Article written by:
Bob Biehl, CPA, CCIFP
Director, Construction Industry Services
Why is knowing your costs the most important aspect of construction accounting?
It seems like a simple concept to know the costs of running a construction company. But it isn’t always as straight forward as it appears. There are many types of costs that a contractor must understand:
- Direct job costs
- Indirect job costs also known as general conditions
- Equipment costs
- Home office overhead costs
Most contractors think they do a pretty good job of knowing what their costs are for of each project and the cost of running their home office, but why is it important?
- It helps a construction company:
- in the bidding process – knowing all costs allows companies to create a more accurate bid
- to determine problem projects and people – knowing all costs allows companies to measure performance of projects and people
- to price change orders – knowing all costs allows companies to maximize amount charged for change orders
- in the claims process – knowing all costs allows companies to truly determine damages in a dispute
- to reconcile job cost reports to the financial statements – knowing all costs allows companies to ensure that all costs are properly being charged to a project
- to make better business decisions – knowing all costs allows companies to use that information to run their business to the best of their abilities
GBQ’s construction services team can help construction companies understand and quantify their costs. This will allow companies to consistently account for costs not only in their accounting department, but also in the estimating department and the construction department with the ultimate goal of making the company more money.