While it may seem basic, assigning costs to the proper category can be confusing. Using the wrong category could affect your profit and margins. Assigning costs such as phone bills to “administration” is fairly straightforward and a standard practice among company owners.
But in many companies, field staff costs are lumped into the same administrative category, giving a skewed picture of actuals. About eight years ago, Ellen Chorba, controller at Clemleddy Construction, in Hawley, Pa., decided to change that by separating out the costs of the company’s field staff.
Before you put anything into your system, ask, “What do I want to get out of the system and what do I want to learn?” Chorba says. “We isolate the costs of our carpenters to better understand what they are making for the company and what they cost the company.”
Chorba pulls out any costs associated with each of the company’s four carpenters (the project manager’s costs are considered administrative) such as vehicle use, insurances, cell phones, workers’ comp, and payroll taxes.
For some costs, such as workers’ compensation, she looks at the lump sum and allocates a percentage instead of calculating an exact number each time. Chorba creates a spreadsheet on costs each week and runs a WIP (work-in-progress) report and a profit and loss statement every month.
Before she began this procedure, all Clemleddy Construction’s field staff costs were being billed to general administration. “We couldn’t see their true costs,” Chorba says. Although the bottom line would come out the same regardless, the company’s “general overhead number would be higher and the carpenter figures would be lower,” she says. “Maybe we wouldn’t be billing enough for our carpenters if we weren’t accounting for all their expenses. It’s a little bit more work on the front end but we can clearly see costs.”
—Stacey Freed, senior editor, REMODELING.