How to handle your job costing with Buildertrend

Intro 1:

Welcome to “The Better Way,” a podcast by Buildertrend. We are here to help you simplify and establish processes that will make meaningful changes to your company and help you achieve your goals. There’s a better way to run your construction business, the Buildertrend way. Tune in this season as our consultants, Reece Barnes and Zach Wojtowicz, will help you master your financials.

In this episode, we’re talking about best practices for handling job costs. Learn more about the job costing features and functionalities within Buildertrend and how our purchase order tool improves profitability.

Reece Barnes:

Hey, everybody. Thank you for joining us for episode five of Buildertrend’s financial series. Today, your co-host and I, Zach Wojtowicz, are going to be covering how to handle your job costing. Zach, what do we cover today? What are you excited to talk about when it comes to job costing?

Zach Wojtowicz:

Yeah. If I had to pick an important one in our compendium of knowledge that we’ve been providing for people.

Reece Barnes:

Compendium.

Zach Wojtowicz:

Yes. Word of the day. This is definitely one that I think can have one of the bigger impacts. We talked about cost codes. We talked about QuickBooks. But this is something that maybe you’ve dipped your toes in the water, and hopefully we can start to reveal the benefits and also kind of how it actually should work. I really think that the job costing parts of Buildertrend are some of the most powerful features that not enough people ever get to, understandably so. It can be hard to transition into something like this from what you’re currently doing, but there’s a lot of potential if you can get it into your day-to-day workflow and operations. So, we’re going to talk about just what are the job costing capabilities and really focus in on what we call the purchase order system in Buildertrend, how that can help you be more profitable and control what’s going on during the course of construction.

Reece Barnes:

The thing here, too, that I’m excited to talk about and also keep painting the picture of is the consistency, or the consistent messaging, rather, of how important this is, but also how many levels of strategy and how it really does matter. How you’re operating as a business is going to determine how you’re using these features. So, even just when we do talk about what’s the difference between a bill and a purchase order, how should we intend it to be used, bills, how should we intend to use purchase orders, it’s actually going to cover that. But it’s all-important for the listener to really understand that there’s a lot of strategy to this. We have resources at Buildertrend to help you determine what the best strategy is going to be, and that’s ultimately what this conversation’s going to be, start painting the pictures, get you the 101s, and then we can keep these conversations going, whether it’s consulting or utilizing the unlimited customer support. So, Zach, what’s the difference between a bill and a purchase order?

Zach Wojtowicz:

Yeah. So, I think it’s important to lay out a little bit of context when we’re talking about these features. We talked about during the QuickBooks integration bid episode what is really happening between the data that’s being transferred back and forth between Buildertrend? What is Buildertrend trying to do? What is QuickBooks trying to do? Reece, there’s a lot more expenses to your company than just bills on a job cost, right?

Reece Barnes:

Totally.

Zach Wojtowicz:

So, if I were trying to get a picture of how much money I made as a company, QuickBooks is going to be more equipped to do that.

Reece Barnes:

Right.

Zach Wojtowicz:

You have your balance sheet, which is looking at your assets, your liabilities, your equities. That is not what Buildertrend is trying to do. You’ve heard of the profit and loss statement, right?

Reece Barnes:

Oh, for sure. I’m saying you made the connection. QuickBooks is going to be more like, how are we sitting as a business as a whole, rental, utilities, cost of goods sold, overhead? Buildertrend, let me assume, is going to be more so, how are we making money from a business standpoint, being our projects?

Zach Wojtowicz:

Exactly. So, it is a little bit more of a micro view as far as how I’m looking at this particular job and the costs that are associated with this job. Now, if you’ve gone full in on putting your estimate into Buildertrend, you’re actually halfway there. You don’t even realize it …

Reece Barnes:

Nice.

Zach Wojtowicz:

… because your estimate is your budget. So, now you’ve set your targets. I want to spend this much on foundation. I want to spend this much on plumbing fixtures. I want to spend this much on trim work. You’ve laid out kind of your ideas of where I want to be.

Reece Barnes:

I love that you just point-blank said the estimate is the budget, because when I’m talking to clients that are struggling with the financial side of things, they’re using more of the program, and they start off by saying, we don’t like Buildertrend’s estimating tools, so we do all of our estimating into Excel, and we don’t import into the program. It’s kind of hard to do job costing when you’re not starting from the very first, arguably the most important step, is getting the estimate and establishing your budget, giving yourself a baseline, and then your variance, your actuals, all that information.

