SOLVING THE PROFITABILITY PROBLEM WITH JOB COSTING
There’s no doubt you’ve heard something described as the “meat and potatoes” before. The saying refers to the most basic or fundamental aspects of something. For your security company, the meat and potatoes of your business are your jobs. But keeping your security jobs profitable is a challenge. Especially, when labor and overhead costs are on the rise due to added costs of the pandemic.
The challenge: staying profitable when you’re up against tight margins.
In an industry where profit margins are already thin, you don’t have a lot of wiggle room to dip into your profits to offset new and increased costs. So, it’s especially important to maintain a clear and accurate picture of your profitability at all times. It’s likely you’re managing your business to some degree with technology. But, have you factored in job costing? If you’re not actively allocating costs down the job level, you’re missing the “meat and potatoes” of your profitability opportunities.
It should be a given that if a particular revenue or expense exists in accordance with a contract, then it should be included in your job costing. But the real challenge is getting accurate numbers and recording them down to the job level. Typically, costs you should be allocating per job include labor costs, payroll taxes, workers compensation, general liability insurance, umbrella insurance, supplies, materials, fuel, vehicles and more.
The solution: gaining visibility into profits at the job level.
Job costing strategies aren’t one-size-fits all. To maximize your competitive advantage, security companies should be leveraging job costing opportunities that look at costs in detail at the job level. Oftentimes, it can look like a job is profitable when seen from the 1,000-foot view. But when you dig into some of the expenses coded to overhead jobs, you find some of those larger, true cost overhead expenses are what make up a good chunk of costs at the job level, too.
For example, worker’s compensation typically isn’t expensed down to the job level because it’s hard to manage. Depending on the specific services you provide, worker’s compensation could be more costly than specific payroll taxes. So, if you aren’t accounting a portion of worker’s compensation expenses as a cost per job, you aren’t getting an accurate picture at what it took from your expense budget to service that contract.
As a security industry leader, it’s important to properly allocate your true job costs. Here are some tips to keep in mind when exploring job costing opportunities:
- Make sure you have a way for every financial transaction processed to include a job number. Including everything from payroll, to accounts receivable, accounts payable and adjusted journal entries — no detail is too small.
- Look for additional features that allow for payroll taxes and miscellaneous insurance costs to be taken down to the job level, based on payroll dollars at that specific job.
- Establish review processes to compare data collected to budgets for an accurate gauge of profitability.
Once you complete these tasks, you should be holding on to some solid, irrefutable data with insights into your true job costs. And as you evaluate contracts or bid for future work, you can use this as solid testimony backing up any negotiations or changes in SLAs. And, keep in mind job costing is an ongoing process. A job that’s profitable at one time could become unprofitable as SLAs change over time, or supply costs fluctuate.
So, are you job costing? Are you doing so correctly? Do you analyze the data and put it in action? As a security company, you need to be asking yourself these important meat and potato questions to know whether you have a clear view of your profitability.
Brandy Tomasek joined TEAM Software in 2016. She’s a part of the Professional Services team, working as a Sr. Business Consultant. Prior to joining TEAM, Brandy earned a Bachelor’s degree in Management and Marketing, as well as her MBA in Organizational Leadership. Brandy’s professional experience spans a range of disciplines from management and leadership, to training and accounting. In her free time, Brandy enjoys spending time with her family, training their puppy and DIY everything.