Communication essentials in job costing
A recession may be coming – have you thought about how your bonding program may be affected? This week, Stephen, Wade, and Rob are sharing the steps you can take now to keep your bonding capacity where it needs to be, even if money gets a bit tight.
Topics we cover in this episode include:
- Lock down your financial board of directors
- Keep a close eye on your cash flow
- Don’t cut back on the wrong expenses
- Push your bonding company on slightly bigger jobs
- Get good systems and processes in place
- Be ready to provide up-to-date financial statements
Find all episodes and related links at ContractorSuccessForum.com.
Join the conversation on our LinkedIn page: https://www.linkedin.com/company/contractor-success-forum
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Rob Williams, Profit Strategist | IronGateESS.com
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | McWins.com
[00:00:00] Rob Williams: Welcome to the Contractor Success Forum. Today, we’re talking about job costing and communication essentials. We here at the Contractor Success Forum are talking about this because we are here to talk about how to run a more profitable, successful construction business. And that has a lot to do with the costs, and communicating those costs.
And who is here to help us figure this out? We have Wade Carpenter, Carpenter and Company, CPAs, who is a professional job coster. That actually exists. That’s amazing.
[00:00:42] Stephen Brown: Couldn’t get better.
[00:00:43] Rob Williams: Stephen Brown, with McDaniel Whitley bonding and insurance company, always needs that good information. And I am Rob Williams with IronGate Entrepreneurial Support systems.
And this is amazing, we started talking before we started this episode. It’s like, whoa, we gotta stop. This is just, Stephen, you wanna know this stuff, don’t you? And then Wade, tell us how you do it.
[00:01:08] Stephen Brown: Well, I just liked how you bouncing that pencil.
[00:01:10] Rob Williams: Was I bouncing it? I was excited. I was like, hyped up!
[00:01:15] Wade Carpenter: He’s making up titles for people too.
[00:01:17] Rob Williams: Yeah. Yeah, it is. You are like the man though, Wade,
[00:01:20] Stephen Brown: Well, hey it’s a popular topic, job costing. So we’re gonna talk about it. Job cost I’ve got some financials, Wade, I need from one of my customers. And here it is August, I need it to be end of June, and I’ve got end of April. That’s halfway good. And I gotta give them a big decision on something big, like tomorrow. And, they say, well, we’re putting it in. We’re working as hard as we can. What’s the slow down, Wade? Why can’t they get this information to me quickly?
[00:01:50] Wade Carpenter: Well, I think there’s a lot of things. And, as you said, I think job costing is probably one of our more popular topics on here, because I feel like a lot of the owners really don’t have good job costing. And if they do, the information they get is not great. And so they wanna improve that as much as they can. And from my perspective, formally as an auditor and somebody that does this remotely now, It doesn’t matter whether it’s in person or remote, communication is key to getting it right. And too often the problem with all these contractors is they can’t get the information. So.
[00:02:28] Stephen Brown: Why can’t they get the information? What’s going on here?
[00:02:31] Wade Carpenter: Well, we can talk about that. But first of all, the project managers and field people, I know Rob was saying this too, but you know, they generally hate paperwork. They don’t wanna work in the field all day and do paperwork all night. But the accounting needs information timely, not just for reporting, but it also affects your cash flow. I know Rob used to have problems. Everybody has problems with that.
[00:02:52] Stephen Brown: I’ve got one client that just hired a job costing expert who’s also been a project manager and also is an accountant, to come in as intermediary to try to get this information moving faster.
The three main things that need to happen for good job costing
[00:03:04] Wade Carpenter: Well, I guess I see there’s three main things we need to make sure that happens. You’ve gotta design a system that’s number one timely. You gotta get it done. And it’s hard to remember what you did two months ago, six months ago. You need to get it and get it quickly. And it needs to get outta that project manager’s inbox to the accounting or the accounts payable as soon as possible. It doesn’t need to sit on their desk. So, those are things that are holding up cash flow.
[00:03:30] Stephen Brown: Get on top of it.
[00:03:32] Wade Carpenter: Yeah.
The second piece of that is it’s gotta be simple. Because if they don’t understand it, they don’t understand how to do it, it’s never gonna get done. We try to make it easy as possible to communicate that. And sometimes it’s just creating a system. Do you guys ever see that?