Zach Wojtowicz:

Right.

Reece Barnes:

So, I love that you put it that way. That’s important.

Zach Wojtowicz:

Yeah. Even if you’re not using Buildertrend’s estimating tool to derive your budget, if you can get it into Buildertrend in some shape or form, which means you’re going to adapt your estimate to use the same cost codes and have a tool to put into the system, that still is going to give you a lot of information and make things a lot easier. So, I’ve had a lot of conversations like, hey, we just need to find a way, just one way to lay out the baseline of, here’s the numbers that we’re trying to stick to.

Reece Barnes:

Right.

Zach Wojtowicz:

The more visible that is, the more information you’re going to be able to get out of it. If it’s in Excel, one person has a copy of that Excel, or if you’ve shared it, unless it’s in a cloud-based system like Google Drive, or maybe you are using Microsoft’s ecosystem, where everybody can pull the same file, you’re not really getting the most up-to-date information, and you’re having to manually update it, whereas with Buildertrend, you train the right people, they can kind of work for you. They can enter their own bills and expenses.

Reece Barnes:

Sure.

Zach Wojtowicz:

They can pay their own payments. There’s just ways to really put it at the forefront of what you’re doing. So let’s just go back into the job costing feature, right? It estimates your budget, and a very popular report in QuickBooks is estimated versus actuals.

Reece Barnes:

Actuals.

Zach Wojtowicz:

Really, what Buildertrend is doing is taking our terms, bills and POs, and putting it into the actual column. So, you are in real time updating what you paid as you enter information into Buildertrend, so that when you’re looking at the budget report, which our next episode will dive deeper into what those reports look like, but you’re at the base level, here’s what I thought I would spend. Here’s what I actually spent. Whether you enter them all as bills or enter them all as POs, it doesn’t matter because the budget just looks at it and says, these are actual expenses. Okay? So you’re … Go ahead.

Reece Barnes:

I was going to say, I’m assuming you’re getting ready to go into explain the difference a bill and PO. It’s going to be important.

Zach Wojtowicz:

Right. Absolutely. So, a bill is a much more simple document in Buildertrend. You would go into the system. You would update the information by hitting, click, New Bill, and you would fill out what the bill was for, what cost codes it applies to, and who did the work, right, and maybe the invoice date, if you’ve received that on that document. So, it kind of depends. Sometimes people just write it on a napkin, right?

Reece Barnes:

Sure. Common examples of that, of something for a bill that’s going to be simpler. Ideally, you’d like to get a line item to it, but this is going to be for your dumpster fees, permits, quick material purchases, smaller business expenses.

Zach Wojtowicz:

Yeah, exactly. A lot of times, too, they’re not even contracted work.

Reece Barnes:

Okay.

Zach Wojtowicz:

It’s just a way for you in Buildertrend to say, this was something I paid. This was a cost.

Reece Barnes:

Sure.

Zach Wojtowicz:

Right? You’re tying it to your same setup. It uses the cost code for what that cost was for. Well, your estimate had the same cost codes, and now you’re lining up information to compare.

Reece Barnes:

To reflect on the budget.

Zach Wojtowicz:

You can only pay those bills in full. You can’t make a partial payment against the bill in Buildertrend.

Reece Barnes:

That’s important. Okay.

Zach Wojtowicz:

Right? So you’re really kind of just filling it out, this is what I’m going to pay, hitting Save, and then if you’re integrated with QuickBooks, it sends it over as a full bill, and you manage it from there once you actually write the check for it. Now, a PO has a lot more bells and whistles. If you were to go into the PO, you would see a lot of description tabs, a place for more attachments. It has a payment tracker, because a purchase order can mean a lot of different things to a lot of different people. Buildertrend uses it as a subcontract in most use cases.

So, let’s say you’re my framer, and I have a house that’s upcoming. I can tell you, hey, here’s the plans. Here’s the payment terms. Here’s how much I’m paying you in order for you to do the work.

Reece Barnes:

Right.

Zach Wojtowicz:

You get a contract that you can sign off on.

