Mid-Pandemic Accounting for Small Businesses: Revising Job Costing & Managing Overhead

For manufacturers, contractors, and many other types of privately held companies, estimating costs on a per-batch or per-job basis and managing their overhead costs are key components of their success. Reviewing certain procedures and practices associated with accounting for small businesses has become even more important today, as businesses make their way through month 10 of operating amid the COVID-19 crisis. My goal is to help small businesses revisit procedures for job costing and overhead cost management for missed opportunities to increase efficiency, lower costs, and increase the bottom line.

Revisiting Job Costing

Businesses have to ensure each job, whether it’s a manufacturing batch or a building project, generates enough revenue to exceed its costs, while remaining in line with the pricing offered by their competitors. You need to be able to make necessary pricing adjustments to individual projects before losses are incurred. Tracking costs by project allows you to account for even the smallest changes to adjust when a supplier’s price changes, for example. Job costing also gives business owners a better big-picture view of profitability by allowing them to see what types of projects are in line for possible expansions or where cutbacks may need to occur.

A job costing system breaks down each area of cost by codes, based on job phases or divisions, by associated material, labor, and overhead costs. The level of detail needed in cost coding differs depending on specific company needs. It also requires forethought and maintenance. A highly detailed breakdown may result in narrower budget to actual margins; however, too much detail can be cumbersome to maintain. The general purpose is to compile your data on actual costs over time, which, ultimately, allows you to make subsequent estimates with greater accuracy and less risk.

Breaking down each project by materials, labor, and overhead is a process that is made significantly easier by business advisory services and through the use of job costing software. I work with manufacturing and real estate companies to set up systems that provide optimal benefits based on their specific needs.     

Managing Overhead 

Overhead includes the costs related to keeping your business running, such as your rent or mortgage, utilities, taxes, and administration. As mentioned above, part of managing overhead costs is tied to accurate job costing procedures. While costs associated with materials and labor and materials may be straight forward for some companies, overhead costs are generally not as simple. 

I work with my clients to choose both the allocation methods and allocation bases best-suited to their project and overall needs. More than one method or basis may also be used within a single project, so it is important to understand how choosing different methods and bases for allocation can affect the accuracy of your overhead cost tracking  and estimate calculations. 

Another consideration in managing overhead costs is regular review of your contracts. Looking over contracts associated with overhead costs should be a part, at least annually, of your management team’s review of things like general financial standing. This type of review allows your management team to take a look at what rates you are currently paying, to consider renegotiating terms, and to shop around for lower rates, when necessary.   

Contact Livingston & Haynes 

The Privately Held Company Team at L&H helps small businesses navigate tax and accounting matters specific to their industry. My team can help you maximize earnings, minimize risk and tax liability, and remain in compliance. Contact me today to find out how I can help your company optimize job costing and overhead cost management procedures. 

by John P. McGonagle, CPA 

John McGonagle, CPA, began his career in 1980 with Ferngold Company, a CPA firm. John became a partner in Ferngold in 1986 and remained with the company when it merged with Livingston & Haynes in 2002. He works with privately-held companies, specializing in tax services that concentrate in real estate, family wealth transfers, and trusts.