[00:03:51] Rob Williams: Yeah. Getting systems, especially back, since I’m old, we didn’t have all this stuff coming through our phones and all this information that we had. So it was very manual. It was usually written pieces of paper. Well, but I guess a lot of that is the estimates, and then the reporting of the POs and then the invoices getting approved and that went through the office mainly. But then it was always a delay because we had to physically put the piece of paper out to the field for everybody to sign and get them back.
And we actually had some good systems that sometimes I think worked better than these efficient systems, just because it was a process. Sometimes it goes into a black box and people aren’t sure. You can’t see it. Although I admit I prefer the new methods over the pieces of paper we used to have, but.
[00:04:42] Wade Carpenter: I think that goes along with trying to make it simple. I remember all these iPad apps that started coming out and the controllers were telling me like, hey, I’m gonna send them out with an iPad, but A, the iPad’s not gonna survive getting on a job site. And so we can talk a little bit more, but, keeping it simple, they usually have their cell phones with them. And there’s a lot of apps, we can talk about ways that can help. But keeping it simple is the second point.
The third point I wanted to make was there are ways to automate some of this stuff so that it’s captured automatically. You know, want to track your vehicles or the time machinery’s on a job, there are GPS services and equipment hour meters that can be read remotely over the internet. So, anything we can do to make it timely, we need to make it simple on them, and wherever possible we need to automate it.
[00:05:31] Rob Williams: Yeah, that automation, that’s huge. I know our time tracking per job, we just knew it wasn’t accurate. We had so many employees, too, and the time sheets. And I grew up in, you know, high school filling those sheets out. And I know, well, we’d think at the end of the week, let’s just start writing things in there.
We were supposed to do them every day, but of course we had them in our truck right before we were turning it in for payday, filling those things out. So that’s a huge benefit. I hope it works. I don’t actually have experience with that, but I’m sure it works better than what we did.
[00:06:03] Wade Carpenter: Well, there are challenges to that, even having the technology in there. If the people don’t use it, it’s never gonna help anything.
[00:06:10] Rob Williams: You’re talking about making it simple. When we had the tools coming out and the automatic checklists, we actually did have those even way back then. You’d have these little Palm Pilots or something that you could check things off, but you know, the guys in the field didn’t get it. There was a big disconnect between the programmers on the other side of the country doing this database, and then what the guy in the field was doing.
And even if he was wanting to make it work, he’d overthink it and try to make corrections that made it even worse. So it was just, it was crazy. And I imagine we still have that.
Incentives for reporting job costs
[00:06:46] Stephen Brown: Well, it seems intuitive to me that if a project manager’s getting a bonus or pay based on how a job performs, they’re going to be obsessive about reporting the job costs. Or maybe obsessive about under reporting job costs if they could get away with it. But you know, I’m not saying anyone does that.
I’m saying that you have that accurate information, I guess you could say it’s akin to saying, well, if you’re trying to lose weight, you don’t wanna weigh every day. because you’ll just get discouraged. But you don’t wanna weigh every five years either. So what’s the answer?
[00:07:20] Rob Williams: You say the incentive to have that, because we did have that even back then as their pay and their bonuses. But there was a disconnect. If they don’t understand it, then it really doesn’t matter that that incentive is in there because it’s actually, it’s almost more frustrating. It almost causes more problems because they don’t understand how it works together. So it really doesn’t matter what the incentive is.
And then the incentives, some kind of backfired into just an argument because they didn’t get the cost and stuff. So yeah, we didn’t really find that the job cost bonuses motivated that job costing to work a lot better.
[00:08:00] Wade Carpenter: Well that and, tying that into cash flow, because making them understand how getting this in, as well, but a lot of those project managers want those bonuses, and it is where you really need to be very specific about the expectations. Which actually that may lead into some of the things that I’m gonna give some tips later.
But can we dive into a couple of specific issues that I see all the time?
[00:08:24] Rob Williams: Oh–
[00:08:24] Stephen Brown: Sure.
Labor and time tracking on the job
[00:08:24] Wade Carpenter: Well, labor and time tracking on the job. I know Rob, you’ve talked about it in the past on the podcast. If you got one house here, right, and one right next door, they’re putting it on the wrong job. Number one, making it very clear, which one their job, you know, the job naming, those kind of things. And even when they do, it’s really tough to address that sometimes.
