Profitability in a New Year
This article appeared in the February 2023 issue of The Californian.
One of the most straight-forward ways to increase job profitability is to decrease job-related spending. As much of the world faces the possibility of a recession, decreasing spending is top of mind across industries.
Still, it can seem impossible to cut back on necessary expenditures. Our industry-specific labor market analysis suggests ongoing competitiveness. Labor and overhead – already a significant portion of a security company’s expenses – will likely remain high.
That’s why it is more important than ever to maintain a clear and accurate picture of your profitability. Job costing should be the driving data force behind every decision you make.
Job costing: explained
Job costing is an accounting term that enables a business to track costs by individual jobs. The more granular detail you can gather, the more opportunity you have to protect your profit margins. That’s why getting accurate numbers and recording each one down to the job level is so important in protecting profitability – and helping support a data-backed strategy to help you operate better in the future.
Typically, companies have some kind of process in place that is capturing a 1,000 foot view of profitability. Opportunities are often missed by neglecting to calculate true cost overhead expenses into job-level data. This can include anything from payroll taxes and workers comp, to general liability insurance, supplies, fuel and more. When you don’t account for a portion of these expenses as a cost per job, you really aren’t getting an accurate picture of what it took from your expense budget to service that contract. As labor and supply shortages continue, continuing to take on unprofitable contracts can be dangerous to your resources, time and bottom-line.
Here’s how job costing should work as a part of your back-office system:
Process every financial transaction with an associated job number. That includes everything from payroll, to accounts receivable and payable, to adjusting journal entries. At TEAM Software, we’ve built our software solution to include even more 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.
After recording all associated activity to the job level, the rendered data can be used to review accurate accounting practices, compare the data to budgets and (of course) make sure you’re profiting. This information can and should be heavily relied upon for contract renegotiation and bidding future work that might be similar to an existing job.
This kind of feature, when built as a part of an integrated software solution that connects operations, accounting and finance, and the back-office, really sets up security companies to scale, even when times are tough. Remember, your clients are likely seeking to conserve costs as much as you are. Reliable and accurate data gathered through activities like job costing give you the tools to provide clear reporting on the services – and value – you’re delivering on each job. Having this data gathered in one integrated software solution also helps preserve knowledge in the case of turnover at the back-office level, too.
Now’s the time to fine-tune processes
In an age where manpower is harder to come by, improving back-end systems and software solutions can create efficiencies to reduce your dependency on added overhead. Not only does it shed light onto how much money your company has brought in for a particular job, it provides clear data on how much money your company actually made per job. Once you have this knowledge, you can better allocate resources, adjust SLAs and billing, and fine-tune operations so that you are curbing costs and maximizing profit as much as possible in a tightened economy.
If you’re new to job costing, remember the industry experts at TEAM Software are always available to help support your goal of reducing costs, maximizing opportunities and supporting profitability.