Job Costing for your Business
As a business owner, you’ll be faced with many decisions to make. Among the most important is job costing which helps you determine the price of the jobs and services that you offer to customers. Knowing the right fees to charge helps your business achieve success easier. It allows you to maximize profits while keeping overhead costs as low as possible.
Payroll accounts for a majority of service business costs. Job costing helps prevent loss of services and time. When determining the value of the process, it’s important to take into consideration all of its many benefits. That way, you’re able to see the role it plays in helping you build a sustainable business.
Building a business that withstands the test of time is the ultimate goal. It requires strategic planning and implementation that accounts for things such as inflation, supply and demand, marketing, and even recordkeeping. These factors help build a solid foundation for your business to grow. Without laying down the groundwork it takes to create a business with staying power, it’s hard to overcome financial challenges.
The Benefits of Job Costing
Job costing is necessary for budgeting, determining the cost of goods sold, analytics, and accurate records. Tracking these things helps small and medium businesses account for which expenses their money pays for. They can decide whether a client is profitable or not cost-effective. They can also choose to raise the prices of their goods and services in order to minimize financial fallout and ensure profitability.
The benefits of job costing include the following:
A job does not need to be completed to determine its cost. It can be decided at any stage. Appropriate measures can then be taken to lower the costs as needed. When a balance sheet is completed, it brings to light just how profitable a job may be. That way, improvisations can be made to lessen the financial burden carried by your business.
Profits are considered separately. Each job brings in its own amount of profit which is later figured into a balance sheet to see where the business stands in terms of money paid out and money paid in. Profits are calculated when assets and liabilities are subtracted from one another. That leaves the equity or profit remaining.
Cost, selling price, and profit play a role in every job taken on. That way, you’re able to determine how much money you’ll make after paying for direct costs. It helps you know if you’ve charged your clients enough or need to adjust your pricing for future jobs. If you haven’t, you’ll be aware of your loss and have the knowledge now needed to rethink your pricing model.
Record keeping is vital to your success. It serves as a guide that you can go back to and review at any given time. That way, if adjustments to prices need to be made, you have a valid reason to charge more. You’ll have a physical document showing you why you were in the red on a job and what you cando to make sure it doesn’t happen again.
Previous jobs dictate the price for present jobs. If the work being done presently requires more than it did in the past, adjustments to pricing models can be made with ample justification. Inflation drives up the price of goods and services making them cost more in the future than they did in the past.
When a budget is created, it considers overhead costs. Recouping sums of money used for indirect costs is essential. This is where the labor and marketing portion of your budget are considered which is essential to your growth and success as a business. Keeping overhead costs low helps you retain more of the profits you have made.
Reviewing prior balance sheets allows you to price future jobs accordingly. Analyzing the data regularly helps you determine any pricing gaps you may have overlooked or run into in the past. That way, you’re not underpricing the work being done and having it cost more to complete than you originally anticipated.
Providing estimates helps you stay within your budget. The client is aware of what you are able to provide under the confines of the pricing model you provided to them. They’re notified about additional costs at the start of the project thanks to an agreement you have in place.
The price of each individual job is influenced by job costing. Rather than state general prices, every client’s work is carefully calculated. This lessens the likelihood of losing money on jobs. You know exactly how much money it’s going to take to get the job done right and can adjust your pricing model to reflect these costs. You’re not forced to do with fewer laborers nor are you required to switch to lower cost products and services to meet the budgetary constraints of a job.
If overhead costs are extreme, adjustments can be made before they get out of control. The cost of the job at hand and what was the anticipated cost of the work being done are compared with one another. If the two amounts differ significantly, things can be done immediately to ensure the success of the project.
Reviewing the advantages of job costing allows you to get a better feel for why it’s a necessary part of your business. Without having predicators in place, itcan be very difficult to decide how to price the work that is being done by your employees. In the broadest sense, job costing relieves you of the difficult task of cutting back on labor or swapping out goods and services for lower cost options. It gives you an idea of what is being spent, how much profit is being made after calculating costs, and where it leaves you in terms of future jobs with the same clients.