[00:08:47] Rob Williams: Can you imagine building condos with that? That would be just a nightmare. Town homes that are connected and condos that are multi-story. I don’t know how that GPS is gonna figure that one out.
[00:08:57] Wade Carpenter: Well, that is an issue, but there are time tracking apps that, they do geolocation. So, it can tell you where they are as well as, make it easy to clock in because they’re doing it on a phone. The trick is getting them to do it. And sometimes saying, hey, if you don’t get it done, you don’t get a paycheck or you don’t get… and you can’t be really harsh about that because you need your labor. But you know, make an example of somebody. That’ll wake somebody up quick.
[00:09:24] Rob Williams: Oh, yeah and there is, just like Stephen was saying a second ago, the motivation, there’s a priority that most of the guys in the field, we were much more concerned. Number one priority is get that job moving and get it through the system. When you get through that, well, then we’ll worry about everything else.
And I don’t know that they’re wrong, but you gotta do all of them, but that number one priority. And sometimes that’s fully encompassing when things are behind. And that’s the last thing that they’re really concerned about is getting that job cost stuff right, when a job is behind or you’re fighting with subs to try to get the guy to show up.
[00:10:04] Stephen Brown: Well, how do you get this information real time? You were talking about labor and timing, Wade
[00:10:10] Wade Carpenter: Well, there are apps out there that, some of them are specifically geared to construction that will track these things. And they’ll tie into your books to where you can have your list of jobs and you can, basically you do the geolocation and wherever they’re clocking in. And we could talk about some of the other things like vehicles and stuff like that.
[00:10:28] Rob Williams: I don’t know how many of the sites have onsite admins too. That really helped us. We had enough volume going on each site that we would typically have an admin lady in the trailers with us. There’d be maybe three or four people working in that. And then she got all that right while the superintendent was out working. He had to sign things off, but she was making sure all that paperwork and all that stuff happened. But you know, most of the commercial jobs I’ve seen, they don’t have an onsite admin person. And now with technology, I bet probably hardly anybody has that anymore.
[00:11:04] Wade Carpenter: Well, they do, or they’ll have a foreman or lead person on the job. Sometimes they’ll just have to turn that in.
[00:11:10] Rob Williams: Well, the foreman had a secretary onsite, in the old days.
[00:11:15] Wade Carpenter: Well, and the biggest job, big job–
[00:11:17] Rob Williams: — you?
[00:11:17] Wade Carpenter: Depending on the industry, some of them still do that, but the labor is an issue. And technology doesn’t matter if they don’t use it. So if you determine that these guys are not gonna clock in, you need to have somebody that is responsible to turn that in on a timely basis.
Any other questions or thoughts on that before we move on?
[00:11:35] Rob Williams: No, but what I’m thinking about though, is it’s really down to motivation and getting those guys to decide that they want to do it. To us it really didn’t matter what we did until we could get them to want to do it. The carrot was a lot better than the stick or whatever you say with that.
[00:11:55] Stephen Brown: Well, if you don’t report job costs, your job looks like it’s doing better than it is. So I think it’s a good thing to not report job cost. I, well–
[00:12:04] Wade Carpenter: –on somebody, the time or whatever on somebody else’s job. So they get their bonus.
[00:12:08] Stephen Brown: Okay, so far we have not solved this problem. We’ve just talked about it.
Systems for job costing
[00:12:12] Wade Carpenter: Well, we talked about some solutions here. But some of the other things like the accounts payable, and things like receipt management, getting the payables into the system is a big part of the battle. And depending on the workflow, a lot of times they want it go to the project manager’s desk to approve it first or whatever, but until it gets into the accounting system it’s not really tracked as well. And what we found in us trying to outsource this remotely, is that a lot of the systems out there to do job costing that are out of the box are not great. They do it at the high level. Hey, is it material, labor or subs? And we’re not able to get the detailed like our phase code cost code type structure. As well as keeping a running list of jobs.
So what we had to do was build our own system with some existing software and customize it to be able to actually track this stuff and automate this. But it’s the same with receipt management. There’s a lot of apps out there right now that will do a basic receipt. Or you can take a picture on your phone and if all you’re trying to do is do basic job costing and say, I went to Home Depot, I took a picture of this and just throw it in materials, that’s one thing.
