117: Job Costing for Interior Design Firms
Michele 00:00
Hello, my name is Michele, and you're listening to Profit is A Choice. Joining me today is Shanna Quinn of East Orlando bookkeeping. Shanna is Profit First certified, and she works with many contractors and subcontractors, builders, and designers. Today we're going to discuss Job Costing, what it is, why it could be instrumental, and helping you determine the true profit in your company, and why you might just want to implement it. This is kind of a technical conversation, but it is one that can be easily grasped. If you just think about every single thing that happens when you deliver a project or product to your client. So don't let it stop you grab a piece of paper, grab a pen, jump in and join us. Every day empowered entrepreneurs are taking ownership of their company financial health and enjoying the rewards of reduced stress and more creativity. With my background as a financial software developer, owner of multiple businesses in the interior design industry, educator, and Speaker, I coach women in the interior design industry to increase their profits, regain ownership of their bottom line, and to have fun again in their business. Welcome to Profit as A Choice. Hey, Shanna, welcome to the podcast.
Shanna Quinn 01:21
Morning. How are you?
Michele 01:22
I'm doing great, and I am so excited to talk to you. You and I are both Profit First professionals, and we love that method. We have seen it work for so many of our clients when you and I were talking about construction. Then we were talking about design projects and things like that in a separate call. I was like, "Oh my gosh, you got to come on the podcast!" We were getting into the nitty-gritty of Job Costing and percentages; that's exactly what my clients need. Some might not know they need it, and some do. So we're going to jump in and talk about all things Job Costing today, and I'm excited to do that. However, before we get started, I would love for you to just share with me and with the listeners a little bit about your business and how you got started.
Shanna Quinn 02:13
So I am located in Orlando, Florida, and I've been here the majority of my life. I'm a born Floridian, stay here because I don't want to deal with cold weather. My husband and I had our first only child in 2012. After a few years of working for a firm, I had taken some time off to be a full-time mom for almost a year. Then I kind of returned to the workforce and had to rebuild my position to prove myself again. That became a very difficult situation for me because I was very torn between building myself up, the firm, and proving myself to be worth more than what they hired me for and kind of being a new mom. So before I knew it, my son was turning three, and I decided that some changes needed to be made in my life. I started researching on Facebook about starting my own bookkeeping firm and happened to be mentored by some amazing Profit First women that really helped me out a lot about what to invest in, what not to invest in, what to focus my time in the best way of communication, and what not to get started on. Then in May 2015, I took the leap, quit my job at the firm to open my bookkeeping business, even though I just celebrated my five years. That was very exciting. I did have a party plan for my clients to come and attend, but COVID canceled it.
Michele 04:00
All of my businesses started likewise as well. I don't know if you knew because I can't remember if we talked about it. I came home to raise my children, and they were one and two and a half, sorry, three and a half at the time. It was really hard being in corporate at the level that I was trying to grow, trying to climb the ladder, trying to do all the things, and then come home to raise little humans who were dependent on me and feel like I was involved in their lives. I wanted a different way, and I'll tell you, a lot of my listeners are the same. They are trying to balance whatever version they have of business and family. Although it does shift over the years, but five years ago was when you came home and had a little one, but now you have an older elementary kid who is pretty soon moving into middle school. The needs change, and it allows you to grow. I actually have quite a few clients calling me now saying, "okay, I'm an empty nester. My kids going off to college now it can really do it," because the time that I had spent pouring into my kids up through high school has passed and they're not here anymore. I've got a few years before I want to do the next thing, and that's the beautiful part of owning our own company and business is setting the rules of what we do and how we do it.
Shanna Quinn 05:13
Yeah, and I wouldn't say that it is only initially, only when you start your business. It's still a big struggle. I still found myself putting in, 50-60 hours a week. It was just different times that I was able to put that in. So during the evenings, when my boy would go to bed, I was logging in. At that time, I was just trying to get my name out there and advertise my services, so it was more of a struggle in the beginning, and I was tired all the time.
