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Track Profitability at Your Machine Shop

Jan 3, 2017 8:02:00 AM / by Brian Paulson posted in machine shop accounting

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Some machine shop owners assume they know how much it costs to run a job based on gut instinct or because of their experience. Others simply rely on bank balances to measure the success of their business at the end of each month.

To run and grow a thriving machine shop, you should know which jobs are truly profitable, and which jobs didn’t make you money.

This can be achieved by clearly understanding the cost per hour within different areas of your shop, and by appropriately costing the work in each department.

Without proper accounting and bookkeeping, however, the process of gaining an accurate picture of every job can be difficult and time consuming.

To analyze cost down to the department level, you should have an accounting system in place that tracks the following:

  • Labor based on employee hourly rates for each job
  • Labor overhead (such as employer paid benefits and taxes) based on labor hours
  • Shop overhead based on the cost of running machines by job and department
  • General overhead (all of the “other” costs of doing business, including sales and administration) applied proportionally to each job
  • Material and outside service costs based on actual expenses

Having these basic numbers on hand will allow you to make proactive business decisions, increase efficiency, and develop a cost structure to ensure profitability moving forward.

Partnering with an accounting service frees you from the burden of tracking and analyzing such data, which gives you more time to solve day-to-day issues with employees or customers.

Running a machine shop presents enough challenges. Use an accounting service with experience in your industry to help you understand the valu?".e of proper job costing and to provide support for all of your accounting and tax responsibilities.

Contact us for a complimentary consultation and download our Small Business Accounting Kit for tips and resources heading into the new year!

Download the Small Business Accounting Kit

Brian Paulson

Written by Brian Paulson

Brian received his Bachelor’s degree from the University of North Dakota with a double major in accounting and financial management. He’s a member of both the National Society for Tax Professionals and the National Society for Accountants and serves on the board of directors for the Professional Association of Small Business Accountants.

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