But you also need to know, hey, what job’s it on? Stuff like that. So again, we’ve had to build our own systems to where we try to make it very easy to pick the codes or come back and code it later. Put it on the project manager’s phone, depending on what’s going on with it. They hate doing paperwork at night. So if they can do it when they’re out in the field and they got a minute, that’s the best time for them to remember this stuff.
[00:13:47] Stephen Brown: First thing in the morning, you’re getting everybody out on the job.
[00:13:50] Wade Carpenter: Because that’s the best time to remember it and sometimes it’s where you gotta hold them accountable. And one of the parts of the system we built is the fact that, depending on what the workflow needs to be for payables, it may be sitting on a project manager’s step, and then, maybe the owner wants to approve it before it goes in payables or whatever.
We can actually track how long is sitting in that project manager’s inbox until they code it or whatever they need to do to give us the information. We try to get that information in there as fast as we can. So a lot of times we’ll do things like have the vendors send it to a specific email or still have a few people send it to a dedicated fax.
Those kind of things, to get it in the system and moving as soon as possible, especially when the vendors can send it in. They wanna get paid as soon as possible. So if you started on the right path, instead of open the mail, give it to the project manager, where it may get stuck and hung up in the system, a lot of times, those things don’t work.
[00:14:47] Rob Williams: Yeah, I think having a conversation about how it works, is done with the information they give us, it’s just such a black box and it makes them not feel involved. It makes them not care about it because they just don’t understand. That should be good, I guess, on some of these episodes, maybe we need to have a whole another episode where we describe what actually happens, and just, it’s amazing what, I can’t remember any examples now, but I do remember being totally shocked by some of the comments that they don’t understand what’s happening with that information. Just a genie just gets this stuff and magically just throws it to Stephen over there for the bonding or something.
[00:15:29] Wade Carpenter: I see that all the time.
[00:15:30] Rob Williams: Yeah, it’s that disconnect. And we actually, I know some of our superintendent meetings, we’d have 20 superintendents sitting around this big table and we’d get the people, sometimes, some of the best things was that person that owns this system.
Which by the way, you need that in your system, you need somebody that actually owns this. That’s accountable for it. If you don’t have that, it’s really hard to make everybody do this. But they would come in and explain the stuff. And then the empathy that sometimes these superintendents really kinda cared after that, they really felt sorry for those people, after they found out what they had to go through. They’re like, oh my God, I guess I’ll start doing this. That was a really big thing explaining to them. We don’t really think they need to understand what’s happened and they just need to do it. And that just didn’t really work for us very well.
[00:16:17] Wade Carpenter: Yeah.
[00:16:17] Rob Williams: Involving them seemed to make it go. They really did care. They just seemed that way because they didn’t understand it.
[00:16:24] Stephen Brown: Wade, is there a centralized way that the project managers can order their equipment, materials, and supplies on a project through the office?
Purchase order systems
[00:16:34] Wade Carpenter: Well, there is. And actually that just sets me up perfectly for the next topic that is dealing with the payables and things like that. The purchase order systems. A lot of companies say, well, we try to purchase order system. We hated it. Nobody did it. But if you’ve got specific materials, you ordered for a job or a subcontract for a job, if you got a purchase order and you get that into accounting, where it comes in and they don’t even have to code it, they can do it up front, that’s another great way to get the job costing done, and we don’t have to bother these project managers. But you have to have it set up in the system and get around the fact that, you know, depending on how you set up– I understand why some people hate a purchase order system, because they go to Home Depot and they had to go call somebody and get it. But as long as you make it easy and quick to get the information they need to get the job done, purchase order systems can help quite a bit.
[00:17:28] Rob Williams: Yeah, that centralized purchase orders, that really did make it, but that also, we were halfway towards there. We were pretty much doing it, but I saw some that were just diligent. The owners or something had put this centralized purchasing thing. And it was amazing the way the workarounds, the superintendent would find to work around the system, which made it totally inaccurate because they would have this intricate system. If they wanted this to show up two days later, they’d order it for this job, carry it down over here, then they do this and they would have this elaborate system to get around the centralized purchasing system.