Michele 05:48
Yes. I'm finishing my 21st year in business this year; after my eighth year explicitly coaching, I was still putting 50 and 60 hours in some weeks when I'm in Build Mode are really trying to do things. I think you hit the nail on the head on it. It's not just about putting the time in, it's putting the time in when you want to and on your schedule so that you have the flexibility that we wouldn't have otherwise.
Shanna Quinn 06:19
Especially right now to be very important as I have a son at home doing digital learning. The flexibility has been fantastic, especially for this time, because I can take the time to step away and work my schedule around it. I think right now, everyone is trying to cope with the same thing. Trying to stay sane, to balance everything, and taking on the new role of teacher's assistant and coach. Yes, adding those to our list of titles.
Michele 06:39
We always talk about niching down, having a mission, and all of that good stuff. Mine is primarily the home industry of interior designers. I'm now working with some architects, builders, and custom drapery workrooms, installers, and stagers. Under that kind of umbrella. What are the types of clients and industries that you find yourself supporting a lot? Who are some of the industries that you serve?
Shanna Quinn 07:30
Well, right now, the majority of my clients are contractors and subcontractors. So that's why a couple years ago, I created a DBA bookkeeping for contractors just to kind of broaden my advertising. Although I don't advertise it. I just have a website and Facebook. That is what I did at the firm and done in the past jobs that I've held. A lot of Job Costing involved that allows me to really hone in and channel my OCD for perfection.
Michele 08:03
We're thankful that you do that, and you join Profit First. So you follow that methodology as well. I'll say this, from my experience, I've been in Profit First for five years now, since 2013, quite a while. Hold on, 2015. Sorry, here's the thing that I find, number one, I'm not a Profit First purist, and everybody knows that, but what that means is we're going to take the idea of Profit First and find the way to put it on top of the way that you process money coming in and out because different businesses have cash flowing in and out in different ways. That's not a consistent cash flow in our type of industry, which means we have to adapt with certain times based on, are we being paid in advance, or paid as we go? When do we have to pay out all the things? And maybe even saying a purist is not even the right way to say it. Maybe it's the fact that Profit First is just a very flexible money management system, which is what I like to believe, and that is a modified lot of theory. This is how we put it into practice. We end up with the same goals. I've worked with quite a few, and this is what you and I've talked about in the past, design and architect build firms and with big, full service whole house design firms, iIt's the same kind of thing, especially when they're managing 5000 pieces and parts. It feels like 2000 people, it's not really but certainly feels that way. You're managing all these subcontractors, sometimes many, some of my clients either are in the role of GC general contractor or they have general contractors that work with or for their company. So they've got all of these moving pieces and parts, and they're coming to us for help with profit first. Well, I can't, and the whole reason is they've read the book, it sounds good then they're looking at the complexity of their business, and they're going, "I don't even know what money to save. I don't know what to put where, like, what, what do I do now?" And it's a layering thing. I feel like Shrek where it's on that donkey, like a layered cake. We Shrek it and looking at the layers and peeling it back. Sometimes it takes a little bit of time to really see where things are going on. Job Costing is what we're going to focus on. That is a good way for us to really understand what it costs to get the job done. To separate out what is the job cost, and what is an operating expense of a company. Many companies don't do Job Costing, so they take some of those expenses, if you will, and dump it into operating costs. They don't really know the cost of getting the job done. Right. In general, for my listeners, I know not everybody has their big accounting hat on, if we were looking at a full p&l, your cost of goods and your operating expenses are both expenses to the overall company, they cost the company, right. But we separate them out so that we can analyze and make decisions differently. That's the whole reason that we do it, but so many right now only count in their cost of goods, the products that they sell, or that they repurchase for a client, right? Or they count subcontract labor, that is not internal employee labor. So if you're paying a painter, a tile installer, the electrician, and the money is running through the company, they will count those, but what they don't count is their own work of their own employee work that is dedicated to that project. They never really know what it costs to get it done. Now with all of that said, and how most of my clients were, I would love for you to then take over and tell us what Job Costing is in light of that, and if you don't agree with anything, you can shout out and tell me, but just kind of an overall understanding. So that then, when we start talking in-depth, they know what we're talking about.
