Cost Records for
Table of Contents |
Keeping Accurate Cost Records
Do you know of any construction companies that have
gone broke? If you've been around the construction industry very long,
you've heard of contractors going belly up . . . leaving jobs unfinished
and suppliers unpaid. Every time interest rates climb a few points,
construction activity falls off, or shortages develop in key materials.
Many general contractors and subcontractors have to struggle to meet their
payroll and stay in business.
To the contractor who's short of cash, it seems that
the problem is either a lack of ready capital or a burdensome debt load.
But most consultants that have studied failures in the construction
industry agree that it isn't cash shortages that shut down most
contractors. Working capital requirements are relative. There's some level
of business that's right for the capital that's available, no matter how
meager it may be.
And the problem isn't a lack of construction work or
poor construction skills. Some very busy builders with first-rate
knowledge of their trade have gone under, even at times when other
contractors were making good money.
There's one characteristic that's common to most
failures in the construction industry: poor record-keeping. When a builder
is teetering on the edge of bankruptcy, the consultant called in to bail
him out will nearly always find chaotic records. If there are any records
The contractor gets into a financial bind because he
doesn't know what his costs are. His estimates are based more on guesswork
than on known costs. He's probably had trouble with the I.R.S. because
payroll records were incomplete and tax reports and deposits were not made
on time. Often there will be no complete file of payables and receivables.
Material receiving records will be missing or inadequate.
If what I've just described fits your business,
you're a good candidate for the system I'm going to describe in this book.
Every construction contractor needs some simple and efficient system for
controlling and recording project costs. If your cost records aren't
providing all the information they should, and if you're worried that the
documents in your file don't meet I.R.S. standards, keep reading. This
book's for you.
Your cost records should be the foundation for every
construction estimate you compile. Sure, many builders use cost-estimating
manuals. But nobody will ever sell a cost book that comes close to
matching the accuracy of your own records of work completed on your jobs,
by your own crews, and under your supervision.
But, you say, "Don't I need an accountant to keep
all those numbers?"
Fortunately, you don't need an accountant or
bookkeeper to record construction costs. If you can keep time for your
employees, you can keep accurate cost records and with a minimum of effort
Why Keep Good Cost Records?
Keeping accurate cost records will help put extra
profit into your pocket. Here's how. Accurate cost records will:
- Keep you up-to-date on the expenses for
each job all during construction. You can't control costs if you don't
know what the costs are. Good records show all your costs and make
- Tell you immediately where costs are
- Provide the essential data for
estimating future jobs.
- Help you supervise and schedule
construction. (Cost records show the man hours required for each phase
- Reveal waste in materials and manhours:
excess crew members, inefficiency, unnecessary waiting for materials,
time lost due to weather problems, and other job factors that may be
beyond your control.
The beginning of every good cost-record system is an
organized account system-usually a set of numbered categories into which
all job costs fall. The format followed by most professional construction
companies is The Uniform Construction Index. It's published jointly by the
American Institute of Architects, the Associated General Contractors and
the Construction Specifications Institute.
The U.C.I. lays out an extensive cost analysis
format and system of account numbers for every part of a construction
project. For example, U.C.I. account number 06190 is used for recording
all costs associated with wood trusses. This format is essential for
contractors who handle major construction projects. But most residential
builders don't need that much detail. You can get the same results with a
simplified account number system that you design yourself.
The format you use to keep cost records isn't
critical. But using one system consistently is vital to your success.
The basic objective is to know your costs at every stage of the job
and with a minimum of record-keeping. .
In this chapter, we'll look briefly at automated
record-keeping. Then we'll explain each of the forms you'll need for an
efficient cost record system.
The inexpensive personal computer is revolutionizing
the way this country does business. And the construction industry is no
exception. Every builder dreams of the day when a computer will maintain
all of his records automatically, at high speed and for peanuts. We may
see that day. But it isn't here yet for most small construction companies.
Big construction companies have been very successful
in putting most record-keeping on computer. But they have the resources to
develop custom programs that can be used by employees who do nothing else
but run the computer.
Most smaller contractors can't and shouldn't commit
thousands of dollars and hundreds of hours to automating their
record-keeping systems. They don't have a full-time data processing staff
to keep the equipment and programs running. And they can't afford the
luxury of developing the custom programs required to fit their needs.
Instead, you'll have to select from among standard
programs that reflect someone else's concept of how a construction
business should be run. Unfortunately, that always involves compromise.