[00:18:08] Stephen Brown: Guys. I’m just getting more depressed.
[00:18:12] Wade Carpenter: Well, no, we’re talking about ways to solve it, Stephen. So get–
[00:18:15] Stephen Brown: All right. Okay. Well, I…
[00:18:17] Rob Williams: That’s the way it used to be. Current state is awesome, Stephen.
[00:18:21] Stephen Brown: All, Alright.
[00:18:22] Wade Carpenter: No, wouldn’t say it’s awesome, but you know, the contractor still needs to learn this.
[00:18:26] Stephen Brown: Well, one of my customers last year had a crooked project manager that was ordering all kind of supplies for different projects he was doing on the side, stealing.
[00:18:34] Rob Williams: We had that.
[00:18:35] Stephen Brown: Okay, well, so we gotta stop that too. And of course we did have employee dishonesty insurance coverage in place that actually covered that situation.
[00:18:46] Rob Williams: Wow.
[00:18:46] Stephen Brown: Yeah. Hey, but nevertheless we are trying to talk about communication essentials in job costing, and those essentials are what has to be done to get these job cost reports reported in your accounting system so you can do in-house financial statements. You can look at how projects are performing.
Wouldn’t it be beautiful if you just had a dashboard on your computer of every job that tracked how the costs should be going on that project and where they are now and what your goal is? Just three different gauges that the owner could just pop on and see how these jobs were performing. And a lot of times folks think they have that system in place already, and they don’t, and they have surprises. But the best owners are watching that stuff like a hawk, aren’t they?
[00:19:39] Wade Carpenter: Well, and what you describe is actually doable, but it takes an organization that understands that, you know, hey, this has gotta be done. And I know we had an episode way back, we talked about ESOPs. A lot of the contractors I’ve seen that have ESOPs where the employee stock options and the employees are owners, sometimes they’ll take ownership of this. And that is exactly the point. And some of the other things I know, it is, and isn’t really job costing, but you know, one of the related issues with these subcontractors is, you’re working with somebody new, we need to get the information to give them a 1099. So how do we make it easy for them to give the stuff? Well, number one, if you withhold payment until you get the W-9 from these guys, that’s a great way to make sure that you get the information.
But there are now systems, and actually there’s an internet bank we work with that says, we can pay them ACH for free, but to get in the system, they have to go in and upload that W-9 information before they can get paid. There are electronic payment systems that work the same way. So some of these things where we automate it and put it on our supplier or subcontractor, that’s a great way to get there.
[00:20:51] Rob Williams: Yeah, that’s really common. And I think when we got bigger, that’s how it worked. And we had to do that. We had to put it back on them. You don’t get it done, you don’t get a check. The smaller we were, the less that really existed. And even in this show, I’m listening to Stephen and I’m thinking which contractors are we talking to?
Because the answer’s completely different. Are we talking to a big GC or like a home builder, something like that, that’s got all these systems in there? Or are we talking to a fairly decent sized guy who was with a bunch of pickup trucks that just don’t have that? I think the solutions and the conversations are different in those situations.
[00:21:29] Stephen Brown: What do you just put a barcode on the hardhat, and everybody walks through?
[00:21:35] Rob Williams: Would be a good I
[00:21:36] Stephen Brown: Turnstyle–
[00:21:36] Wade Carpenter: Was gonna say it is a great idea.
[00:21:39] Stephen Brown: Well,
[00:21:40] Wade Carpenter: You walk through the gate.
[00:21:42] Stephen Brown: Well, we’re just steps away from chipping every worker like a dog, but seriously, a barcode that identified who you were and what you were doing and what time you got there.
Literally, when you walk on the job site.
[00:21:54] Rob Williams: But of course OSHA wouldn’t pass that. Because you can’t have a sticker on your helmet. So I’m sure you’d have to go through OSHA.
[00:22:01] Stephen Brown: Oh, I don’t know. We’ve got stickers all–
[00:22:03] Wade Carpenter: I don’t know. I like that idea.
[00:22:05] Stephen Brown: That’s what makes a helmet cool is the most stickers.
[00:22:08] Wade Carpenter: Gonna have to have–
[00:22:09] Rob Williams: Guess it depends on the job site.