Reece Barnes:

The purchase order. Yeah.

Zach Wojtowicz:

As soon as you apply the signature, guess what? You’ve now …

Reece Barnes:

Legally bonded contract.

Zach Wojtowicz:

You’ve locked into that contract. Now, could you send a PO in Buildertrend to a vendor? Sure. No problem, and that’s pretty common. But what you gain by using the POs is the ability to hold someone to pricing a lot more effectively, no more, hey, what can you do this for? Two grand. End of the job comes around. hey, why is it 2200? Right?

Reece Barnes:

Bingo. Gotcha.

Zach Wojtowicz:

You’re able to control that conversation a little bit.

Reece Barnes:

Sure.

Zach Wojtowicz:

We understand some of this is based off your relationship with your sub. They might do time and material. You’re just trying to get ballpark. You can always adjust what the PO amount is for, but there’s a broader benefit of laying the floor of, this is where the number was at when we spoke last, rather than the back and forth he said, she said situation. Okay?

Reece Barnes:

Right.

Zach Wojtowicz:

The other benefit with a PO that you can’t do with a bill is you can make multiple payments against the PO.

Reece Barnes:

Installments. Percentages.

Zach Wojtowicz:

That’s very common in construction, to where I’m going to contract you for three grand, and I’m going to pay you as the phases of the construction operate. So, in a framing, right, maybe a 50% down payment upfront. First lumber drop, another 25%. You do the work, and then final lumber drop, final frame. You have another 25%, and now the contract is complete, and it’s full.

Reece Barnes:

Nice. Love that.

Zach Wojtowicz:

It also lets you project a little bit kind of how much your costs are going to be in the budget. When I fill out a PO in Buildertrend, it will put in the actual column the amount that the PO was for because, really, that’s your expected cost. That’s your expected actual.

Reece Barnes:

Right.

Zach Wojtowicz:

If you were to update the PO amount, it will, ultimately, reflect it in the budget, but then it kind of falls on you to manage those POs. If you have project managers, they should be the ones who are kind of involved in using that PO to its fullest potential, because they’re the ones who’s working with the sub day in and day out, right?

Reece Barnes:

Sure. Well, not to cut you off.

Zach Wojtowicz:

No, no, you’re not.

Reece Barnes:

Okay. Another thing that I see being valuable here as far as using a PO with the subcontractor, running out installments in waves, according to phases of the project.

Zach Wojtowicz:

Right.

Reece Barnes:

Now, that also starts to give you an understanding. It starts to paint a picture of, why are we getting paid here? Do we need more cashflow? Do we need to clean up this side of our subcontractor relationship? Are we paying people too early and then they’re not getting it done? We can’t see … Am I getting ahead of myself? Okay.

Zach Wojtowicz:

No, no, no. No. Keep going.

Reece Barnes:

Okay, because, ultimately, I have examples regularly. I was just talking to a client here on the phone the other day, and they were mentioning how they just struggle to get projects done, just completing the project, and you’re looking at it. Well, it’s like you pay your sub. You pay them upfront or you pay him when half the work is done or whatever. Now, what do they do? From a bandwidth perspective and a subcontracting business perspective, they’re like, we’re paid. This is where they’re at. I mean, we’ve got time. We can start picking up more work, when the GC isn’t getting the product that they paid for delivered. No one’s held accountable. That’s where I see the benefit of the POs really rolling into this.

Zach Wojtowicz:

Yeah, and even just little things that you wouldn’t normally think about. But most contractors are having their sub sign off on a trade agreement or a per project agreement. The PO becomes a vehicle for that.

Reece Barnes:

Sure.

Zach Wojtowicz:

Now, you’re setting expectations of, hey, you need to clean up the job site. Now you’re setting expectations of, this is when you can expect to get paid. It’s on the 10th and the first. Right? The POs unlock a lot of advanced ways to operate your business. If you think about, for example, a lot of construction companies that are just getting started are going through an evolution. They don’t have a common billing cycle for their subs.

Reece Barnes:

Sure.

Zach Wojtowicz:

Every Friday, the sub’s rolling up and is like, where’s my check? That can be really hard to project cashflow and where money’s going and getting a good grip on that. POs let you kind of schedule out, hey, this is how many POs I’m going to pay on the 10th. This is the exact amount that I’m planning on paying come December 10th or November 10th or whatever.

