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Small Business Finance Basics: QuickBooks & Beyond

Lesson 28 of 37

Job Costing

 

Small Business Finance Basics: QuickBooks & Beyond

Lesson 28 of 37

Job Costing

 

Lesson Info

Job Costing

I want to move into something, and I'm really glad I got to this because this relates to what a lot of you were doing, and that is job costing. Now, on the basic version of QuickBooks, it's very difficult. It's not possible to do job costing. I would recommend for this audience that you do this in Excel Jackie O mention She does a lot of stuff in Excel. Do what I'm suggesting. An excel. Don't try to do it in QuickBooks. I think it's a little difficult job costing. I wish I could figure out to use those chopsticks. Christina Mission, I believe yesterday that she gets people estimates. How many people, How many of you give people estimates? Sure, in a creative field, you probably gotta give estimates. I would think, because it's a little hazy as to Well, I'm going to ask Christine to shoot the film. Jackie, too. Do this project were part of it is terrible. It's hard for a client to get a handle on what it is you're doing, which means it's probably a little hard for them to get a justific...

ation of the cost. So part of the job cost issue for creative folks is Let me explain to you what's entailed in doing my work. Now it gets the pricing which I'll get to later. I would just tell him your price and how you came up with it. So what? I'll get to that in a minute. I would not hesitate to tell it to tell people it costs 50 bucks and $10 is my profit enclosure mouth and let them talk next. They may say that's too high or okay or whatever. The price is 50 bucks. And I would just tell him, and 40 of that's cost 10%. $10 is my profit. Okay. You know, people should be okay with that. I'm okay with that. I'm all right with people telling me how much the prophet is. They got to make a living too. We shouldn't have a hesitation to do that. Just tell people. Here's my profit. Okay, So you're gonna make an estimate. Now there is an estimate function in QuickBooks, and when I pull it up today, I'll show it to you. You can have an estimate, and then you can create an invoice by using the estimate. If you want I've seen beginners and QuickBooks have trouble with that. So you create an estimate for client A and then you're going to actually build client A and you put in an invoice. And now you've got an invoice and an estimate, and then I move the estimate, make it become an invoice. My suggestion, if you're a beginner, is just used the invoice function and not do the estimate function. People forget. Did I do an estimate? If I did that, I moving into an invoice and my double counting. All right, So, Christine, do you mind if I use you as an example? So give me an example of some costs. Give me an example of a project and you could met. You don't to tell me your costs, but give me an example. Some costs. Well, let's say you're doing something like this. Would have the cost of you produce here. Probably you would have the cost of instructor, so I'm gonna give me one second, OK? I'm going to say labour, okay? And I'm gonna say Yeah, I took I took a picture of the whole production team. Everybody who's involved eso you've got the person who's on camera and you've got I'm just gonna call it production staff. Okay? What else? Get hosts. Hosts case. That's what I would call that. Only about that production. Yeah, so that's labor. So that's labor. What else? Equipment. I'm gonna say I'm gonna, uh That could be one of two things. I'm glad you brought that up. For those of you in creative fields that could be renting equipment. But if you only equipment, it's a little tougher isn't a boom. If you only equipment, it's a little tougher. Let's think about that. If I rent the equipment, I'd have a rental cost. If I buy the equipment, it's probably not going to be in this job costing estimate, because if I use equipment, I own abbreviate equipment that equipments depreciating, right? That's how I think that's the expense I incur for doing the work if I own the equipment. So for the most part, I'm not gonna put job that in the job cost estimate, it's still an expense. It's still going on my income statement, but I'm not included in the job cost estimate, and I'm gonna give you a reason why in a minute I'm gonna breathe. You're a depreciation because if I own it, whether I use it or not, it's depreciating. In other words, this depreciation is is ah, fixed cost each year. It's a cost that happens no matter what. I hope I use it in projects, but if I don't, it's still appreciate it. Okay, so I've got labour rental. Yes. So when you're saying job costing this is not necessarily This is what? The exercise that you're going through yourself because I'm warning. If you're going through this with a client, makes sense in my head that you would show them what? Two cameras, three cameras, one camera? Because that is a whole different production. It's it's really up to you. There's two things happening here. There is the estimate that you showed a client. And then there is your internal estimate. This friend of mine, who does ST Lucie does very, very high end home entertainment. Okay, he does a job estimate now he shows the client ever, you know, tremendous detail. So you have to make a judgment on how much detail you want to show the client. Do you want to show him 50 lines of costs or Do you want to just group them into five? It's up to you. So your internal document may be really long. And what you show the client may be brief. Okay. Labour rental services, Food services. Okay. So again, I'm just trying to create a job estimate that relates to people in this audience. Okay, so these are the costs. Okay. Say it's $1000. So somebody says I'd like you to film, you know, alive production in a studio. You might even include studio rent in here if you want. Although that's probably a fixed cost. If you own your studio. So somebody raises their hand. They say, Christine, I want you to come. Chicago, we're gonna give you the space, and we want you to film a live event with an instructor and hosts etcetera. You need a production crew, and so you come up with an estimate. You go. Here's my estimate. Okay. Now, how you position your profit is up to