Shanna Quinn 12:29
Sure, I don't cost as much as I can. So even down to with my clients, if they're purchasing a gift, at the end of that job for a client, a specific client upon completion or whatnot, I booked it to a miscellaneous expense, but still assigning it to that job. So when I'm pulling a p&l by job, it still shows up in that report what we actually spent. I think it's important to do all of that all of the miscellaneous details. Any field labor, I put up in cost of goods, obviously, all the subcontractors, all of that, but we take it a step further with a lot of my clients where we also use tea sheets. So internally, we're not just tracking the time. For payroll, we actually are tracking by cost code, how much time they're spending on doing a certain task, and the detail of those tasks range by client, you know, but all of that stuff is very important from a business perspective, to assign it that way, not just because you want to see overall that your soul being profitable. A lot of people look at their account and see cash. So it's good, that you're able to dive deeper into seeing what type of projects are more profitable for you. We use past job reports to also give us an idea of in our estimating where we're kind of falling short, that we're constantly dealing with a certain vendor that is always under giving us an estimate that falls short of what it always ends up being. Then we know we can instead of going through change orders, we're just calculating that average difference, and we're putting it into the contract to make sure that the clients know exactly, have a better idea of where everything is going to fall for themselves and then also internally.
Michele 14:29
Alright, that's a whole lot. So let's break it down a little bit. A few questions when you were saying about tea sheets as well. Remember when they weren't together, and now they are together and actually integrating even more in the platform. I just got an email the other day that integration is even closer. I highly recommend that if you're not using tea sheets and you are trying to keep up with time, especially if you have QuickBooks Online because of that integration. It saves you time. What we also do is the cost code, because it's not just I spent time designing, or I went and did a site visit, it's I went and did a site visit. It is assigning it to a project, but it's also being assigned from an internal employee. That's one of the biggest pieces of Job Costing that I think many of those in the design industry are missing. They are allowing the subcontractors cost it out to which project it's on, versus I'm just always paying this plumber. They then have to go in manually and figure out if they even put a memo or a note, or they look at a date to try to figure out what does this go to? Alright, so the first is looking at the cost codes and making sure that it is attached to a project, but we don't want to have so much detail that it's overwhelming, and we can't use it, only the detail that we think we need to analyze to make decisions later.
Shanna Quinn 16:28
Exactly. So a lot of builders that have a very extensive list of for their job costs. If you estimate that way, then that is the way to also track your costs. But if you're not and you're doing a very generic analysis template, i.e., a rough plumbing, this is what it's gonna cost and they're not doing material, labor, and slab or whatnot because that always happens. You do it estimate, and you put it in as a sub doing it, then something happens scheduling or cost-wise, and they end up doing it. So instead of just a subcontractor costs, there's a material and a labor cost. I think that it's important to always track all of that specific stuff, right to the job. Like I said, only use the cost codes that you use when you estimate.
Michele 17:22
Okay, the next thing I would ask you with that, as we're talking about, I want to go a little bit deeper in that. Then I want to talk about estimating and making myself notes here. I just have to say, for anybody listening, I'm really enjoying the geek out. I'd love to have these conversations because I'm always one that also was saying whatever income accounts, I want to see the same type of cost of goods accounts so that then I can compare the income to the cost, and that's why it's so important that we also are comparing it to the way that we estimate so that we can see, here's what we planned for. Here's what actually came in. And here's what we spent so that when we go look at a budget report, budgeted actuals, it actually translates as opposed to not what it accounted for because then we can't, we can't decide and move forward. Some people have this crazy idea that all of this just means charge more. It's not about charging more, it's about charging the right price for the right product and service, and then what I call managing the heck out of it that allows you to ultimately be profitable charging of it.
