Excavation contractor bookkeeping: equipment cost by the hour

Excavation is an equipment business that happens to sell dirt work. The excavators, dozers, loaders, skid steers and trucks are most of the money tied up in the company, and whether a job made money usually comes down to how many machine hours it took and what each of those hours really cost.

Books that record fuel, repairs and loan payments as monthly overhead cannot answer that. They show a company that is busy and a bank balance that does not agree, with no way to tell which jobs are responsible.

Cost every machine by the hour

The foundation of excavation job costing is an hourly cost for each piece of equipment, built from two halves:

• Ownership cost — what the machine costs to own whether it runs or not: financing or the capital tied up in it, insurance, and the value it loses each year
• Operating cost — what it costs to run: fuel, maintenance, wear parts like undercarriage, teeth and cutting edges, and repairs

Divide each by the hours the machine realistically works in a year, and you have a rate to charge equipment time to jobs. Not a guess — a number that comes out of your own books, and gets better every year you keep them this way. The equipment buy, lease or finance guide covers the ownership decision itself.

Charge equipment to jobs internally

Once each machine has an hourly cost, every job should carry its equipment hours at that rate, alongside labor and materials. That is what turns “the job felt profitable” into a figure.

It also answers questions the owner otherwise decides by instinct: whether a machine is worth keeping or should be rented when needed, whether a job type is underpriced because it is equipment-heavy, and whether a particular machine is costing far more to run than the others.

Keep a record per machine

Fuel, repairs and parts should be coded not just to “equipment” but to the specific machine. Over a year, that record shows which units are becoming expensive to keep running — usually well before the owner has decided to replace them.

Off-road fuel used in equipment is generally taxed differently from fuel used in road vehicles. Keep the two separate in the books from the start; mixing them makes both the job costs and the tax treatment harder to get right. Your CPA can confirm what applies in your state.

Trucking and disposal

Hauling is often a large share of an excavation job’s cost, whether you run your own trucks or hire them by the load or by the hour. Code it to the job. The same goes for dump and tipping fees, which arrive on separate invoices well after the work and are easy to lose into general expenses — and on some jobs they are the difference between profit and loss.

Mobilization and weather

Moving equipment to a site costs money before any work starts: the lowboy, the driver, the time. It belongs in the job cost and in the bid. Weather days that idle a crew and a machine on site are a cost too, and recording them against the job builds the history you need to price weather risk properly next time.

Unit-price work: track the quantities

Much excavation work is billed by quantity — cubic yards moved, linear feet of trench, tons of stone. On those jobs, the books need the quantities alongside the dollars: what was bid, what was installed, what has been billed. Payment disputes on unit-price work almost always come down to quantities, and the side with the better records usually wins.

Unforeseen conditions

Rock, water, contaminated soil, buried debris. Excavation has more genuine unknowns than almost any trade, and they become change orders only if someone documents them and gets them signed. Track pending change orders separately from approved ones and chase them weekly. See change orders and getting paid.

Public and commercial work

Site work for public projects and larger commercial jobs brings bonding, prevailing wage, certified payroll, retainage and lien waivers. See getting bonded, prevailing wage and certified payroll, and retainage explained. Once jobs regularly span months, a WIP schedule is what your surety and your bank will ask for.

Related

• Construction bookkeeping, step by step
• How to bid a job so it makes what you intended
• The truck cost per mile calculator
• Paving bookkeeping: tons, equipment and the season
• Demolition bookkeeping: disposal, scrap and equipment
• Septic and well bookkeeping

General information, not tax advice. Fuel tax treatment and depreciation rules are for your CPA to confirm.