How Contractors Can Get Help With Job Costing and Project Costing In QuickBooks Accounting
When we are accounting for contractors, the first thing we want to do is understand your profit margins and how you are spending money. However, it is even more important for our big projects to know how you performed specifically on that project, and luckily QuickBooks Online makes that easy!
First and foremost, let us go over some parameters. Working with all the pros the contractors that we do, I have found that there is a point where you might be overdoing the project costing. If you are highly service driven with small service calls here and there for a few hundred or even a thousand dollars, then project costing will be overkill. The amount of time you will have to put into it to cost every job will never pay off. As such, I recommend all of my clients not cost any job for $1,500 or less, anything over that though we want as much detail as we can.
Once we determine if you need to do job Costing or Project costing on the job, we need to set up the project in QuickBooks. While typically with contractors, we consider it Job Costing QuickBooks calls them Projects. Keep in mind that QBO is designed for multiple types of businesses, so they use overarching terms and verbiage that will not always apply to you. In setting up a project, we must first make sure there is a customer for that project set up in QuickBooks. From there, we can add a new project from the projects page. This is very important as, unlike customers, you can only start a new project from the Projects page, not directly from an invoice. For more information and a detailed walkthrough, watch the video below:
Now we need to make sure that one other thing is set up to make projects flow seamlessly. One of the most significant factors of your job costing is the labor associated with it. Which is not just the hours they work but their taxes, benefits, and overhead costs. If you aren’t using QuickBooks for your payroll. In that case, QuickBooks has no clue on how to calculate this information; luckily, they built a handy tool for us to simplify the process. Under the project window, you will see Hourly costs where we can make sure each employee is entered and what it costs for us to employ them each hour. If you don’t know, they have included a calculator tool to simplify everything. From there, you will enter a weekly timesheet for each employee and what project they worked on when and it will automatically add all of those costs to the project
for tracking. If you run payroll through QuickBooks, already make sure you are entering your weekly payroll with time assigned to a project. It will figure out those calculations automatically for you. To walk through and see how to set up these calculations or exactly how to track the time, watch the below video.
With the setup complete now, we need to make sure that we are using that project while working in QuickBooks with our invoicing and expenses. We can treat a project just like a customer. When we send an invoice instead of sending it to the customer, we send it to the project. It will still email and have all the customer details as if you sent it to the customer. When doing expenses, we make sure to assign the project to each cost associated with them. Now to do this, you may need to turn on a few settings in QuickBooks, but you will only need to do this once, and then you can treat a project just like a customer. The two videos below walk you through actually setting up and using projects in your invoicing and expenses with examples to get you started so that you feel like a pro before you even begin!
After all that now your job is in progress or complete; now you get to use the best part of projects, the reporting! Unlike anything else in QuickBooks, Projects aren’t time-limited. You can have a job go on for three months or even a year. It will always show up with everything until you close the project out. At the same time, it gives you a nice graph to watch your income versus expenses. Ultimately you will see your final profit margin once everything is said and done. Better yet, they have specific reports that you can look at to see a profit and loss for that project along with the time spent on the job so that you can break that job down and figure out what went wrong and what went great. In this last video, we dig into those reports and why they are so excellent along with the last step, closing out the project so that it will stop showing up.
This is one of the best features that QuickBooks has released for contractors in a long time and makes QuickBooks Online better than ever before because it provides so much information. However, as stated earlier, QuickBooks is designed for the masses in many different industries. It is not the end all be all with everything that you need as a contractor, but it is a great place to start. However, if you are a general contractor or your primary business revolves around job costing, I recommend an even better program, which we will hit on later. In the meantime, if you have any questions or would like some more guidance on project costing through QuickBooks Online, don’t hesitate to reach out to us!