Shanna Quinn 18:34
And a lot of the reasons that people end up falling short on jobs, if they've got that, I mark up 30%, right. So then they're assuming that at the end of that job, 30% is what their profit level should be, which technically if you didn't have miscellaneous stuff run through, would have probably been the case. However, those miscellaneous items always seem to kind of throw stuff off. If you're not tracking budget versus actual, then adding in those change orders and tracking those allowances, then you're not at the end of that job; you're not accurately able to send a final bill. If you're not tracking them and paying attention to that, then you do not know that you need to build an additional fee. That's where a lot of stuff kind of gets lost if you're not tracking,
Michele 19:41
So that happens in the execution of the project, but before I go to estimating, I want to make this comment specifically for the designers that I work with. Many of them are paying designers on staff, and they may know what projects they're working on like you said so that they can build the client, but if they're not tracking it in their software, QuickBooks or whatever, as a job cost to the job, then how did they ever know if what they estimated for the design or estimated for the project management is actually what they spent. This doesn't matter if you're building an entire house if you are doing your room. This is why I'm going to say in general, this is the biggest cost that will bite you in the butt on flat fees out there, whether it's a flat fee estimate to build a whole house, a flat fee estimate to design, a flat fee estimate to project manage. We only think about the hard cost subs that we're paying out over, we're only thinking about the product that was included, and we're not looking at time spent at the rate that it needs to be to pay the person that is doing the job. That's where it gets us and what we're getting ready to talk about, which is estimating. So here's what I see on my site, and I'd love for you to share what you see Shanna, and then maybe some ways Job Costing could solve it. Here's what I see, by and large, number one, our clients, the end-users, the homeowners, they love flat fees, like their jam and on flat fees, because in their mind, you've told me a price, and you're going to hold that price. The design community is starting to really rally around the whole flat fees. And I don't know how some of them are coming up with their flat fees. I think they're coming up with it based on what they hear or what they see. Some are coming up with it based on doing some hard analysis, but that's it's going to be hard. I'm trying to be really kind. I've seen them wreck a company quickly. I'm not against flat fees. People ask me all the time which pricing model works best square footage about our asset, the one that you know, and the one that you manage, that's what works.
Shanna Quinn 22:04
Right, right. Yeah.
Michele 22:04
So what they do is they estimate, they don't keep up with all the tiny details, or they think that that allows them to freedom to not have to keep up with time because they hate keeping up with time reports and spending time billing. What I always say is you can't let that go. You've got to keep up with the time. Yeah, simply because of the next one that you're going to estimate. To your point, everything's going up right now. We talked about this before we came on the call today; the price of materials is going up. Lumbers gone up as we're speaking; hurricane Sally has just pretty much-destroyed areas in the Gulf, and I can promise you, our building supplies are going to go up again. Every time we have these hurricanes that come through, all the local lumber stores rates go up because they ship everything down there for rebuild. So we are just coming through COVID and having hurricane season right now; we have a poll right now for our contractors and subcontractors. I've got designers and design-build who can't even talk until the spring of next year because it is so booked up. The more we have that level of demand for product and service, the higher the rates, so we are not thinking and taking into account every single thing it takes us. When we use flat-rate pricing or estimating from the past without looking at the trends, we're going to be in trouble. We're going to eat every one of those costs, or we're going to have so many pissed off clients that our brand is going to be smattered. That's just the gloom and doom, but it's what if we're not watching and able to know every cost? Are you seeing the same thing? And then what do you think we can do to stop it?
Shanna Quinn 23:56
I am, a lot of my clients, their jobs are being put off, or the homeowner is being forced to make some harder decisions on some of the finishes that they previously wanted, especially if you're sort of mid-build obviously you don't want to just stop it. Those are some hard choices that they're having to make. A lot of my clients have clients that are being forced into that decision. They're having really good conversations with them to say their suggestion with some finishes that can be upgraded at another time. It's important to have those conversations and to, and you probably could talk a few clients off the ledge when you're saying those things, especially in a new build, remodels, and stuff. Those are a little bit difficult because they're probably wanting those nice things. That's the whole point of the remodel, but I think having those conversations and expressing what you're good at, which is bills and costs. Then you're able to go to them and look at that estimate and say, "okay, here are the changes that we can make that can be upgraded at another time, so that we're still able to make these other things or write me a list of what finishes are the most important to you. So then I can modify the others so that we can still try to stay in that original cost range." No house ever gets done without change orders. There's always going to be additions, which most a lot of built our homeowners that are building that home, go in thinking this is it. Then they get upset because there's all these additional change order costs. Just having those conversations is a huge part of getting through this, with the clients working with them as much as you can. That's only going to also make them want to recommend you to other people. When they're ready to do those extra finishes, they're going to come back to you and say, "are you willing to come back in and do these upgrades that we talked about last year, a couple years ago, that we weren't originally able to make that decision at this time."