Reece Barnes:

Nice. Sure.

Zach Wojtowicz:

You have a rhythm, a projection, here’s where things are going, if you use the PO system because you’re taking it away from, I’m just waiting for my subs to bill me, and then I cut the check. Right?

Reece Barnes:

Right.

Zach Wojtowicz:

Versus I can run a report of all my upcoming POs that are in their second payment phase and see the exact amount in Buildertrend that I can expect to pay for this project or across multiple projects as well.

Reece Barnes:

Right.

Zach Wojtowicz:

That’s a lot of power and a lot of information for you to be able to control your finances and your just general operations. So, I always make the case for POs, even if you’re not sending these POCs to your subs. Did you know that?

Reece Barnes:

I didn’t.

Zach Wojtowicz:

Yeah, you don’t need …

Reece Barnes:

To release them …

Zach Wojtowicz:

You don’t need to actually get your subs involved for this to be a beneficial thing for you. So, that’s a big fear when people are learning the PO system, is like, oh, I don’t want my subs to sign off on it. Okay. We call it a dummy PO system and what that does is it creates expectations for yourself about when you’re paying these things.

Reece Barnes:

Sure.

Zach Wojtowicz:

Right? It helps you slow down a little bit. You’re putting some checks and balances in place. Then even if you are just receiving bills from your subs, if the sub doesn’t even know that you’re using a purchase order system or a subcontract system, when you receive the bill, you are matching that bill to the PO, and hopefully they are the same amount, right? If the bills that you received are above what the PO was for, now you are aware in the moment that you are over on that particular line item on that budget, versus what happens in a lot of companies is they’re doing their thing. They’re building a house. They’re just trying to get by, and then they run their P and L at the end of the job. Something seems wrong. Why are our margins off? Right?

Reece Barnes:

Right.

Zach Wojtowicz:

There’s no red flag telling you, hey, this happened. This is why. You’re having to do investigation. That takes time.

Reece Barnes:

Right.

Zach Wojtowicz:

It takes effort. If you take the time and effort up front to set your POs when you create the job, the workflow I commonly coach to people is get your estimate in. Then go into your estimate, create your POs off of that estimate and then just wait for your bills to come in and match it to the PO and just see how your sub …

Reece Barnes:

Free stuff.

Zach Wojtowicz:

Exactly. Show how your subs are actually trying to get as much money as they can out of you. Even if you’re using bids to get your numbers, things are going to shift.

Reece Barnes:

Right.

Zach Wojtowicz:

You need to be on top of that because those things add up. Now, you’re consciously aware every time. I know people out there have really great relationships with their subs. We’re not undermining that. Things happen. It’s not that you’re not going to pay your subs if they’re over, but maybe the next time on your PO, you have a better sense of how much you should be budgeting on your estimate.

Reece Barnes:

Right.

Zach Wojtowicz:

If he’s always over, then you need to make adjustments in your bid price to your customer so that you’re not constantly eating at your profit margin.

Reece Barnes:

Right. I think it was one of the previous episodes that we made the comment we want to get this in place to at least provide the option. Like you had mentioned, we don’t want to undermine the relationships that subcontractors have with GCs and vice versa, because that’s important. That helps with the efficiency on job,. Having people pay attention to what you need help with. But at the end of the day, business is business and if we can at least have the opportunity to say, this is what we expected. This is where it came in, is it worth it for us to bring up with the plumber that we’ve known for 15 years, right?

Zach Wojtowicz:

Right.

Reece Barnes:

Is this a situation that we’re like, let’s throw them a bone? This is going to be worth the conversation. At the end of the day, you can have that conversation. If you don’t have a PO system in place, if you’re not using bills, it’s kind of hard to do that.

Zach Wojtowicz:

Yeah, and that’s something I spend a lot of time with people talking about, is the sub relationship. I actually think that’s an advantage when you’re talking about getting subs involved in Buildertrend, whether it’s through a PO or any part of the program. If you have a relationship with them, that means you have some credibility with them. If you talk to them on a real level and explain to them why you’re doing this, hey, we need you to sign off on this, and here’s why, it’s for both parties to be on the same page.

Reece Barnes:

Right.

Zach Wojtowicz:

It’s not to control them.

