Optimizing Financial Performance: Expert Tips From Dodd Financial

As a bookkeeper for independent contractors, I’m often asked about the best software and process for tracking and managing finances. Independent contractors like plumbers, electricians, roofers, etc have a unique set of challenges they face, but the major issues I see them encounter are:

1) How do I validate to customers that the cost of a job is appropriate and necessary?

2) How can I quickly and efficiently track the cost of each job?

3) What is the best time management tool to ensure I’m charging the correct labor cost to each job when I have multiple employees at multiple sites?

Job Costing and Demonstrating Value to Your Customer

Many customers you service in your business will inevitably ask you for the validation for the cost of the job, and some may outright ask for an itemized list. This shouldn’t be something taken personally, it’s a valid question, but when you’re unprepared, it can cause some stress and anxiety. In the accounting world, and in our accounting services for small business, we suggest independent contractors use job costing to help support your service quotes and invoices.

Job costing is a cost accounting term that refers to charging the specific costs of one job to that specific job. The alternate approach is process costing which is more suited towards the production of the same type of finished good on a repetitive basis (think factories making one type of product). Job costing is most likely what you’re already doing without knowing it. You’re taking the material costs for what you installed in a customer’s home, the labor hours you spent, and adding a markup to the total. The expertise that an experienced accountant brings to the table is to track and model these costs to create efficiencies in the jobs that you perform.

Creating a standard bill of materials and labor for your different types of jobs gives you an extremely accurate basis for your quotes or for job bids. Our accountant’s solution is to track your fixed costs vs. your variable costs and build those out into a model that can accurately predict future job costs on the front end. On the back end, tracking your finances through job costing allows our accountants to give you the ability to hand a customer a detailed invoice with every detail of the cost itemized for their review. This builds confidence and trust in the customer so you can get that referral.

Tracking the Costs of Each Job to Build Out Your Models

If it sounds time consuming and exhausting to get back to your office after a full day at various jobs and analyze all the data from the day to grow solid job cost models…it is. In my early days in accounting, I performed cost accounting for a large oil and gas services manufacturer. I spent hours upon hours digging through endless data to try to pull out meaningful data that could be used to support the manufacturing teams. As I progressed in the industry and worked more and more with engineers, maintenance personnel and contractors, I learned how to build costing models that could automate all of this for our teams.

The key is setting up your accounting software to track your jobs in a way that supports your goals. Accounting software is so often seen as a necessary evil, and as long as it’s telling you that you’re making more than you’re spending, you don’t give it a second thought. But imagine if you were to develop your chart of accounts and bookkeeping in a way that would track how your different costs change from job to job based on size, complexity, location, and so much more. If you could instantly quote jobs with iron clad validation for the costs, you could make strategic business decisions in seconds, even comparing which job to take over two conflicting opportunities.

Developing supporting accounting books that geared towards a higher purpose than just tracking your income and expenses is next level. While the other guys ignore their accounting, you’ve turned yours into a strategic tool to help grow your business.

Time Management – Labor is Not Easy to Automate and Track…Or Is It?

One of the main accounting services for small businesses that should be utilized by every contracting business with employees in the field is geo-fencing. You can read more about geo-fencing on Quickbook’s website here: Quickbooks Geo Fencing

But the main idea that you should understand as a contractor is the importance of really getting a detailed analysis of the labor hours on each job to the job costing model. It all comes down to creating a baseline comparison, yes for job quotes and bids, but also for identifying issues in your processes. I’ve had to present to Supervisors, Managers, Senior Managers, Executives and CFO’s. In a year’s worth of financial data, the entire meeting always revolves around one account, in one month: the one where the cost increased/decreased significantly compared to the others. Why?

It would be one thing to quickly mention the cause and move on, but we don’t. We spend the entire meeting on that one item, even if it is completely immaterial to the entire year. So again, why? Why spend so much time on something that doesn’t seem all that major? It’s the process. They want to understand if there’s a break in the process that could happen again, and possibly on a larger scale. You may have a job that takes twice as long as normal. You know you did, you will remember you did for a time, but it will fade, and if there is something broken in that process, it won’t be fixed, and it can happen again. Tracking using geo-fencing gives you an incredibly accurate time reading and feeds our comparison models to indicate if there’s a potential problem. Again, let your accounting books help you manage your business!