Michele 26:37
One of the things, though, I think is important too, is during this time, all of those extra conversations, all of that extra maneuvering of the budget, there's still a cost to that. The cost to the design firm or to the construction company doing the design. If that's a cost to buy, we also have to job cost that time project to show that there was additional time spent. Sometimes we do absorb a little bit of that, but we have to at least know that it's there. Let's say a plumber always gives you or an electrician, they always give you a number, a rough number, they always come in 10% over. When you start watching that trend, you know how to not only increase your percentage, but their percentage as well. The other thing that I have seen on some of these things lately is people are trying to get their quotes out so quickly. They're not calling the subs again, and re asking for current information. They're basing it off a prior build, or prior project that was similar, and I would say in the time that we're in right now, that's probably not the best practice. The best practice is going to be to go back to those and get the information because of the increases in prices and skilled labor and everything right now.
Shanna Quinn 28:05
Yeah, absolutely. I would agree with that. 110%.
Michele 28:10
So if somebody wanted to start Job Costing, they wanted to start moving things towards Job Costing, and they haven't done it, when is a good time to start it? And how do they get started with that? Because mid-year could be hard. We're now recording this in mid-September. In the fall, it's going to be hard. Is that something that's better to start in January? Is it something to start at the beginning of the next project that you're working on? How do you know when to start Job Costing?
Shanna Quinn 28:42
As soon as you start that next project, if you're mid project, if you just had that initial time investment. And so now all of a sudden, the materials in this contract or an internal labor costs are starting right now, you can still start that and do an estimate of where you thought your time was spent. Obviously, you're not going to be as accurate, but I've started Job Costing for clients in the middle, and they've got paper receipts, which is always a lot of fun to go through and they've gone in a job, but they don't have a cost code on it. Obviously, some of those things are a little bit difficult, but I am able to at least assign that cost to. We're not putting it to a class code. We're putting it to like job supplies or subcontractor generalizing it, but I'm still able to say this is what that job cost you, and this is where what your profit level on that job was.
Michele 29:40
So you still then can at least, even if it's in a broader category, assign it to a job so that we at least know it was such and such project with the planned project.
Shanna Quinn 29:49
If that's what it takes to get started in Job Costing for some people, which it is the easier part for them. It is to say that it's for this job and not break that risk. But to say it was for this kind of material because that's always difficult, you got to do a Home Depot run, you might be picking things up for 10 different cost codes on that. If that is intimidating to somebody, which sometimes it is, or it's just not a priority, because you're trying to get in and out back to the job, you're not assigning it a specific cost, you're just saying miscellaneous material, or the majority was this, so let's just assign it to that lumber, or plumbing material, whatever it might be, there's always going to be situations like that. It's always going to depend on every time I start with a client, and I say, I can only be as detailed as you are. If you're not telling me how to cost code this properly, or what job it is, and you're just randomly writing something on it, the information I give to you is not going to be accurate.
Michele 30:53
So we kind of getting that trash and trash out.
Shanna Quinn 30:57
It's the junk drawer until you organize it and probably throw some stuff out. It's super important for the purchasers of the business to have that level of information also. If their project manager on the job site, and they're the ones going out and doing the purchasing for miscellaneous material, it's important for them to know what the class codes are and what job they're taking it to. If they are doing multiple pickups, or pickup for multiple projects, they are going to Home Depot or Lowe's and actually able to break it out on the receipt and do like a subtotal on it, which is what I asked my clients to do. They can just say it was for this job, and this was for this job, but whenever we start a project, what I do is I get the estimate, assign the cost codes to that estimate. Then we send out our list of cost codes to the crew that's working on it, and including the project manager, so that they know that these are the class codes that have been assigned to this job. If you're purchasing something that doesn't fall within this, that needs to be tagged as a change order.
