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Track Profitability at Your Machine Shop

December 1st, 2023 | 5 min. read

By Brian Paulson

machine-shop-accounting.jpg

Some machine shop owners think they know how much it costs to run a job based on instinct or experience. Others simply rely on bank balances to measure the success of their business at the end of each month. Unfortunately, neither of these methods are enough to break down your profitability. How do you track what's valuable to your shop?

At CSI Accounting & Payroll, we've worked with machine shop accounting for over 50 years. We know that tracking profitability can often be as simple as having accurate accounting - and using that data to see which jobs are profitable. How do you do that?

You need to have a clear understanding of the cost per hour within different areas of your shop and appropriately cost the work in each department.

machine-shop-accounting.jpg

Tracking Job Profitability

Don't get tunnel vision; use your data to help you make better business decisions! 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 (ex. 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

Worried about what system to use? Don't fret; most of the popular software (invoicing, job tracking, etc.) for your industry will be able to track the numbers listed above. Plus, if your software can't handle everything you want it to handle, you can always check out additional systems that integrate with yours.

If you need help with tracking some things by job and department, some accountants will handle most of this for you for an additional consulting cost.

Analyzing the Data

Once you've collected all of the data above, having these basic numbers on hand will allow you to draw conclusions about:

  • Making proactive business decisions
  • Increasing efficiency
  • Developing a cost structure
  • Determining how much work you need to bring in the door

What's the importance? All of these points will help ensure your profitability and success moving forward.

If you're not sure how to decipher the numbers, help is available. As long as you provide all of the data, a monthly accountant can advise you on what it means and what action you can take - all at no additional cost.

Plus, partnering with a monthly accounting service gives you more time to solve day-to-day issues and can offer great value through year-round tax strategy. An annual accountant can't help you with either of these things!

Learn more about the difference between monthly accounting and annual accounting.

Ready to learn more?

Now you know that you need to track costs per hour and department, as well as how you can partner with a monthly accountant to draw conclusions from the data, are you ready to partner with a monthly accounting service?

Not to mention, an accounting service with experience in your industry can help you understand the value of tracking costs and provide support for all of your accounting and tax responsibilities.

If you’re ready to get started talking to a professional, click the button below to schedule your free consultation to see if we can be a good fit for your business.

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Not ready to talk? That’s okay! First, learn more about what it’s like to work with CSI by clicking the image below:

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Brian Paulson

Brian began working at CSI in 1996, and he purchased the business in 2002. As Owner, his primary role is in the management and growth of the firm. Since 2002, the firm has more than quadrupled in size. In 2009, Brian started CSI’s payroll service to complement CSI’s accounting and tax services. 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 he serves on the board of directors for the Professional Association of Small Business Accountants, where he was once president. Brian also serves on the business advisory council for Opportunity Partners, an organization that helps people with disabilities find employment. He’s also contributed to several business books, including Six Steps to Small Business Success and The Lean Mean Business Machine. Fun Fact: To help put himself through college, he used student loans, delivered pizzas, and worked summers in a salmon processing plant in Alaska.