your comfort level. Obviously, there's gonna be a sale price here at the top. I'm just gonna make it up to states $1500. Many people in the trades again. Let's talk about plumbers, carpenters, roofers, landscapers. Some people show the price and they show the costs and let the client figure out with the prophet is others. People that I've seen will include the prophet in there, which in this case would be 1500 minus 1500. It's really up to your comfort level. I suggest that you show on the sale price the prophet in all the costs. Okay, there's 1/3 way to do it. The third way to do it is to show him an estimate with the costs already included with no sale price. So what? In that instance, you wouldn't have profit, you wouldn't have. You'd have. All you'd have is one estimate for $1500 that estimate includes your profit. So you're actually adding the profit into each of these numbers and you're telling the client it's a $1500 cost, which includes your profit. That's probably the most common way. Yeah, so you mark everything up. Profit, right? Client right? Depends totally on your comfort level. Probably depends on your industry. Um, my orthodontist drives to Porsche's he's got a esports SUV and he's got a poor sports car The reason that my orthodontist drives these cars is because of the cost to go to an orthodontist, but he lays it out now. He doesn't show his profit, but he just marks it all up. Whatever you're comfortable with, whatever you're comfortable with, I will say that showing your profits probably a little gutsy and it's not your industry standard. That's probably a bad idea. Probably bad idea. So we have this job cost again. How do I do this in connection with my accounting? And QuickBooks? I'm suggesting that you do this in an Excel document. You do this in Excel. Then if you get the work, we'll set up an invoice in QuickBooks. But I'm suggesting that you do not do this in QuickBooks because this detail, I think it's just easier to do it in Excel. Then when you get the work, you go into QuickBooks and you created invoice. I said OK and Excel interface with each other. Really well, job costs because and I would go to a pro adviser and do that it is possible. Yes, it is possible to have, you know, have somebody take the lines on an Excel document and dump it into QuickBooks for you. Yes, you could. I would go pro advisor for that, but yes. Okay, so that's doing a job now, generally, in accounting, there's two types of costing. There's job costing. So most of you who are doing projects, um, are doing job costing somebody. I should do something. You come up with the costs, you have an estimate, you do the work. Not most of this audiences process costing where everything is the same. A factory that's not really Germaine to this class. But it's called process cost. So you make pencils and every pencils the same, completely different. Most people in this audience, they're doing project work, which means you're doing job costing okay. Cosmetics. Hers would slip my mind. Candice's would probably be a product cost. I'm process costing because she could, and like the one we were talking about before, where you have cost, I'll use the Blue Jean factory. So we by the denim, that's a material. We run a machine and we pay for labor costs. We put the jeans together, we send him out the door. That is just a process, just a process. It's not by Project all right, I understand this this question exactly accurately. But when we were going over using the numbers for cost of material, is there a way to do that with pricing your service or talent? Or would you basically just give yourself a decide that rate and place that in where the cost of the material would be? What I would do would be to take any cost and just add on a prophet. So if you if you think that your talent is 50 bucks an hour and you want a 10% profit, I would take 50 blood bucks plus five. So I price it to decline at 55 because I think my time is worth 50 and it's a $5 profit. Uh huh. All right, great. Another conversation that Josh and I had. It's not. I can't fit perfectly into this, but it's something else you should know, because I get this question a lot, and that is between direct and indirect costs, direct and indirect costs. The cost that Christine listed here we could directly tie to the project, right. These air direct costs, but we have something called indirect costs, which are costs that we incur just by having the doors open, and we can assign him directly to the project costs that we have for just having the doors open that we can't assigned directly to the project. So let's talk about that. Let's talk about what they are and how we deal with them. Typical indirect costs all of you and creative fields are probably incurring him. We talked about ensuring yourself for legal liability insurance costs not related to the level of activity You could do five film projects a month or 50. Let's assume you may be paying the same insurance premium. Yes, maybe my question, because I know, especially if you're an order so performer and you're performing a certain venues, sometimes they require you to have additional insurance. So for that one day you have to have a $1,000,000 worth insurance. So that would be the direct cost. Or that still, via indirect, great question, that would be a direct cost because you incurred that cost specifically for that client. Yeah, that's why I hesitated. Okay. These air costs that are not related to your level of activity you write the track whether you do five projects a month or 50? Okay, Lease on your building, utility costs, all that kind of stuff. And the question is, and it's and I'm only gonna go part of the way down the yellow brick road for this. How do I include those indirect costs so that I could figure out my profit and that I think the the answer to that is I would just lump all those together as a fixed cost and understand that on the big level, on a macro level, I've got to cover those costs in my business every month. Let me show you what I mean. Let's say they total up the $2000 a month and you say to yourself, Well, I can't really assign those costs to a job to each project. There's a couple ways to handle it. One way is when you price when you do your job cost, you could do this, and I've seen people do it. You, somehow including the