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Is Your Business Profitable?
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by:
Pam Newman
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Copyright 2005 Pam Newman
What’s your job profitability? Do you know?
Many business owners are unsure of their profitability at a company or
job level. They “think” they are making money because they have a few
dollars in their checking account. Having money in your checking
account doesn’t mean you are profitable. It might simply mean you
haven’t paid all the bills yet, so you have a little cash. Cash and
profit are two different concepts. If you don’t 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 aren’t profitable,
your business won’t last long.
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.
Intuit’s QuickBooks software program has easy-to-use features that
allow you to do job-costing for time and materials, so you don’t 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 performance:
1. Do I track each customer’s revenue information through a detailed
invoice?
2. Do I have a way of breaking down my direct job materials cost by
customer?
3. Do I associate all time spent to each job accurately with actual
dollar amounts?
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 “no” to any of these, then it’s time for you to take an
objective look at your financial goals. It’s time for you to implement
a job costing mechanism to help you answer “yes” to all these
questions. How can you track your profitability and long-term growth
plans if you don’t 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 you’ll 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 you’ll 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 don’t
provide value if you don’t 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, you’ll 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 at http://www.quickbooksinformation.com
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