[00:22:10] Stephen Brown: Well, I’m glad you liked my idea, Wade, that maybe one of our–
[00:22:13] Wade Carpenter: Well, maybe we can–
[00:22:15] Stephen Brown: –and run with It and make a fortune.
[00:22:17] Wade Carpenter: yeah, I was thinking maybe we can work on that.
[00:22:20] Stephen Brown: Okay.
[00:22:20] Wade Carpenter: Just to kinda wrap up just a couple of tips. Things like instant messaging apps. I don’t wanna really throw out any names, but where we can say, hey, I need this real quick. Those can help. Again, I talked about that accounts payable dashboard and when we can, say, point to the owner, and on average, it takes him 10 days to respond to giving us the cost information, we can throw that in his face. So when you have that information.
We’ve got some software that we have actually taken on just this year where we can send a request to one of our clients and if they don’t follow up the next day, or we can set how often, but it will go back and remind them automatically. So that automation is great.
Again, we can’t address everything, but having those defined workflows and checklists, we talked about on a recent episode, those can go a long way to getting you a great job cost system. So.
[00:23:13] Stephen Brown: Okay. So, way to communicate job costing within your organization is to try to make it more fun. And nobody, everybody hates doing it. How do you make it, not more enjoyable with that, but a necessary evil. I don’t know.
[00:23:27] Wade Carpenter: Rob, you got any comments on making it fun?
[00:23:30] Rob Williams: No, I just–
[00:23:31] Stephen Brown: And that’s pushing the edge of the envelope guys, what–
[00:23:33] Rob Williams: Gamify is the hot word now. You could gamify the system, but I think making it fun is just making it not miserable. And I still think the bottom line even 25, 30 years later is still letting the guys understand why it’s important. I think it’s the motivation to get the guys to want to do it and get somebody in your system to own it. So at least maybe the superintendents would feel sorry for that guy. If that’s their only motivation, it’s, they gotta wanna do it. Because I’ve seen the most advanced systems, just like I described a few minutes ago, that are perfect theoretically. Do not work at all if the people are motivated to work around it.
[00:24:16] Wade Carpenter: Yeah, you just gave me another great idea, Stephen. Like Gamifying our dashboard thing. We have different project managers and we could pit them against each other and throw some bonuses to one team or one job or something. I don’t know. But.
[00:24:31] Rob Williams: Oh, yeah. We had a lot of gamification with the reports and stuff. We had this big room and we had graphs all over the walls. We had hired our CPA to come work for us. So he was the head of construction and man, the whole room, this room was like, 20 feet by 50 feet, big room, huge room just covered with graphs and charts and it was all their performances and stuff.
So there was a lot of gamification there.
[00:24:58] Stephen Brown: Real time stuff. That’s exciting. Real time information. And also if you have this in place, you are getting your project managers to manage the project better, more efficiently. And also letting them know that doing this right takes stress off of you. It really does.
In the long run just do it. Don’t stress over it. Just do what you need to do. And sometimes if a project manager’s coming to you with information about a job running over, instead of chewing him out, you’ve gotta figure out how to solve it. And you can’t kill the messenger. You got to take that information and try to stop the bleeding, so to speak.
[00:25:36] Rob Williams: Well, this has been great. We’ve been going a long time on this one. Just seems like we just started, we could talk about this for a long time.
But we need all our listeners’ help on this. We want them to give us their ideas so we can share with everybody in our community here on the Contractor Success Forum. So we can share with everybody and learn more from each other.
So you guys, go to Contractor Success Forum dot com, go to it on LinkedIn, send us messages, communicate with us, let us know how you wanna communicate with us, but we need you to help us make it better for you.
[00:26:14] Stephen Brown: Make it fun. Hey, job costing can be fun.
[00:26:17] Rob Williams: Job costing is fun, Stephen. It’s fun.
[00:26:22] Stephen Brown: Oh.
Ooh, it’s getting thick in here.
[00:26:24] Wade Carpenter: –employees too.
[00:26:27] Stephen Brown: Hey, great, great points, Wade. Thank you.
[00:26:29] Rob Williams: All right. Well, thanks a lot. Wade Carpenter, Stephen Brown and Rob Williams. Tune in for the next episode of the Contractor Success Forum.