In a perfect world, the costs you incur on a job, plus your overhead, will exactly match the revenue you recover from your clients. If the actual costs and the overhead markups are all itemized separately, the client knows exactly how and where their money is being spent.
For simpler jobs, you can achieve this equilibrium by using Abio’s Job Markup utility. This utility collects the unbilled A/P invoices for a selected job and creates a new A/P invoice, for the purpose of adding the job’s overhead markups. These can be either a cost per hour or a percentage markup. This utility only applies to A/P invoices.
Marking Up Job Costs When You Run a Payroll
If you want to see costs from your payroll system, you can run the Intercompany Invoicing utility to itemize payroll costs as invoices. You invoice the payroll costs between a shadow job and a parent job, either at cost or with markups already applied.
To achieve transparency, invoice payroll at cost and use this utility to apply an hourly or percentage markup. Then clients see exactly what their materials, labour and equipment cost, and also what overheads are being billed.
Marking Up Job Costs When You Subcontract Labour
If you subcontract labour, this process becomes even simpler. When you receive invoices from your subcontractors you will post them as labour. If you want to add an hourly amount to their labour, include a line item for their hours, with a unit of ‘HOUR’. The hourly amount will be applied to the quantity of hours recorded for that line item. If you just want to pass on a percentage markup there’s no need to break out the hours as it’s own line item.
Extracting Job Costs
The first step in marking up job costs is to extract unbilled A/P invoices.
Users Permitted to Extract Costs
Before we can mark-up this job, we have to extract the invoice records. Our user id is setup to allow this:
Reports That Select and Mark A/P Invoices as Extracted
We can extract any of several invoice reports for this:
- A/P Invoices by Centre in Job,
- A/P Invoices by Vendor in Job,
- A/P Invoices by Vendor P/O Number, and
- A/P Invoices by Employee
We’ll use A/P Invoices by Centre in Job. Navigate to [a] Payables, then [k] Invoice Reports, then [d] Invoices by Centre in Job.
We run it for a single job, 1503, and select unextracted records.
After verifying the correct invoice items are selected, we’ll extract the report.
When the export completes, Abio asks if you want to mark an extract reference on the invoices it exported.
Select an appropriate name for the extract reference. You’ll refer to this when you invoice the job markups. One approach to take is to use the invoice number of the A/R invoice you’re putting together.
At this point, you’ve marked the invoices you want to bill.
Adding Hourly Markups for Extracted Records
Now you have a group of invoices marked with a single extract reference. It’s time to add your markups.
To Invoice Job Markups, navigate to [a] Payables, then [s] Invoice Job Markup.
The extract reference you just created is available in the drop down list.
If you select an hourly markup, that dollar amount will be added to each labour hour. It will also be added to any A/P invoices posted to labour, with the unit ‘HOUR’.
Click <Apply> to generate the markup invoice.
Adding Percentage Markups for Extracted Records
You can run the Job Markup utility as often as needed. If you have materials you’d like to apply a percentage markup to, run the utility again. This time select cost markup. You’ll be prompted to enter a cost markup percentage.
Use the selection criteria to pinpoint the costs the markup applies to.
Creating a Billing
You now have a set of invoices you want to bill that are marked with an extract reference. You also have a set of invoices that represent the mark up on the original invoices. Because you want to include them all on the same invoice, use the same method used earlier to extract the markup invoice with the same extract reference. That gives you a complete set of invoices to use as a basis for billing your client.
Use the A/P Invoices by Extract Reference report to subtotal the amount for the A/R invoice you produce for your client.
Create an A/R Invoice
Based on the total dollar amount extracted, you can now write up an A/R Invoice. Submit the invoice and the report to your client to provide them with a fully itemized accounting of their job costs to date.
Earlier we talked about creating invoices between a shadow job and a parent job for the purpose of invoicing payroll costs. There are other situations where you can use this approach.
For a large job, you may have delegated work to specialized companies within your family of companies. Those companies will do the work and pay their employees and suppliers, and then pass their costs on to you using Abio’s Intercompany Billing utility. You can also use this utility to translate payroll costs for a shadow job into an A/P invoice for the parent job.
They may pass on their costs marked up at the client’s time and material rates. Or, they may pass them on at their cost. At that point, you’ll add the markup before billing the client for the work. The Job Markup utility will add invoice line items for the additional marked up cost for the selected invoice.
In our lesson on Intercompany Billing, we billed payroll costs from Buildomo Construction to West Side Contractors.
The intercompany invoice includes a line item with a unit of ‘HOUR’. This allows Abio to identify payroll costs that are included in the intercompany billing. The hourly markup will be applied to these hours.
So now, in West Side Contractors, we have an accounts payable invoice for the work Buildomo Construction did on our project. They’ve invoiced us at cost and we’ll add a markup to the job before we pass it on to our client. The invoice includes the hours and the amount, so we can choose to markup a dollar per hour amount, or a percentage of the invoice.
Posting Labour Markups
Let’s look at what happens when we post this invoice to the job cost system.
Once the costs are posted, any of the Job Costing reports will show the updated costs.
As with the Internal Equipment Billing, paying the invoice, even though it’s a zero dollar invoice, will move the intercompany amount to the appropriate G/L account.