Can Xero do Job Costing? Simple Guide and Explanation

What is Xero?

Xero is cloud-based accounting software for small and medium businesses. It can help you do your bookkeeping. Xero features include invoicing, accounts, vendors or clients, payroll, and much more (maybe even job costing?). It can even connect to your bank so that you can easily sync bank and financial information.

Since it is a popular accounting software used by a lot of customers, there is a lot of information available on how to best use it. Thanks to this, you can easily find solutions to all of the questions you might have when implementing it. In addition to that, there is a large app store which opens up a whole other world of solutions for your problems.

What is Job Costing?

According to Wikipedia, job costing is a type of accounting which tracks the costs and revenues by “job” and enables standardized reporting of profitability by job. This means that in additionally to to the G/L ledger account information for each line of an bill, you would also attach a job code or description. In addition to just the job code, a project code is also added. This allows the companies to also track their profitability on the project level as well.

Job costing in construction

In construction, jobs can be any kind of an actual good that is bought, or it can also be an construction cost code. There are different types of cost codes that are used in construction. In most countries, the construction codes are defined by a construction organization or the local government. In North America, NAHB cost codes and CSI cost codes are used. For example in the UK, there is no defined structure. This means that you can define it yourself or use an example cost code structure.

These codes are then used throughout the whole project lifecycle – from estimation until the end of the project. When the company is estimating a project with the same codes, the data from previous projects can be reused for more accurate estimations. So this means that every time you approve a cost or income in Xero, you would also need to provide the job and the project information.

This can mean that the project managers, quantity surveyors, and accountants need to frequently sync to make sure that all costs have the correct job IDs attached. In addition to the job IDs, the project managers and quantity surveyors also need to provide the G/L account which the items are to be added to. Because of this, it is critical that all of the affected parties are on the same page and communicate often on this topic.

Can Xero do Job Costing?

A short answer is that it can almost do it to in multiple different ways. The problem with all of the solutions is that they only let you add the information half way. You can either only add the job or project as additional info. But none of the solutions are really fit for construction, where more details are needed – ideally both the job and project cost.

Using Xero tracking categories

When you approve all of your costs, you can also attach a tracking category to each of the invoice lines. The only problem with this solution is that you can only attach a single tracking category to each item and there seems to be no update that would change it.

This means that if you want to track your construction project and job costs on both levels, you can’t. Well, not very easily at least. You could create tracking categories that consist both the job and the project. So that job “Foundation works” on project “Long street 123” would become something like “Foundation works – Long street 123”.

You might think, what is the problem with this? Well, imagine that you have 5 construction projects running at the same time. And each of the projects has about 20 different jobs that you are tracking. You would have at least 100 active tracking categories that you would have to create and choose for each project. This doesn’t even include the projects that have already ended. So you would probably end up with hundreds of different tracking categories that will not be actively used anymore, but still always show up.

An additional issue with this solution is that since you have all of your costs on the project AND job level, there is no easy way to go look up a cost only on the job OR only on the project level. At least without exporting it and doing some magic in Excel. For most users, this probably is not the most ideal way to go.

Using WorkflowMax from Xero

Okay, so Xero does not offer this solution as a standard feature. Surely there is some solution that they are offering that can do this and that integrates with Xero.

You are correct. Well, kind of. When you search for “Xero job costing”, one of the results is a link to a Xero guide about job costing. On this page, one of the links is to WorkflowMax. This actually looks promising, but when you read the info on the page, you can quickly see that it is for smaller companies only. This is because according to some reviews online, it is a basic time keeping software.

For a larger construction company that subcontracts some or all of their jobs, this doesn’t really work. The numbers have to be more invoice-based. We can imagine that they would need a tool that is somehow a mix of WorkflowMax and Xero so that it is more about the costs and the jobs. And not just one or the other.

But is there some tool that can do it in a way that works for these companies?

Job Costing using Xero and Planyard

One of our main assumptions in the previous paragraphs was that the job costing has to be done in Xero. What if Xero just does what it does best – the G/L accounting? And a tool that is specifically built for budget management and cost tracking does the job costing part.

This is exactly why we have built Planyard. Planyard is an intuitive job costing tool for large-scale construction projects. It’s ideal for construction general contractors looking for an easy and accurate way to manage project cost forecasts and profitability forecasts.

Planyard feature set includes: automating supplier bidding, digitizing subcontractor progress payments, simple purchase ordering, collecting and approving purchase invoices, and more. The process is without spreadsheets and without duplicate data entry.

Planyard integrates with your existing accounting tools such as Xero, QuickBooks, and more. The key here is that all of the detailed cost data stays Planyard. You have a way of looking up the detailed sources for costs of each job and each project. You can easily see what the costs of a job consist of so that you can also add the variations to the new project estimate as well.

If you want to learn more about this then go see how Planyard works with Xero. And if you would like to read a detailed case study of one of our customers, then go read our article on how Higgihaus uses Planyard together with Xero.