review your QuickBooks Item List – it should be set up to match your industry’s cost code lists, with all items being “Double-Sided” (having both a Purchase and a Sales price) and using “Group Items” as appropriate.
5. Use the cost codes from your Items List when creating Estimates, Purchase Orders, entering bills, writing checks or entering credit card charges.
6. Review your QuickBooks Payroll Item List – does it have different payroll wage items that reflect the types of work (work classification) that the employee performs on the job site?
7. While we are on the subject of Payroll, you should be doing your payroll in-house or through the use of QuickBooks Assisted Payroll and entering employee hours using the weekly timesheet – mirroring the information that is sent from the field.
8. Make sure that you are accounting for your Equipment Costs on the job site and in your job costing reports.
9. Track committed costs, material purchases, and subcontracts using customized QuickBooks Purchase Orders and the cost Codes you create in your Items List.
10. Create Estimates that reflect the Schedule of Values using the Cost Codes you create in your Items List and then use the Progress Invoicing feature to generate the base billing.
11. Use our free Project Info Worksheet as a means of providing essential contract information to the appropriate people and document ALL of your procedures.
12. Get your employees involved; make sure that everyone is trained properly.
13. Monitor the work flow carefully and make adjustments as necessary.
About the Author:
Nancy Smyth has supported Intuit products and end users since 1986, with her primary focus being commercial/government construction contractors. She has been a Certified QuickBooks ProAdvisor since 1999; and as President of Sunburst Software Solutions, Inc., she is a key player in the development of several QuickBooks Add-Ons for the construction industry. She is also the author of the QuickBooks for Contractors blog.
Note: We periodically offer live online training seminars called “QuickBooks Job Costing Essentials” and “Advanced Job Costing”. Check our schedule for upcoming sessions.