Reece Barnes:

Right.

Zach Wojtowicz:

It’s not to chastise them. It’s so that there’s no confusion about where you’re at, where you’re going and how much the job is going to be for. In an absolute perfect world, and I’m going to paint the unicorn as far as how this could work … I don’t think that’s an expression, but we’re going to roll with it.

Reece Barnes:

You’re going to paint the unicorn here.

Zach Wojtowicz:

Paint the unicorn. If you think about a perfect world, where your POs could be sent to your subs and they don’t even have to invoice you, you can tell they’re reliable. hey, here’s how much we’re willing to pay, and on the 10th, you can expect 50%. At the 1st, you’re going to get the other 50% like clockwork. They don’t have to go through all the rigmarole of having to write you an invoice. You can build that into your process. you work with our contracting company. Here’s what we do. Here’s when you can expect to be paid. Any existing subs, if you explain the benefits and really lay out the process for them, they’re going to continue to work with them. They’re not going to bite the hand that feeds. What are they going to do, leave you? Okay. Then some of that’s dependent on your sub-market, and I understand that.

Reece Barnes:

Bingo. My thing is, it’s with anything else, sales, just communication in general. What message are you conveying?

Zach Wojtowicz:

Right.

Reece Barnes:

If we can explain this again and just shine on the positives of, if we have this in place, this is the process that my company is putting into place. We’ve been working with you guys for ten years now, and we know this is going to change a little bit. But this is why we’re doing it from our standpoint and yours, so many people, they just are scared to death of having that conversation in the first place and just relying on, well, you just don’t know the sub-market here.

Zach Wojtowicz:

Right.

Reece Barnes:

You’re right. I might not know all of them to the degree that you do, but I know that there are really aggressive sub markets, and I know that the GCs, they can run the sub markets. If you’re in the sub market where the sub has all the control, how do we message this to ultimately get what you want, which is, again, a better pulse on your purchase orders, a better purchase on your bills, a better purchase on our margins, on our projects, our livelihood. How are we able to pay more project managers if we can’t even tell you what we’re making on a house before it’s started? We want to be able to at least provide the option for you as the listener and the client to know what’s going on and know it’s at least an option.

Zach Wojtowicz:

Absolutely. When it comes down to it, you aren’t giving up any of the functionality of Buildertrend by using POs.

Reece Barnes:

Right.

Zach Wojtowicz:

That’s the absolute emphasis. A lot of companies get into bills, and they just think POs are not for them. I would encourage you to explore that option a little bit more to kind of see the potential that it really does have, regardless if your sub’s using it or not. Let’s talk about one more topic with that regard, which is how does this affect QuickBooks, right?

Reece Barnes:

Important.

Zach Wojtowicz:

Going back to that conversation in episode three of what’s really changing about this operation? You are creating the living estimated versus actual report. If I’m a project manager and I’m responsible to know, where am I at from a budgetary standpoint, I don’t have to worry about having access to QuickBooks or knowing those reports or getting emails or doing anything. I can log into Buildertrend, focus on what I need to focus on, controlling the budget and really having a grasp on what’s happening on my operations. Reports in QuickBooks are not affected by using bills or POs. On POs, I know QuickBooks has a PO function. When we apply a payment against a purchase order, it still sends it to QuickBooks as an unpaid bill, ready for you to process and send a check out to your sub or match it to your bank feed, however, you’re using your QuickBooks operations.

Reece Barnes:

Nice.

Zach Wojtowicz:

So, you’re not losing anything by putting a little bit more construct on how you operate your budgetary operations in the financial features of Buildertrend. I just really wanted to touch back on that QuickBooks. If you’re like, oh, but if we don’t use POs in QuickBooks, we can’t in Buildertrend. Not true. Doesn’t change the integration, and the relationship stays the same.

Reece Barnes:

It’s just more information.

Zach Wojtowicz:

More information is power. Knowledge is power.

Reece Barnes:

Well, and that’s honestly the big thing here, is just when we look at so many of our clients in the construction industry, I talk to a lot of people. Obviously, our CSR talks to a lot of people, and a lot of their issues and hurdles come from not having systems in place. The system is going to save you. The system is going to save you, because, like we had alluded to in other shows, like we’re living to now, this is putting a why behind what we’re doing. This is where we’re having data that we can, A, start to tell the story to, whether we’re wanting to grow this business and sell it to someone else and retire and get out of construction or if this is someone who’s wanting to go from a house a year to three houses a year to eight houses to 12 to 30 to production, right? This is how you get there.