Michele 32:19
Both of my sons are in commercial construction, and my oldest does all the project management for these large multimillion-dollar builds. There is a lot of work that goes into assigning the correct cost code, but even his time to work on everything is assigned to a project. He has to be up to a certain percentage assigned out to all the different projects for the time and attention that he gets. It varies based on where they are in that build process, as the equivalent of if you think about it. Let's break away for just one second from like a full construction down to an interior design project. We're still doing all of that just for the internal pieces of the home, not necessarily the external pieces of the home. When you're ordering, for example, from four hands, let's choose a vendor, but they're ordering for six different projects. Well, now that's got to be associated with all those different projects. So that you know, the idea that you order from forehands right and items came in, but where they went and what they were attached to and how those were spent.
Shanna Quinn 33:30
Yeah.
Michele 33:31
So let me say this, when we normally are looking at an interior design firm only, we usually tell them that our goal for them is to have a gross profit somewhere between 40 and 60%. Because what they're doing is very service-based and have a much larger markup on product.
Shanna Quinn 33:52
Right.
Michele 33:56
And some of that is rarely though, do they job cost the interior designers on staff. So if we were to job cost interior designers on staff, it would certainly reduce the gross profit of the project. As we're subtracting out the expense at the top, right versus at the bottom as an operating expense, it would reduce it. But when we're looking over at, let's say more of a contract company, or we're looking more at a build firm, you and I had talked about that kind of the goal that we would look at on that type of business was of course profit margin, it is more of 30%. That 30%, would also include the general contractor and the design, consultant or whatever all of those things we commit then we were looking at 30% is that is that still what you have seen as a healthy amount of growth profit?
Shanna Quinn 35:00
Yes, that 30% also depends on, if you're a large spender through the business, that operating expense also needs to get assigned, and I do that too. For some of my clients where we are assigning a percentage of that operating cost to the job based off of the I saw estimating rate show, it's not a full or accurate picture. What I do is to take, say, a job, we collected 100,000, from a job, and the overall income for that month was 400,000, take a quarter of the operating expenses and assign it to that job. So then we've got that gross, but then we've got an estimated net profit. There's always two sides to a successful business. I know we're talking about profit, or we're talking about job costing, but that's also the other side to make sure that you're running a successful business.
Michele 36:10
Exactly. And that's what we talked about. It's not just about being profitable; it's about managing the money. Because you can charge really high rates and still not make any money, and that's gonna happen. Like you said, if you're more of a spender, but if we're looking let's say, the job costing of the GC, the design, all the things that are really done for the project, and we move it up into cost of goods for job costing, it will reduce your gross profit. However, what happens is, when we see a low gross profit, let's say 15, to 20%, and we've still not taken out the general contractor and the design and all of the other internal employees that are working on that project, we are in trouble. We're getting into the trouble range. If it's 20%, let's say, and everything's been taken out, we still got a little bit of wiggle room. We're gonna then really like squeeze on every expense, we're going to be very careful. If we're at 20%, we're not taking out a huge amount of operating costs. The operating costs are going to exceed what we need to even be healthy and pay everybody fairly, especially that owner.
Shanna Quinn 37:24
Yes. Which a lot of owners don't pay themselves.
Michele 37:28
Right, they're paying out. Yeah, they're paying out more to everybody else, which is also why selling more in this instance, at a bad rate, not managing is actually going to get your business in trouble and not save you. And our knee jerk reaction is, why don't you just go sell more.
Shanna Quinn 37:44
Right, more income, but with more jobs comes more expense. And if you're not handling what you've got now, then what's to say that the next one is going to be any different?
