Analyze This

By SmallBusinessComputing Staff | Posted August 01, 2000
by Angela R. Garber

When the compressor in the ice machine at the local seafood store goes, the owner wants to know two things: When will it be fixed, and how much will it cost? Emergency decisions such as this may be based more on time than economics, but in general the contractor with the lowest bid wins the job.

For many industries, accurately estimating how much a particular job or project will cost is a daily problem. Any contractor, plumber, appliance repairman ­ even a lawyer or other professional service provider ­ can tell you how much difficult such estimates are, and how important they are to business. Before a contractor can hope to make that low bid, he must know what a job will cost him in parts and labor, and how much profit he needs to survive. The trick is to make an educated guess that's, well, on the money.

The only way to make an educated guess is to do a job-cost analysis comparing the estimated cost of a particular job to the actual cost, and then keep that information handy for the next time that client makes a request or another asks for a similar service. With each analysis it gets easier to make an accurate estimate.

Some people try to make quick calculations in their heads. And in theory, this job-cost analysis could be done on scratch paper, with pencil and calculator in hand, then stored away in a file cabinet. But in reality it would be too time consuming and almost impossible to access the right piece of paper when needed.

Accounting software packages that include job-costing tools allow the business owner to plug in all the variables from the beginning ­ the cost of parts and labor, as well as mark-up and discount codes ­ to give an accurate estimate and create a work order. When the project's over, a post-job analysis shows whether the project came in over or under budget and by how much. And that information can then be stored electronically and recalled by customer name, job code, or part number for use in future estimates.

"When I first started I never even dreamed of having time for job costing," says Chuck Gobeil, who in 1979 opened Burnsville, Minn.-based Gobeil Refrigeration, a sales, service, and rental company that supplies and repairs food service cooling and heating equipment at restaurants, hotels, and motels. "Doing everything hard copy and hand written, it was all I could do to get invoices out and check to see if people paid me."

IN THE BEGINNING
For approximately the first 10 years of business, Gobeil did what many small startups do. He did invoices by hand. Then he moved to a DOS-based system and held on to that for another 10 years. But he became frustrated as his business grew ­ and outgrew the old package. He could not get the system to do the things he needed it to do.

"It was very limited as far as being able to move information around. It didn't have the ability to cut and paste, and I couldn't import or export to and from the other programs I needed," complains Gobeil. "I wasted a lot of time trying to import information to another database so I could manipulate it and do my reporting, and job costing was fairly cumbersome."

Fed up with using the system for little more than invoicing, and tired of waiting for a long-promised, more manageable Windows version, Gobeil decided it was finally time for a change. He did some research and had five different software demos sent to the office. In the end he selected Wintac, a software package created specifically for contractors that includes not only job costing, but also general accounting features as well as a contact manager and scheduler. He's now been using it for a little more than a year.

"Job costing is really simple because it does it for you on the fly while you are creating work orders and invoices," he says. He especially appreciates what Wintac calls the "WIP" ­ Workorder Invoice Proposal form. "When I enter a [job description] as either a proposal or actual work order, it does job costing for me. I see my profit margin as I add labor and parts to a job."

Job-costing software lets the user switch an estimate to a work order once the customer gives the go ahead, and then the work order to an invoice once the job is complete. There is no need to re-enter information and no worry that there will be mistakes as information is transferred from one form to another. Basic job-costing functions let the user compare the information from the estimated cost and profit to the actual, but the user also has the option of doing more detailed job-costing analysis on a series of invoices ­ either for a particular client or for a particular type of job.

WHO GETS THE BILL FOR STARBUCKS?
"When I get a call, the customer information screen pops up with a tool bar running across the top that lets me go in a couple different directions," Gobeil says.

If Gobeil were to get a call from the Starbucks in Stillwater, Minn., he'd browse the database to find all of his Starbucks customers, select the proper location, and open its customer information screen. There he would see whether they were to be billed directly or through the franchise or corporate office, and he would know where to send the invoice and whom to contact regarding both service and payment. But the customer information page gives him much more than just contact information.

"It gives me other billing information such as their tax rates, duties, terms and interest, and tells me if I give them a markup or a markdown or a discount rate," says Gobeil. "It also gives me the receipts for the last 365 days." He can also connect to inventory to see if he has the necessary parts in stock.

As Gobeil creates the work order, there's a text box where he can enter details about the work to be done, and on the right hand side is a column that lists first material and labor prices and their subtotals, followed by actual materials and labor costs. It calculates profit margin as a percentage ratio.

To make the most of job-costing software, the analysis aspect cannot be overlooked. Without taking a realistic, comparative look at estimates and invoices, you will be doomed to make the same mistakes over and over again. But as Gobeil says, "With the software, it's all right there on the screen. It's just so easy."

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