Job costing for small builders: budget vs. actual by cost code

Start with cost codes

A cost code is a bucket for a type of work: site work, foundation, framing, roofing, plumbing, electrical, HVAC, drywall, trim, paint, flooring and so on. Use the same list on every estimate and every job. When the estimate and the bills share codes, you can compare them line by line.

Keep the list short enough to use. Twenty to forty codes covers most residential work. Too many and nothing gets coded right.

Budget vs. actual

Your estimate becomes the budget for each code. As bills come in, code each one to the job and the cost code. For every code you then have:

• Budget: what you estimated, plus approved change orders
• Actual: what you've been billed or paid
• Committed: what you've agreed to but haven't been billed yet, like a signed sub contract or a material order
• Variance: budget minus actual and committed

Commitments are the part most people skip, and it's why jobs look fine right up until the last few bills arrive.

Projected profit

Add up the expected final cost of every code (actual plus committed plus what's left to spend) and subtract it from the revised contract. That's projected profit. Watch it every week. If it drops, one of the codes is telling you why.

The 15-minute Friday check

1. Code any bills that came in this week.
2. Add any new commitments.
3. Look at projected profit on each open job.
4. Look at the codes running over, and decide what to do about each one.
5. Check what you're owed and how late it is.

If any number surprises you, that's Monday's first call.

Common mistakes

• Bills coded to the wrong job, or to "misc."
• Change orders that never reach the budget, so the job looks over when it isn't, or under when it isn't.
• Waiting until closeout to look at the numbers.

This is general information, not accounting advice. Talk to your CPA about how job costs flow into your books.