Many construction businesses only find out how a job is really going weeks after the money has been spent. By the time the month-end numbers arrive, an overrun has already happened and the chance to fix it has passed. In this short video we look at that gap, which we call the blind spot, and why seeing job costs sooner protects your margins.
Watch the video above, then read on for what causes the blind spot and what you can do about it.
What the blind spot is
Picture a typical month on a busy job. Materials are ordered. Subcontractors start work. Labour hours pile up. But none of that shows in your job cost report until:
- the supplier invoices arrive and get entered,
- timesheets are processed through payroll,
- subcontractor claims come in at the end of the month, and
- someone closes off the month in Xero or MYOB and runs the reports.
That can easily be three weeks or more after the work happened. For that whole time, you're running the job on gut feel. If labour is running over budget or a supplier has put prices up, you won't see it until it's too late to change anything on that stage of the job.
Why the numbers arrive late
The blind spot isn't caused by lazy staff or bad accountants. It's usually caused by how the systems are set up.
- Costs are only recorded when the invoice arrives. If your job costing waits for the bill, it's always behind. The cost was committed the day the order went in.
- Your job system and your accounts don't talk to each other. Information gets retyped from one to the other, often in batches once a week or once a month.
- Timesheets go through payroll first. Labour costs don't reach the job until the pay run is processed.
- Reports are built by hand. Someone exports data into a spreadsheet, tidies it up and sends it around. That only happens when they have time.
Each step adds a few days. Together they add up to weeks.
What it costs you
A job that goes over budget in week two looks fine until week five. By then:
- the stage is finished, so you can't change how it's done,
- the variation you should have raised is harder to argue for,
- the next stage may be priced on the same wrong assumptions, and
- your cash flow forecast is based on numbers that are already out of date.
For example, if a subcontractor's hours are running well over what you allowed, finding out in the first week gives you time to talk to them, check the scope or raise a variation. Finding out after the month is closed usually means you just absorb it.
How to close the gap
You don't need a new accounting system to fix this. You need the numbers to reach you sooner.
Track costs when they're committed, not when they're billed
When a purchase order goes out, that cost belongs to the job. Recording committed costs means your job report shows what you've spent and what you've promised to spend, not just what's been invoiced.
Connect your job system to Xero or MYOB
When your job management software and your accounts share the same numbers automatically, nobody has to retype them, and both stay up to date. See builder accounting software integration.
Get labour onto jobs faster
Daily or weekly timesheets entered on site and tagged to the job can show labour costs before payroll is processed.
Report weekly, not monthly
A job cost or WIP (work in progress) report that updates itself means you can check every job each week without anyone building a spreadsheet. See construction WIP reporting and construction job costing.
Look ahead on cash
Once job costs are current, your cash flow forecast can be too. See construction cash flow forecasting.
Where to start
Start by asking a simple question: how long after the work is done do you see its cost against the job? If the answer is weeks, map out where the delay comes from. Usually one or two steps cause most of it, such as invoices waiting for entry or job data being retyped. Fix those first.
Our page on construction financial visibility explains the whole picture in more detail.
Frequently asked questions
What is the 3 week blind spot?
It's the gap between when money is spent on a job and when it shows up in your reports. For many builders, the true cost of a stage only appears after month-end, often weeks after the work was done.
Why don't my job cost reports match what's happening on site?
Usually because costs are only recorded when invoices are entered, labour waits for payroll, and your job system and accounts are updated separately. Each delay pushes your reports further behind the site.
Do I need to replace Xero or MYOB to see job costs sooner?
No. Most builders can keep Xero or MYOB and connect them to their job management software so costs flow through automatically.
What are committed costs?
Costs you've agreed to but haven't been billed for yet, like purchase orders and subcontract agreements. Tracking them shows what a job will really cost, not just what's been invoiced so far.
How much does it cost to fix?
It depends on your systems and how much needs connecting or building. We scope each project and give you a fixed quote after a free initial chat. If you'd like a written review of your current setup first, there's our $5,000 Process & Systems Audit.
See your job costs sooner
If you're finding out about overruns after the money's gone, we can help you get your job costs in front of you while there's still time to act. Book a free initial chat, call 1300 470 091 or email [email protected].