A version of this article first appeared in the Builder Partnerships newsletter.
It just seems logical…
…that every business owner would want to know exactly what each type of job costs
(so they know how to price it). Right?
And they’d want to monitor what’s going right and what’s not (financially) as the job progresses
(so they can fix it). Right?
And after all of the final “financial dust” has settled, they’d want to know exactly what they’ve made on each job or home
(to decide how to improve future projects). Right?
The Unsettling Truth About Profits
Unfortunately, in my 25+ years of experience working with construction business owners, one thing has become painfully clear to me. There are two types of construction business owners:
- Those that are using job cost reporting and using it well, and
- Those who aren’t (or don’t know how to fully utilize it).
This is incredibly important because I’ve observed that construction business owners who use job costing are taking advantage of the information it provides and are consistently more profitable than the ones who aren’t using it (or those who aren’t using it correctly).
So if you want to squeeze more profits out of every job, one way to do that is to use job costing.
Why Don’t All Construction Companies Use Job Cost Reporting to Improve Their Profits?
For those of you who are in the business and using job costing, it seems as obvious as 1-2-3: “Of course I need – and use – job costing. Why wouldn’t every construction business owner do it? I can’t imagine why they wouldn’t!”
Well, here are the top 5 beliefs I’ve found related to why many businesses DON’T adopt job costing:
- They think it might take too much time (or cost too much).
- No one in their company knows how to do it.
- They think their CPA will help them set up a job costing system.
- They don’t have software that’s adequate for the task.
- They’ve tried it, and the results didn’t seem accurate.
Over the years, I’ve been approached by (and worked with) a number of owners who were beginning to suspect that perhaps they should be using job costing.
Even after discussing the following benefits, not everyone was ready to make a change. But many DID choose to move to “the next level” and transform their company by adopting job costing.
Answers to the “Top 5” (Making the Change to Higher Profits…)
So here are some alternative ways of thinking your way through those Top 5 “it-won’t-work-for-me” beliefs. Please keep these thoughts in mind as you move toward a decision:
- “Too much time or cost…”
Lost wealth and profit vampires: Look at your costs and estimate how much time, effort, and money you’re sacrificing because you can’t see exactly what is happening with job costs, change orders, purchasing, pricing, and profitability. You’ll see that the cost to implement a job monitoring system is only a fraction of what you’re currently losing!
- “No one knows how…”
“If you think education is expensive, try ignorance.”
(Peter Drucker – American management consultant, educator, and author)
With the right training, if you care deeply about your business, you CAN learn job costing essentials! (I’ve trained thousands of non-accountants how to set up and use basic – and even advanced – job costing.)
- “Our CPA will help us…”
Your CPA isn’t a Management Accountant (and doesn’t want to be!) A CPA’s primary focus is to perform independent reviews and audits and provide tax guidance and returns. Some even like to help with personal financial planning. But very few are willing (or trained in how) to help companies set up and use internal management accounting systems. So if you’re waiting for your CPA to help you do this – you may have a long wait…
- “We don’t have the right software…”
Quality software is very accessible. (It’s the least of your costs.) Reliable, powerful, low-cost, off-the-shelf software such as QuickBooks desktop or Enterprise Solutions is designed for job costing. You can customize those products to meet the specific and unique needs of your business and your industry.
- “We’ve tried it, and our results didn’t look right…”
Learn how to check and understand your numbers. By using month-end closing checklists, you can access regular, accurate reports. When your information is organized in a logical format, you gain the benefits of instant access to logical, useful reports.
Enhanced Profitability Using PM3 Combined With Job Costing
The people who converted from doubters into “believers” are now “job cost enthusiasts”. They implemented the concepts of PM3: Plan, Measure, Monitor, and Modify into their job cost-management toolkit.
By adding job costing tracking and monitoring, they found that they could, in fact, learn how to control their costs and manage their profitability by squeezing more profits out of every job!
To help you make the transformation, we’ve created affordable workshops and training specific to job costing using software such as QuickBooks® desktop and Excel. We love teaching and coaching, so if you’re ready to learn, we’re here for you.
You can sign up for any of our workshops or training tutorials and learn what you need to know 24/7. If you have any questions you’d like answered before moving forward, please send us an email or call, and we’ll be happy to spend more time learning more about you and your business.
We look forward to hearing from you and learning more about how we can help…
What’s YOUR Job Cost & Management Tools Proficiency? Score Yourself…
If you’d like to see where your company stands in the “job cost and management controls” spectrum, just click on the link below to access this (confidential) self-assessment survey:
Self-Assess Your Profitability Management Tools
- Simply indicate your company’s current level based on these 25 “best practice” management tools.
- You will receive an emailed report that shows the questions, your responses, and your score.
- Use the results to discover and prioritize exactly where you’ll be able to use these tools to squeeze more profits from your company.
Use the assessment to find new ways to improve the profits you get to earn (and keep) from each of your projects!