Zach Wojtowicz:

Well, and to your point, what about passing it off to your family? I’ve seen that a lot.

Reece Barnes:

We’re working with a couple clients now that are doing the same thing.

Zach Wojtowicz:

Yeah. They want their kids to take over the business, and they want it to be successful.

Reece Barnes:

There’s nothing in place.

Zach Wojtowicz:

Nothing in place. Everything is in the head of the operation manager or the owner. They’re struggling to extrapolate the stuff that’s in that person’s head and putting it into paper. A PO system can do that. here’s what I would pay our subs. Now, you have a record, a paper trail to say, here’s what a typical construction project would cost, based on historical data that you could go back to for years if you get that far with implementing Buildertrend into your business. It can really save that handoff to another owner, who’s going to take the transition over to your credit. That’s a really great point.

Reece Barnes:

There’s story after story that I hear from people wanting to move forward with our onsite consulting or at least hear more about it. I know a client here that they just bought a business, a construction business, severely undervalued. Handshake deal. Guy that they knew, a sub that they knew wanted to get out of the industry, wanted to start something different. They bought the business. There was very little financial data. It was kind of a shot in the dark for both parties. The client that actually ended up buying the business came back and won, but at the end of the day because they got a hell of a deal on a business that was doing far more. But that’s just because the information wasn’t being tracked as effective as it could. So, the seller lost out. Buyer got a great deal on it.

It happens all the time, and especially when people, when they start this industry being tradespeople, carpenters, framers, start their own subcontracting, start a GC company, whatever the case is. There’s always got to be an exit plan in place. Whether you want to be the framer for the rest of your life or if you want to translate into the business owner, the business decision-maker, this comes with the territory. When we get people that are still trying to juggle their day-to-day, not having a system in place, not using purchase orders, not using QuickBooks integrations, not having cost codes, not having any of this stuff, they run into issues, a lot more stress, working more hours a week, not understanding how they can retain employees.

Zach Wojtowicz:

Right.

Reece Barnes:

They have a great estimator that takes off after working with them for two years because they can go do something else somewhere else. Now they lost everything.

Zach Wojtowicz:

Yeah. If you want things to be less chaotic, then you need to put a structure in place.

Reece Barnes:

Document it. Yep.

Zach Wojtowicz:

That’s just what it comes down to. A lot of our listeners here probably have a good structure. Hopefully you can take away some refinements to make it even stronger. You can always improve and make things better. Even at Buildertrend, we’re changing things constantly …

Reece Barnes:

All the time.

Zach Wojtowicz:

… about how we do things.

Reece Barnes:

Great point.

Zach Wojtowicz:

Even though we’re a very successful company, that doesn’t mean we can’t improve how we’re doing what services we provide, how we think about delivering things to our customers and our own product, our sales procedures, our customer success onboarding. We’re always evaluating, and that’s just the mark of good business, no matter the industry, right?

Reece Barnes:

Exactly.

Zach Wojtowicz:

So, I think that wraps up job costing for today. We covered a lot of information, obviously, and our last one is episode six, where we’ll cover …

Reece Barnes:

Reporting.

Zach Wojtowicz:

… a little bit more about the reporting capabilities in Buildertrend. This is a topic that people get a little bit confused by because they don’t realize the number of reports that actually exist in Buildertrend. if you get to this point to where you’re using the budget and you’re using cost codes and you’re using POs, there’s a ton of cool stuff that you can pull and really make sure that you’re being as effective as you can be when it comes to running your projects. So tune in next time. We’re going to sign on out. Reece, have a good day.

Reece Barnes:

Thank you, everybody. We’ll talk to you guys later.

Outro:

Thanks for listening to “The Better Way.” If you’re a Buildertrend customer, schedule a training to learn more, and all listeners, be sure to rate, review, and subscribe to “The Better Way” wherever you get your podcasts. Also, visit buildertrend.com/podcast to sign up for the email notifications when the next season drops and explore our other podcast, “The Building Code.” Don’t miss our next episode focused on financial reporting.