How Job Costing is Determined
There are a couple of tools that make the process of job costing easier. The first is a balance sheet. The second is an income statement. To better understand the role of each, it’s important to know how they’re similar and different.
The Balance Sheet
Assets, liabilities, and equity make up your balance sheet. An overall view of your business at any given time, this important tool helps you determine how much you have in value, the expenses and debt you currently owe, and the net value of your business after subtracting the two from one another. Regularly reviewing where you stand financially allows you to make adjustments that benefit your business. That way, everything balances out to your advantage.
The Income Statement
An income statement gives business owners a better idea of how much they’re profiting or losing throughout the year. This tool is typically generated on a month-by-month basis. It helps you understand equity and how it fluctuates with profits and losses. You’re able to see how well job costing is working for you and your business.
Without a balance sheet, it’s hard to know how equity effects your day-to-day operations. Making sure that you use these two tools together helps you gain the greatest insight about your financial situation. It ensures that you have the opportunity to make corrections to pricing as you see fit. That way, you’re not underpricing your products or services and losing money in the process.
Direct Expenses vs Indirect Expenses
There are two different types of expenses for you to consider. The first is direct expenses. The second is indirect expenses. They’re very different from one another.
For example, direct expenses are incurred when working with a client. Whatever their project or job may be will contribute to this type of expense. Indirect expenses occur when trying to keep your business going. This is overhead costs such as those attributed to marketing, operations, and employee salaries.
How Can You Stay on Track with Job Costing?
There are many things that job costing helps small and medium businesses accomplish. For example, how well are you staying within your budget for jobs? Are there clients that are better to work with and ones that should be avoided because they don’t pay as well? Should pricing be restructured for some clients?
Having a clear idea of who is making you the most money in terms of employees as well as teams and departments. Would more staff help you achieve what your business has set out to do? How much money should be allocated to marketing? Knowing where to focus your sales staff allows you to make the most money you possibly can without wasting valuable resources such as time and labor.
Staying on track with labor costs allow you to prevent unbilled expenses. All too often, clients don’t receive accurate invoices because billable time isn’t tallied up and accounted for. Multiply the problem several times over and your business could quickly be in the red because of the jobs and projects that you didn’t bother to get paid for. Job costing keeps this from happening because it relies heavily on your ability to manage expenses as they occur.
The Role Time Tracking via Mobile App Plays in Job Costing
ClockInEasy tracks employee time at different job sites using GPS. The app detects the job site that a person is at based on the locations that they’ve added to their account. It then automatically assigns the project to their timesheet report after they’ve clocked in. This streamlines the job costing process by showing the employer how many hours of labor were spent per job site.
A time tracking mobile app assists companies by making it easier to stay on top of employees with multiple job sites/field workers. Keeping costs down helps maintain a higher profit margin. Indirect expenses pertaining to labor are ontarget and easy to add to balance sheets because of the reports that a regenerated by ClockInEasy.
Accurate time tracking prevents discrepancies in timesheets from occurring. It provides you with greater knowledge about your day-to-day operations and how much they're costing you in labor. That's because your employees have a method of keeping track of time and projects with ease from their own phones. Once they've submitted their time for the week, you can review their jobs and projects to make sure they are billing for time accordingly.
A Time Tracking App Helps Identify Areas of Potential Change
Service businesses benefit from job costing. It allows them to allocate their resources better. If you’re in the market for better time tracking, marketing, and analytic monitoring,you’ll find value in the process. Make it a part of your everyday operations by investing in the right time tracking application.
It will simplify your job as a business owner by allowing you to charge the right amount for your products and services so you’re able to thrive for years.By keeping overhead costs low and profit margins high, you maintain your business success via job costing and make it easier to remain relevant in today’s competitive world.