Your annual accounts tell you the business made money last year. They do not tell you which jobs made it, and which ones lost it.
A construction business can have a good year on paper while losing money on a third of its work. The profitable jobs cover it up, and nobody finds out until they have quoted three more the same way.
What has to be tracked, per job
Not per month, not per department. Per job.
- Labour, split between your own people and subcontractors, because they behave differently and carry different obligations
- Materials, allocated to the job rather than dumped into one purchases account
- Plant and hire
- Variations, which is where the leak is
- Overheads, apportioned rather than ignored
That last one is the difference between a job that looks profitable and a job that is. Every job looks better with the overheads sitting somewhere else, which is why the bank balance disagrees with the job sheet.
The three places money disappears
Variations done and never invoiced. Somebody on site agrees a change, the work gets done, and nothing is ever priced or certified. The cost lands on your job. The revenue does not.
Retention treated as gone. Money you earned that somebody is holding. Written off in people’s heads rather than tracked and chased, so it quietly becomes a write off in fact.
Overheads never allocated. Covered above, and the most common of the three.
Work in progress
Work you have done and not yet invoiced is an asset. If it is not in your numbers, your accounts understate the business.
That matters most at exactly the moment you need the accounts to look right, which is when a lender, a surety or a buyer is reading them.
Timing is the whole point
Job level numbers eighteen months after the job finished are history. Job level numbers while the job is running are a decision.
A live job that is 60% through its budget and 40% through its work is telling you something you can still act on. You can stop the bleeding, reprice the remaining variations, or at minimum stop quoting the next three jobs the same way.
The same information in an annual set of accounts is just a fact about the past.
What good looks like
- A number per job, refreshed monthly while the job is live
- Cost to complete reviewed with whoever is running the site, not guessed from the ledger
- Variations tracked from agreement through to certification
- Retention listed by job with its release date
- A comparison of quoted margin against actual margin, so your pricing improves
That last line is what makes it worth doing. Job costing is only useful if it changes how you quote.
If you cannot see this now
Setting it up is mostly a bookkeeping structure question, and it is not a big job. What it needs is somebody who has done it in construction rather than in general practice.
Have a look at job costing or book a call.