Business Profitability: Is Your Small Business Profitable?
What’s
your business profitability? Do you know? Many business owners are unsure of
their business 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.
Pam helps you keep your money from slipping through your fingers. She is a
Certified Management Accountant and Certified QuickBooks ProAdvisor. She
helps you grow your business profitably with good cash flow. Pam Newman
may be contacted at
http://quickbooksinformation.com
