Rockel Bookkeeping

Martin County, Florida Bookkeeping Services

How Do You Know If Your Construction Jobs Are Profitable?

How Do You Know If Your Construction Jobs Are Profitable?

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You got into business for one reason or another. Maybe it was for financial freedom, to avoid punching a clock and answering to someone else, to be able to spend more time with your family, or to help people by providing a service they need. But if you aren’t making a profit, there’s no way for you to be able to keep doing those things long term. You may be able to hold on for a while by pumping money out of your own pocket or taking out loan after loan, but if you want to stay in business down the road, you need to know if you’re actually making money on the jobs you’re taking. This is especially important for construction companies, where you’re most likely paying for things like materials, labor, permits, etc. If you aren’t careful, these expenses can make it so you’re only breaking even. You’re working hard, the customer is paying in full and on time, but at the end of the job you’re not seeing where the cash is.

But how do you get a handle on all of this? It starts with your quotes to potential customers. How you format your quotes is up to you, but either way, you’ll need to know how much each potential job will cost you. Then, figure out how much profit you plan to make on each job and build that into the quote amount. Most of the businesses I’ve worked with of course don’t show this as a separate line item, but it is important to make sure this is included in your price. Knowing your market is key here, because you don’t want to turn people off by expecting to make a 75% profit, but you also need to be able to cover your own bills. Suggested percentages vary depending on who you talk to and what type of construction company you have, as well as how much your overhead costs are – these are the costs that aren’t associated with a specific job and typically include expenses like utilities, payroll, and software. This varies from business to business so it’s important to identify these unavoidable expenses to make sure you can cover them. It may also be helpful to build in a cushion in case job expenses are a bit higher than expected.

Once you’ve found that sweet spot in your quoting process, the next step is tracking the customer payments and the expenses directly tied to that job. Quickbooks Online has a great feature they offer in some of the higher tiers, called Projects, which is a great tool to see your job profitability all in one place. Even the best tools are only as good as the information you put into them, so consistency is key. If you’re only catching some of the transactions, then you aren’t getting the full picture and shouldn’t rely on the information you see. If you have someone else that handles your Quickbooks, it’s important to come up with an efficient system so that everything is tracked properly. If you write checks and they have access to check images, it can be helpful to add the customer’s name to the memo line. The trickiest expenses are those purchased on a debit or credit card that your bookkeeper may not be aware of, so you may need to think outside the box with them to figure out the best way to handle these. When you sign on a new customer, the bookkeeper should be provided with the estimate/invoice so they can create a new Project. As the job progresses, as long as every related transaction is entered, Quickbooks Online will give you a bar graph showing the income and expenses for each Project and give you your profit margin, all from the Projects Dashboard.

The hardest part of this process is getting it set up initially and feeling out what process will work for you and your team. Once everything is in place, Projects can be a great tool toward the success of your construction business. When used properly, it will allow you to make real-time adjustments to your approach in quoting customers and give you better control over your profit margins.

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