Keeping track of income and expenses is essential, even if you don't own a business. And if you do own a business, things get even more complicated. There are paychecks to issue, taxes to track, and subcontractors to pay out. All of these details are a whole lot less challenging when you hire an accountant to oversee them. However, it is still important to know a little bit about accounting yourself. Dig into the articles on this website, and you'll gain a better understanding of accounting principles, what services accountants really offer, and the benefits of hiring these professionals to assist with your finances.
If you do long-term projects for clients, you need to be able to track costs accurately and regularly. And one of your biggest tools to ensure that you continue to earn a profit for such long jobs is known as "job costing". What is job costing? And how can it benefit your business? Here are a few answers.
What Is Job Costing?
At its heart, job costing is the act of tracking expenses related to each particular project (job) and assigning them correctly to that job. This way, when you get paid for the job, you can compare it to the expenses related to that project and know if you made a profit — as well as how much profit it actually was.
Of course, what sounds simple in theory can actually be complex to execute. For accurate information, the company needs to be able to track supplies and labor both in great detail as well as to have a system that assigns these costs to particular projects. And you would need to be able to assign overhead costs, such as administrative work and storage or manufacturing building expenses, to those projects as well.
What Is the Benefit of Job Costing?
What do you get in exchange for all this extra work? First, you can more accurately determine your profits for each job taken on. Knowing this, even in retrospect, helps a business improve profits in the future.
You might, for instance, determine that a particular type of project requires too many administrative hours to be profitable in the future. Or you may notice that overtime labor costs are high for one type of job but not for another, so you can better target where you need to improve.
Second, you have more accurate information as the job is continuing. Management can review the current costs to see if they are within budget according to how far along the project is. If not, you still have time to make changes that will impact your profits for this particular work.
Finally, you have more accurate billing. Many large projects bill as the work progresses. But if you don't know how to size up these ongoing costs, the invoices may not accurately reflect the reality of what you've put into the job.
Where Should You Start?
If you think that better job costing would help your business improve its bottom line, start by consulting with an experienced accountant today. With their help and direction, you will surely come up with many ways to improve your costing skills and system. And that will, in turn, boost your profits for years to come.
Contact an accounting firm for more information.