Michele 38:01
I would say the difficulty that I see is their thought is even if they increase their profit margin, get it right, and sell it, the challenge is that they now have all that work on top of all those people who are working for less. You now still can't go higher because you're actually just now charging for the staff that you have. But you have too much work, everybody's overworked, and then they start to burn out. So this is back to that layered approach. We got to start and just start digging in and cutting the expenses. Getting that clarity Shawna, lightning bolts all around my head. Just really getting that clarity on what it really cost us to execute the job.
Shanna Quinn 39:01
If anything is outside of the normal scope, I am marking it as billable. I don't necessarily always go back and billed for it because I do on a monthly basis, pull my information, see where my expense fell by job. I cover all my clients' subscription costs was the time, so that runs through as my cost of goods. I pull that time analysis to make sure that I am also falling in that profit range that I want to fall. I feel good. It's essential for any business owner to cost themselves. Everybody has the capability of doing it with the tools that are out there like tea sheets, Bill dot com or hub dock, and QuickBooks Online or QuickBooks desktop. Those programs have all been developed for us to be able to assign the job and Expensify to say I'm on my way to meet with another client. It's an estimating drive, or it's a design drive. Know to even track down to the mileage that an employee is putting on their own vehicle. So then it's not just saying that this is a reimbursable expense, we're actually saying that this is the mileage.
Michele 40:22
If someone leaves the office to go to a job site, he has to write down the mileage for that is now cost coded to that job site to pay for that mileage. And then Alario, a larger company, it's very, very detailed, because that's the only way they really know what it costs them and to truly execute the plan, as they put it out there.
Shanna Quinn 40:44
And we do it internally, too. For a lot of my contractor clients, we pull that time set for operating level costs. So administrative time, if they're doing the invoicing, the accounting time, how much time, they're investing on that side, too. It's not just from a project standpoint; we do at a time analysis on the internal time that's being spent as well, which is also super important. When you're estimating, I've got clients that include estimating as a line item. I'm charging someone a percentage, there are contingencies that you can put on there. Obviously, the allowances are a little bit of a different beast, but there are ways of making sure that you're able to stay profitable, with working that side of the business. It's also important to make sure internally that you're not spending time wasted on internal stuff that maybe you could hand off or to somebody else, or I've had a client that went, "Oh, my gosh, I miss something, but I spent how much time estimating this project." So that it was a shock to them to see, to spend over 70 hours with meetings and meetings, drawings, and whatnot, with this client, and then we didn't get the job. Based off of that one decision, we went back, and we need to charge for the time that's been spent on this on these things because it became consistent. Time is already being invested, but the project wasn't happening for one reason or another. There's obviously always some circumstances that you're willing to just say, I'm just going to walk away, and I'm not going to do the bill or refund that deposit or something. But, we know that client does build for the estimating time, whether it's built into the whether it's built into the proposal or the estimate, or to move forward with the job or not. That time is included as a job cost.
Michele 43:00
It really has to be you're so right, if we don't even know what all those costs are. That's like saying I'm not going to charge for a consultation. Well, after so many consultations that don't go through, if it's a non billable item and we have termed it as non billable, it has to be absorbed in our billable rates somewhere, because that time has to be accounted for. So I always was more of the side of the coin that says I'm going to charge the people that are taking my time, instead of charging you for investing with me and making your rates, it have to cover everybody that didn't. Now I am going to charge everybody that wants to work with me in some capacity, so that you're only paying for what you need. And then, it's hard, because it's not necessarily what everybody else in their industry is doing. It can buck against while everybody else comes out and does all the free estimates in it. The truth of the matter is, it's not free. No free Shipping, they add it in, and they do it over here. If not, then they're stupid. Everybody's adding it in somewhere they have to it's how they're expressing it. So to be able to just say, I'm charging you for what you're doing. If the full project is X amount, and the design is this amount, and we've already done it, you've paid it then you don't pay any more going forward. You're just now paying for the execution. But yet I'm not going to not charge you for set. Would you work for two weeks, 70 hours and not doing that is that they counted as a marketing expense. It's the way they tell themselves. But I'm going to tell you, that is some expensive marketing. It's probably that one of the owners doing it. I mean it should be thought of as they are the most expensive employee that they have. Then it should reflect in their billable rates. Absolutely. Well, Shanna, I love this conversation. What I do is I want to encourage everybody, just start by going to look, and I'm going to tell you why when I encourage them. If you get something you want to add, I'd love to hear that, but I encourage you to start by going to look at your QuickBooks reports. Look at them. Ask yourself, whether you keep it in QuickBooks or have a separate t sheets or a separate time tracking. Do you really know how much time it has taken you and your staff, your paid employees, not just the subcontractors and not the product, how much it's costing you? Because what I see is we have an income for service and an income for product. Then we have an out under cost of goods. If all that expense is not tied to the income for the service or for the design then we can never really analyze that as properly as we need to. So I would encourage you first of all, even if you have to pull 14 reports to see where time is being spent that's not being accounted to a project. I always say we don't have to start by raising our rates, start by capturing the value of a valuable service. If we start there, then we can see is the rate applicable or not? Sometimes the rates applicable, it's perfect. We're just not charging for all of it. We're just not counting all the time. So it's counting all the time, then look at the rate and see if it's, the proper rate or if you need to go up, but just gather all the reports and sit down and give yourself a couple of hours to just ask yourself the question. Do I really know what it costs my firm to deliver this product or service from the very beginning?
