Understanding Your Bottom Line: A Guide to Job Costing and Owner’s Equity

Whether you call it job costing, project profitability, or project costing, these terms all point toward one essential question: Is a specific client’s project actually making money for your company? For any service-based business, knowing the answer to this question is the difference between thriving and simply staying busy.

When you combine the power of tracking individual project costs with a clear understanding of your overall wealth, you gain total control over your business finances.

Why Job Costing is Non-Negotiable

It is a common trap to see a lot of dollars flowing in from a big project and assume everything is fine. However, without a firm grip on how many dollars are simultaneously flowing out, you risk sitting on a job that is actually losing money while you work.

• What it tracks: For service businesses, your main costs are usually labor. For construction or trade businesses, it includes both labor and materials.

• The QuickBooks Advantage: The good news is that QuickBooks is already built to capture this information. If you use it to its full extent, you can run pre-loaded reports that show you the exact profitability of any single job or project.

Knowing your project profitability ensures that your hard work results in actual profit, not just “busy work” that drains your resources.

Owner’s Equity: Measuring Your True Wealth

While job costing tells you about individual projects, Owner’s Equity tells you about the health of your entire business. It is a reflection of the wealth you have successfully kept inside your company.

To understand equity, you only need to know one fundamental accounting equation:

Assets – Liabilities = Owner’s Equity.

• Assets: These are your “pluses,” such as your cash, your equipment or machinery, and your accounts receivable (the promises people have made to pay you).

• Liabilities: These are your “minuses,” representing the promises you have made to pay others: like your vendors, bankers, and lenders.

When you subtract what you owe from what you own, you are left with your equity. The next time you pull up your balance sheet, don’t just look at your bank balance: look at your equity to discover how wealthy you truly are in your business.