If you’re in real estate development or a related industry, job costing can save you money, but only if it’s done accurately
Job costing is a straightforward method to manage expenses. It’s most commonly used in project-based work or for custom orders. It is the dominant method of tracking the profitability of everything from large-scale real estate developments to small-batch, made-to-order goods and services.
Financial managers rely on job costing to pinpoint waste or excess areas for their clients. Small and medium business owners can follow their approach to institute smart job costing principles throughout their company. Some important things to know about job costing are:
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Job costing is most beneficial for companies that produce goods and services that are differentiated for each customer.
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Estimating is an essential part of the job costing process.
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Your job costing efforts will only be as good as your record-keeping skills, use of appropriate tools, and attention to detail.
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Accurate job costing requires tight internal controls.
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Effective job costing maximizes profitability and minimizes risk.
There are many different approaches and an abundance of software systems that facilitate financial reporting and expense estimating. The best process for your business is the one that is easy to use, readily accessible, and customized to fit your unique needs.
Benefits of job costing
Proper project costing will lead to more accurate estimates and bids, better management decisions, more timely financial reporting, and increased profitability.
Before a project is approved and started, accurate job costing plays a significant role in determining its profitability. The bid you submitted to win the job began as an estimate. Hopefully, it’s one based on prior experience, a thorough knowledge of current costs, and an understanding of your market.
Your company’s success in future projects relies on your ability to track costs and discover the best way to deliver a quality product or service to exact but variable specifications. An accurate job costing process provides a proven framework for each new project. The lessons learned on each project can contribute to more accurate costing going forward.
Job costing for real estate developers and general contractors
Real estate developers and others in the construction industry are obvious adopters of job costing. Each project is made precisely to order and comes with its own challenges. However different each project is, there are usually similarities, particularly in material costs and labor.
Job costing is an efficient way to track all expenditures on a particular project while creating benchmarks for estimating future jobs.
Job costing is a way for real estate developers and contractors to implement specific controls and generate accurate reports. It provides actionable information that leads to better decision-making. It also increases your capacity to handle larger projects, secure financing, attract investors, and minimize your financial exposure.
Start with the right tools
Today’s businesses benefit from the widespread availability of highly automated job costing and financial management software. The best systems integrate job costing with accounting software and benefit from robust reporting functionality. Most offer mobile options for increased flexibility to access vital information in the field and share across multiple platforms.
Emphasize accuracy and timeliness
Keeping accurate records across your company should be a goal if you’re not currently doing so. Better record-keeping is the key to staying in compliance with all regulatory fees and filings and will make tax time easier for everyone involved.
When your company adopts job costing, you will be creating more accurate accounting records that will make managing your company’s financial health easier. Job costing necessitates allocating both direct and indirect costs to the appropriate job. It involves day-to-day tracking of all expenses and outputs throughout a project.
Diligent reporting as a result of instituting job costing will assist company leaders in performing periodic analytical reviews of all contracts, which will be crucial to making informed management decisions.
Keep your internal controls tight
Accurate job costing helps management maintain internal controls and decrease the possibility of fraud. Both timely cost allocations and detailed reporting facilitate the tracking of key metrics throughout a project.
With a well-designed job costing process in place, mistakes and incongruencies can be caught quickly and remedied. By tracking projects closely, managers can identify a loss in progress and intervene before it can derail an entire project. The job costing system itself creates a powerful set of internal controls.
Reach out to the specialists
For help in becoming job costing experts without making it your full-time job, look to the accounting professionals at Franco Blueprint. With 25+ years of experience in development and construction accounting, Franco Blueprint is highly qualified to give strategic advice for job costing, risk management, human resources, and more.
Whatever your industry, we specialize in guiding small and medium-sized businesses from startup through maturity and can assist with managing your company’s accounting needs as it grows. Our proven Blueprint4success™ financial accounting model, a four-part system that focuses on accelerating profitability and minimizing taxes, will help you strategize for success.
It is our business to assist small and medium business owners in maximizing their profitability. Contact us for a free consultation today.