job cost you could also think of indirect costs. Is overhead your overhead? We've heard that term overhead. You put overhead as a some sort of rate on the job cost estimate. No, there are people. When I say that who say, Well, I can't do that. People are gonna you know, they're gonna kind of hesitated that one. I don't think they will, because I think people have to expect that you got to pay for your overhead somehow. Now, most people don't put overhead on their job cost. Instead, they say, Well, I'm just gonna look at my indirect costs in total and just keep this formula and I to make sure that I saw enough stuff to cover it total. But another way to do it is to put it on your job, your cost estimate, and say, for example, that my cost is $2000 for the month and I'm going to do 20 projects. And so I'm gonna charge everybody on $100 for overhead abbreviate overhead. People do that if you don't care to do that, or if that's not something you're comfortable with or if that's not your traditional in your industry. Nobody else doing film production puts overhead on a job estimate. That's fine. I just want to make sure that you remember that you have to cover that cost however you want to do it indirect costs, Looking to the like a past year and seeing how many jobs you did, would that be a good way to come up with the amount per project? That's perfect. Look at it. Historically, and people that have been business a long time have a handle on that. I mean, you could even build the overhead into the pricing of the other direct costs that we had on the prior slide. So when you talk about, you know, production well, production on your estimate might mean the labor costs of the production, plus some of the overhead. You could do it however you want. But, um, I would hope, ideally, that somehow you start putting your overhead into the job estimate because that tells you how much the job really costs. Because if you're leaving it out and you're not including overhead now, just figure this out somehow. If you're leaving that out of your estimate, you're really under costing your job. You're under costing your job, okay? I'll tell you, in my case, I never budget for ah, technology like repairs. Um, and you know, I'm on my Mac. I'm on my Mac book constantly. It's gonna break down. I had to buy an $80 power cord. I paid 200. I have ah, geek squad that came to I've got a budget for that. And every time it happens, like Daniel, I should look at what is Josh just said, Well, can what's your cost every year for that? And put and plug that in because you're not recovering all your costs. Plug that in. Okay, Last thing in this segment, and I'm gonna try to, um I'll see if I could get it done. Think about how much cost you're really incurring. To do something. Think how much costs. Um, I really encourage. How closely am I looking at? It is my point. Here's the exam because if you don't get this right, you can really screw up your profit calculation. So example I use is, let's say you make shirts. You make two kinds of shirts. Uh huh. We'll put a sale price reach $50 a unit for one shirt, $70 a unit for another shirt. Let's say that you use the same sewing machine to make both shirts, so you've got cost, and I'm going to say keep it easy and only cost is for a sewing machine to make the shirt machine costs. And you think that this one cost you 40 and this one cost you 35. So you think that your profit and let's say that your only cost you think your profit on this one is and your profit on that one is 35. Let's compare it to Christine Shooting film. Christine thinks that one particular outdoor shot is gonna take, you know, two hours of film time and another one's gonna take five hours. Okay, so you've tagged the cost to do certain things. And because you've come up with a price and you've come with a cost, you've got a profit. What if you're wrong? Because what you're assuming is that this product is 50 divided by 10 which is 20%. And this profit is 35 divided by 70 which is 50%. What if this allocation is wrong? If you look at your activity of your machine or you look at your activity when you make your production or you look at your activity when you manufacture the product, one product takes this product takes farm or cost $15 higher than this product. So this one goes up by 15. This one goes down by 15. I've got to do basic math, right? $15 went this way. So what I'm saying, when you really look at it in detail, why is that a problem? It's a problem, because look what's happened. Your profit. Your profit for both products is now completely changed. That one's gone way up. This one's gone way down. Here is the moral of the story because you got the cost wrong. The percentage profit is different. What you than what you think. You think you're so in $70 shirts and making 50 50% profit. That's wrong. You think you're still in $ shirts of making 20% profit. That's wrong. So when you're planning your sales, your profit numbers were wrong because you get the cost wrong. So the moral of story is take some time digging in to really find out what your costs are. All right. The next section we're gonna talk about optimizing cash flow. There are some things that I will do on the board on cash flow, and there's also some things that's some point today, I'm going to start doing checks and deposits and QuickBooks and try to get to a cash list up bank reconciliation if I can.

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Accounting can be easy if you know how to use the right tools. In this course, Ken Boyd offers an in-depth introduction to the accounting and QuickBooks skills that are the foundation of every thriving small business.

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Ken covers everything you need to know about understanding and managing your business’s cash flow to insure that your business stays profitable and that you have the right amount of money at the right time. You’ll explore the principles of making sound business decisions that both grow your company and protect your bottom line. Ken will also cover best practices for integrating QuickBooks as an accounting tool, from setting up payment and invoicing systems to generating accounting reports to paying your company’s bills, and much more.

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