For many construction companies, the new year begins with a full pipeline, crews mobilizing, and new projects breaking ground. But before the season gets too busy, January and February are the ideal time to step back and evaluate something that directly impacts your bottom line: your job costing system.
In construction, margins are often tighter than they appear. Rising labor costs, fluctuating material prices, competitive bidding, and project delays leave little room for error. Many contractors believe they’re making money on jobs — only to find out at year-end that profits were far thinner than expected.
Accurate job costing isn’t just an accounting exercise. It’s your early warning system for profitability.
The Real Cost of Poor Job Costing
When job costing isn’t working properly, the consequences add up quickly:
- Projects are underbid because estimates aren’t based on reliable historical data.
- Overhead costs aren’t fully captured, quietly eroding margins.
- Cost overruns aren’t identified until it’s too late to course-correct.
- Cash flow becomes unpredictable.
- Bonding agents and lenders question the accuracy of financial reporting.
In competitive regional markets like Kentucky and surrounding states, small margin mistakes can determine whether a job is profitable — or not.
Common Job Costing Mistakes We See
Even well-run construction firms can struggle with consistency in their job costing systems. Some of the most common issues include:
1. Labor Not Allocated Accurately
Foreman time may be coded inconsistently. Owner labor might not be reflected at market rates. Overtime may not be tracked by job. Labor is often the largest cost category, so small inaccuracies can significantly distort profitability.
2. Overhead Not Applied Properly
Equipment costs are sometimes buried in general expenses rather than assigned to jobs. Administrative salaries, insurance, and bonding fees may not be allocated consistently. If overhead isn’t applied accurately, bids may look competitive — but margins will suffer.
3. Change Orders Not Tracked Separately
Approved change orders may go unbilled or uncollected. Informal scope creep can reduce profitability if it isn’t documented and priced appropriately.
4. Delayed Data Entry
When costs are entered weeks after they’re incurred, management decisions are based on outdated information. Timely data entry is critical for meaningful reporting.
5. No Regular Job Reviews
Without monthly work-in-progress (WIP) reviews and job profitability meetings, issues often go unnoticed until the project is nearly complete.
A New-Year Job Costing Reset Checklist
The start of the year is the perfect time to tighten your systems before projects ramp up. Consider the following steps:
Review Last Year’s Job Performance
Identify your most and least profitable jobs. Compare estimated costs to actual results. Look for patterns — recurring labor overruns, material waste, or underestimated equipment usage.
Evaluate Your Cost Codes
Are your cost codes detailed enough to provide useful insights? Or are they overly complex and difficult to manage? Your cost structure should align with how you bid and manage projects.
Clean Up Open Jobs
Review your WIP schedule carefully. Address significant underbillings or overbillings. Confirm that retainage is tracked accurately and that aging receivables are monitored closely.
Recalculate Your Overhead Rate
Determine your true overhead percentage based on the prior year’s results. Applying an accurate overhead rate consistently across bids can significantly improve long-term profitability.
Establish Monthly Job Review Meetings
Bring together ownership, project management, and accounting to review job-to-date gross margins, projected completion costs, and cash flow. Regular reviews create accountability and allow for earlier corrective action.
Are Your Systems Supporting You?
Your accounting system should provide timely, accurate job-level reporting. If your team is relying heavily on spreadsheets or manual processes, you may not be seeing the full picture. Modern contractor-focused accounting platforms can integrate field time tracking, equipment usage, and financial reporting — providing clearer insights into job performance.
Technology doesn’t need to be complicated or expensive. But it does need to produce reliable, actionable information.
Better Job Costing Impacts More Than Profit
When job costing is done well, the benefits extend beyond individual projects:
- Smarter, more confident bidding
- Improved cash flow forecasting
- Stronger bonding capacity
- Greater lender confidence
- Higher business valuation
- Reduced stress for owners and project managers
Many construction owners work incredibly hard — but without accurate job costing, it’s difficult to know which projects truly drive profitability.
The beginning of the year offers a valuable opportunity to reset your systems, evaluate last year’s results, and position your company for stronger margins in 2026. A focused review now can make a meaningful difference by year-end.
Discover how Baldwin CPAs supports construction companies here.
