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Is Your Business Profitable?
Whatís your job profitability? Do you know?
Many business owners are unsure of their profitability at a company
or job level. They ďthinkĒ they are making money because they
have a few dollars in their checking account. Having money in
your checking account doesnít mean you are profitable. It might
simply mean you havenít paid all the bills yet, so you have a
little cash. Cash and profit are two different concepts. If you
donít know your exact income and expenses for each job and your
overall business, then how can you know whether you are making
a profit? And, if you arenít profitable, your business wonít last
Analyze Each Job
Regardless of the size of your business or your industry, profitability
is something you should be monitoring on a monthly basis. To determine
your profit, you must know how much you make and spend on each
job. Expenditures should be tracked for direct labor and material
costs on each job. In addition, you should also be tracking overhead
costs and allocating them to your various jobs as applicable.
There is always going to be some general overhead, but too often
dollars are thrown into general overhead, when those dollars could
easily be attached to specific jobs.
Intuitís QuickBooks software program has easy-to-use features
that allow you to do job-costing for time and materials, so you
donít have to worry about having to track it all manually. Rely
on tools to help you run your business more efficiently and effectively.
Are you curious how you are doing with job costing measurements?
Here are some quick and easy questions to gauge your job costing
1. Do I track each customerís revenue information through a detailed
2. Do I have a way of breaking down my direct job materials cost
3. Do I associate all time spent to each job accurately with actual
4. Do I have access to reports to monitor profitability on each
job in a timely manner?
5. Do I have a way to trend the fluctuations in job profitability
from job to job, month to month, etc?
If you answered ďnoĒ to any of these, then itís time for you to
take an objective look at your financial goals. Itís time for
you to implement a job costing mechanism to help you answer ďyesĒ
to all these questions. How can you track your profitability and
long-term growth plans if you donít have detail at a job level?
QuickBooks Can Help
Here are some easy ways to utilize QuickBooks effectively to help
you with your job-costing process:
1. Set up the QuickBooks Item list so that youíll have both an
expense and an income aspect to each of the items. This will allow
you to track your costs and your income, and will provide you
profit by item.
2. Record your sales through the invoicing or sales receipt process.
This will record the income aspects of the items.
3. As you purchase the product or service items, make sure that
you utilize the Items tab so that it will record the cost to the
appropriate item. In addition, make sure to assign your customer/job
information to each line item so that youíll have the costs associated
to the appropriate customer/job for job-costing.
4. Utilize the time-tracking mechanism in QuickBooks so that you
and your employees can track time by item and customer/job. No
dollar value is associated with this time until you actually pay
the employees within QuickBooks.
5. QuickBooks has preformatted reports that you can access to
have job-costing information right at your fingertips. These are
found under the Reporting menu and the Jobs/Time/Mileage option.
6. QuickBooks has the ability to provide reports for any time
period you select. This will allow you to have a variety of detail
over the growth of your business and to produce trending reports.
You can modify the report as needed to meet your needs.
A good accounting professional can help you understand what these
reports are telling you, in terms that you can use. Reports alone
donít provide value if you donít understand them. So it is key
that you understand the reporting information and how you can
use that information to assist you in decision-making as you grow
your business profitably.
Job-costing is easier when you set-up your accounting/bookkeeping
software package and know how to use it. So, challenge yourself
today to become more adept at running a financially savvy business
through job-costing. Then, youíll know, without a doubt, whether
your company is profitable.
About the author:
Pam helps business owners keep money from slipping through their
fingers. She is a Certified Management Accountant, Certified QuickBooks
ProAdvisor, and Author of Out of the Red and Unlocking the Secrets
of QuickBooks. For more information, you can visit our website
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