Shanna Quinn 47:08
I always that bottom line of income minus cost of goods, whether you're doing it by job or you're not doing it by job. As long as it is, if they are transactions that are being reflected in your profit and loss, just create an Excel and say this is these are all the costs they may not be reflected in my cogs are down as an operating expense. These expenses I know are specific to a job, and then take that calculation and find out how much of the cause is costing you per your income. If it doesn't equal what your average markup is, then there are things that are falling short within your Project Costing . There's a lot of when you deal with things; specifically, there's a lot of you get the payments, it's delayed, they have to make sure things are done, right. So you're always kind of cash rolling that job on yourself. It's always going to be a little bit off, but it's just so important to know exactly what those numbers are. You might be successful, and you might have money in your account, but you could be doing a lot better, and paying yourself a lot more or just at all. If you know those numbers, it's so important to a successful business and somebody who's going to be long term.
Michele 48:43
I 100% agree. So Shauna, what is your website? If people want to go look you up and find you? How can they get in touch with you?
Shanna Quinn 48:52
I have the two websites, it's fun for my contractors and when it's just the general business.. it's EastOrlandoBookkeeping.com and then bookkeeping4forcontractors.com. I have a presence on Facebook with both those business lines as well.
Michele 49:10
Great, we'll put all of that in the show notes. So if anybody's interested, they can find you. And thank you again so much for just having kind of a geek out conversation. It makes my heart so happy. I tell everybody this all the time. It pains me to see such talented people. This industry is so full of talented people. I have an ache when I see that they're not being paid equivalent to the work that they're putting in. They're putting their heart and soul, and they're doing the whole conversation that we had at the beginning of pulling away from their family in some cases to do this. When we can't have a full understanding of what it's costing them to do it while making sure that we are fair and reasonable to the client and to the business. It just makes me hurt for them. Any tools or any advice that we can give these business owners that are out there working day and night to maybe pay their own bills, that's a win in my book. I really appreciate you helping speak into that story of creating profit and making them profitable.
Shanna Quinn 50:26
Absolutely. And if, even if they're not looking for services, and just need some ideas or advice, or product referrals or something like that, I'd be happy to assist with those questions as well.
Michele 50:40
That sounds so so good, so good. So much, and you have a great day. Thank you so much
Shanna Quinn 50:45
You too.
Michele 50:47
Thanks, Shauna for helping break down Job Costing. Really getting in looking at every entry might seem daunting at first, but after the hard work of setting up each project is completed, the details tell the story. Don't let broad accounting keep you from the profit that could be yours. In my coaching practice, we work hard to own each part of our company from the accounting to the sales to the HR components, because what we choose to own, we can also choose to change, and change takes intention. Join us if you really want to own the direction your company is going in with more ease. You can find out about our coaching services at www dot ScarletThreadConsulting.com. Remember, profit doesn't happen by accident.