And you don't find out if the standard programs really meet your needs
until after you've invested the time and money to have the programs
If you enjoy using computers and have one at your
disposal, consider using it to do some basic accounting. That's an easy
application. Many good programs are available. Some will fit your business
very well. If you feel comfortable with the accounting programs, next
consider a payroll program. Eventually, you may even be able to buy a job
cost program that does most of what we describe in this book.
But don't expect any computer to automate your
record-keeping overnight. Even if you have the perfect programs for every
application you need, you'll still have to gather the records and organize
them just the way we describe in this book. The computer won't replace
record-keeping. It'll just report the information faster.
It's good practice to use a computer for payroll and
general ledger (bookkeeping). But that doesn't mean you have to buy a
computer if you don't already own one. Many banks and service bureaus
offer computerized payroll systems for about $2 per employee per pay
period. Some banks even waive this fee if you maintain a specified average
balance in your checking account.
Here's how these payroll systems work. You supply
the bank or service bureau with the name, pay rate and social security
number for each employee. A day or two before payday, you phone in the
number of hours each employee worked. On payday, the checks are available
for pickup, or they can be delivered by messenger. All deductions are
computed, tax deposits are made, and forms are filed with state and
federal authorities. This simplifies your payroll chores and gives you
time to concentrate on more productive work.
A service bureau (or bookkeeping service) will also
make up a monthly balance sheet and income statement. You supply a copy of
all checks written and all deposits made during the month. Itemize charges
made to important accounts. About 10 days after submitting this
information, you'll receive a report that summarizes operations for the
month and for year-to-date. The cost will be about $50 per month.
Remember that a service bureau can reduce your
paperwork, but it's still your job to gather and organize the information
the bureau will use to prepare the payroll and general ledger reports.
Payroll will be covered in more detail in Chapter 2. We've discussed the
reasons for keeping accurate cost records. And we've looked briefly at
automated record-keeping. Now let's look at each of the forms you'll need
to set up your own cost record-keeping system.
Forms for Simplified Record-keeping
Every contractor needs some good forms for keeping
his records. You can buy most of them at any office supply store. Two
forms, however, should be custom designed: the weekly time sheet with a
daily log, and a payroll envelope with a payroll receipt. Two additional
forms you'll need are: the individual employee earnings record, and
columnar (or analysis) sheets. Let's look at each of these forms in
Blank copies of the customized forms used here are
provided in the back of this manual. Make copies for your own use on your
office copier, or have a print shop make you a pad of them.
Weekly Time Sheet
The weekly time sheet is your payroll sheet. It
lists employees who are entitled to compensation. It tells how much each
employee should receive for the pay period.
It's easy to make errors in recording employee time.
Make sure that each employee is given credit for the correct number of
hours worked each day.
At the bottom of each weekly time sheet, there's
room to describe the work done each day. Record this information at the
end of each day while it's fresh in your mind. This daily log is the most
essential cost record and becomes the source document for many other cost
Keep separate weekly time sheets for each job. If
one of your employees works part of a day on one job and part on another,
you must record his hours on two different time sheets. Here's how.
Figures 1-1A and 1-1B show employee time charged to
two different jobs. Of the six employees listed during this pay period,
four of them worked on both jobs.
Look at Figure 1-1 A. On Monday, three men each
worked 8 hours (24 manhours) doing the formwork for the footings. On
Tuesday, they worked another 24 manhours. On Wednesday, the formwork was
finished after only 18 manhours. So on this job, it took 66 manhours to
construct the forms for the footings.
This is your record of the actual labor cost for the
formwork. Compare it to your estimated labor cost for the formwork. Use
this record as a reliable guide when making future estimates. But make
sure you use only the number of manhours (and not the dollars) from this
record when you prepare future labor estimates. Why? Because taxes, labor
rates, and insurance rates change constantly, whereas manhours have some
degree of stability. Labor costs are always estimates. But labor
productivity, while it does vary with each journeyman, and from day to day
- up one day and down the next, depending on the worker's attitude and how
he feels that day - can be fairly accurately estimated by an experienced
estimator who can anticipate potential problems and opportunities in each
Payroll Envelope and Receipt
You must keep a record of each employee's gross
earnings, deductions and net pay for each pay period throughout the year.
As an employer, you'll need these figures for your cost records and for
filing your quarterly and year-end tax returns. Your employee will need
these figures for his personal records and for filing his own tax returns.
Figure 1-2A shows a payroll envelope and receipt.
The employee keeps the envelope, which shows gross earnings, deductions
and net pay. The receipt, which provides the same information, is kept by
the employer. The employee signs the receipt if he is paid in cash. If
he's paid by check, he doesn't need to sign the receipt, because the
cancelled check is a receipt.
Table of Contents |
Paperback, 208 pages
Cost Records for Construction Estimating