Back costing - why and how you should do it.

What is back costing?

It’s when you go back and have a look at a job you’ve finished. Work out if you made money or not. If you lost money, then you can try and work out what went wrong and how to fix it for next time.

You need to figure out what the total costs for a job were, compared to your expected costs, and your income.

Why should you do it?

Simple really. Money. Let’s be honest, we’re all in business to make money. Many clients pretty much run their business by the seat of their pants, they rely on their bank account to let them know if they’re making money.

Consider as an example Johnny and Bob. Both Joiners. Johnny the Joiner makes $100k per year and Bob the Joiner makes $50k per year. Why are they so different?

I’ve got many clients like this, whether its joiners or hairdressers… Johnny is in my office now with a nice tidy set of accounts. He does his own GST returns already knows how much profit he has to pay and which jobs he lost money on. He does his back costing and over the year’s he has figured out what he has been doing wrong… and fixed it.

Bob will turn up at my office in February next year to find out how much tax to pay. I’ve had to spend most of the year chasing him to get his end of year information. He does his GST returns manually. And I have to download his bank statements and recreate them.

Why don’t people do it?

• It’s just another thing to do

• It can be difficult to do

• Can be expensive

• Not confident that it’s right

Quickbooks, MYOB, Xero and other systems

You’ve probably heard of MYOB and QuickBooks. These two packages were used extensively 20 odd years ago and were good products.

Quick Books had a powerful Job costing system, and I installed it and supported it for heaps of builder and joiner clients. The problem was that was difficult and time-consuming to do.

Many clients would spend thousands of dollars on their computer and accounting system, and then spend a whole bunch more money or time on doing the data entry work. I can remember talking to clients who’d gone to all the effort of putting in a system, yet they never used it because they, “knew it was wrong”.

Xero has been around for many years now and has revolutionized the accounting industry.

Hidden costs – how to capture everything.

Wages can be difficult to track, but there are also hidden costs. You need to allow for sick and holiday pay, ACC levies and also nonproductive time.

Equipment. You need to take into account the costs of your equipment. For example, Johnny may be getting paid $40 per hour but you’ll need to charge him out at a lot more than that if he’s using your $80k CNC Router Machine.

Overheads. For example, rent, power and administration staff.

Your time! If I ask you for a quote to do my kitchen it’s probably going to take you at least a few hours to do. I have clients who have a set “onsite design and consultancy fee”.

How do you do it?

It’s going to depend on a lot of factors. You’re all different and it’s important that you find the right system to suit you. The best place to start is looking at what you’re doing now:

• Are you using spreadsheets and are you good at spreadsheets?

• Do you already have an accounting system?

• How big is your business? Do you have an administration person?

• What are you doing for your payroll?

• Build onto what you’re already doing now, rather than a completely new system.

• Talk to your accountant (or me) about what would work for you.

Resources

Basic Job Costing.xlsx

Download XLSX • 12KB