Busy all year and unsure which jobs paid: setting up job costing that works

Job costing in plain terms

Job costing means tagging every dollar of revenue and every direct cost, such as materials, labor, subcontractors and equipment, to the specific job it belongs to, so you can see the profit on each job instead of only the company total. In QuickBooks, that usually means setting up each job as a project or sub-customer, assigning every bill, receipt and timesheet to it as it is entered, and reviewing a job profitability report monthly and when each job closes. Once it is running, you know which kinds of work to chase, which to price higher and which to stop bidding.

Most of the contractors, remodelers and project-based businesses I work with already sense that some jobs pay and others do not. What they lack is proof. The company profit and loss tells them the year was fine, but it cannot say whether the fine year came from kitchens or from bathrooms, from one big commercial client or from a dozen small residential ones.

This guide explains which costs belong to a job, how to set it up in QuickBooks, the habits that keep it accurate, and how to use the results before your next estimate.

What belongs to a job and what does not

Direct costs are the ones that exist only because the job exists. If you would not have spent the money without this job, it belongs on the job. Materials delivered to the site, subcontractors who worked on it, equipment rented for it, permits pulled for it and the labor hours your crew spent there all qualify.

Overhead is everything you would spend even if this job had never happened: office rent, the estimator's salary, insurance, the shop, software, marketing and your own time selling. Overhead still has to be covered, but it should not be scattered across jobs by guesswork. Keep it separate, then compare the total gross profit from all jobs against total overhead. That comparison tells you how much gross profit each job needs to produce for the company to make money.

• Materials purchased for the specific job
• Crew labor hours worked on the job, at their full cost
• Subcontractors hired for the job
• Equipment rented for the job
• Permits, dumpsters and other job-specific fees

The labor problem most owners underestimate

Materials are easy to tag because they arrive with a receipt. Labor is where job costing usually breaks down. If your crew moves between three jobs in a week and nobody records where the hours went, payroll lands in one lump and every job looks more profitable than it was.

The fix is time tracking by job. Crews clock in and out against a job, and those hours flow into the books. Intuit says that connecting its time-tracking and workforce products to QuickBooks Online automatically updates labor costs and expenses on projects, which removes most of the manual work. Whatever tool you use, the hours need to be assigned to a job at the time they are worked, not reconstructed at month end.

Remember that an hour of labor costs more than the hourly wage. Payroll taxes, workers' compensation insurance and benefits all rise with hours worked. If you cost labor at the bare wage, every job looks better than it really is.

Setting it up in QuickBooks

Intuit's QuickBooks Online projects page says job costing and project profitability tracking are available in the Plus and Advanced plans, and that Advanced adds custom KPIs, dashboards and an estimates versus actuals report. If you are on a lower plan, check whether an upgrade makes sense before you build the structure. Some businesses use customers and sub-customers or class tracking instead of projects; any of them works if it is used consistently.

Before you start, clean up the chart of accounts so job costs have clear homes: materials, subcontractors, direct labor, equipment rental and permits as separate cost of goods sold accounts, and overhead in operating expenses. A messy chart of accounts makes job reports meaningless, because the same cost lands in three places. If you suspect your file has problems like that, the warning signs in books that look reconciled but are wrong are a good place to start.

• Confirm your QuickBooks plan supports projects or job tracking
• Simplify the chart of accounts into clear direct cost categories
• Create each job as a project or sub-customer when the contract is signed
• Enter the estimate against the job so actuals can be compared
• Set up time tracking so crew hours land on the right job

Habits that keep the numbers honest

Job costing is only as good as the tagging. Every supplier bill, receipt, subcontractor invoice and timesheet needs a job assigned when it is entered. Supplier accounts help: ask your suppliers to put the job name or address on every invoice, and ask crews to photograph receipts with the job noted. Costs entered without a job go into a holding pile that someone must sort later, and later rarely comes.

Revenue needs the same discipline. Progress billings, change orders and final invoices all go against the job. Change orders deserve special attention; work done and never billed is pure loss, and it is one of the most common leaks I see in contractors' books.

Materials bought for stock need their own rule. If you keep common supplies in a shop or truck and pull them as needed, record the purchase to a stock or supplies account first, then move the cost to the job when the material is used, or agree on a simple allocation you apply consistently. Charging an entire bulk order to whichever job happened to be open that week makes one job look terrible and the next few look better than they were. Consistency matters more than precision here; a reasonable method applied every time beats a perfect method applied occasionally.

• Assign a job to every bill, receipt and timesheet when it is entered
• Ask suppliers to put the job name on every invoice
• Bill change orders against the job as soon as they are approved
• Review unassigned costs weekly so nothing piles up
• Close each job in the books when the final invoice is sent

Reading the job report before your next bid

Review job profitability at least monthly for open jobs and once more when each job closes. For open jobs, compare costs to date against the estimate and the percentage complete. A job that has used most of its budget while only half finished needs attention now, not when it is done. For closed jobs, compare final gross profit with what you estimated, and note why it differed.

Then group the results. After a few months you can see gross profit by type of job, by client, by crew lead or by estimator. That is where the decisions come from: raising prices on one kind of work, adding a contingency line to another, or politely declining a client whose jobs always run over. Job costing is accrual-minded by nature, because it matches revenue to the costs that produced it; my guide to cash versus accrual accounting explains why that matters.

Mistakes that make job reports useless

Small errors add up fast in job costing because every report depends on consistent entry. These are the ones I correct most often when a business asks us to take over its books, and most of them come from good intentions, such as trying to keep the books simple or catch up quickly at month end.

If your company is busy and still short on profit, job costing is usually where the answer hides. A consultant's view on where profit leaks in a busy business is a useful companion read.

• Labor posted as one payroll lump instead of by job
• Labor costed at wages only, without taxes and insurance
• Materials bought for stock charged to whichever job was open
• Change orders performed but never billed
• Overhead spread across jobs by guesswork
• Jobs left open in the books months after they finished

Building job costing into the monthly close

Job costing works best as part of the regular monthly routine rather than as a separate project. When the close includes checking that every cost has a job, reconciling payroll hours to the payroll reports and reviewing open jobs against estimates, the job report arrives with the profit and loss each month. I describe that routine in what happens during a monthly bookkeeping close.

We keep books for construction companies and other project businesses across the Dallas–Fort Worth area, and our bookkeeping service can include custom reports such as KPI dashboards and department-level profit and loss statements. For a contractor, a job profitability report is the natural version of that.

Getting your job costing set up

We start with a free 30-minute consultation, by phone or at our offices in Plano, Garland and Flower Mound. We look at how you estimate, bill and pay crews now, which QuickBooks plan you have, and what you want to learn from the numbers. You receive a written flat-fee proposal before any work starts.

Onboarding typically takes one to two weeks and covers the QuickBooks setup or repair, a cleaner chart of accounts and connecting bank feeds. From there, each month brings reconciled books and a job report you can use the next time you sit down to price a bid. Many Dallas contractors find that a single season of real job data changes how they estimate.

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