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January 2009 >>
Is It Time to Deploy Construction-Specific Accounting Software?
The last thing most construction executives want to worry about is accounting software. But as a company grows, accounting becomes more complex and more integrated with operations. While a generic accounting package can get a business off the ground, the time may come to deploy accounting software designed specifically for the construction industry.
The right software isn’t cheap; in fact, companies spend between $3,000 and $30,000 to deploy a construction-specific accounting system. However, the benefits of the investment pay off early and often.
Job Costing: Get a Handle on Profits
Contractors usually know if they’re losing money on a job. But do they know if they are losing money on subcontractors, materials or labor? Do they know which phase of a project is over budget? Perhaps the biggest benefits of switching to construction accounting software are integrated job costing and reporting. Rather than simply recording invoices and payments, a job cost module provides detailed cost breakdowns for each job and each of its components.
Moreover, a contractor can start each job with a detailed budget and later compare the actual costs against the original estimate. It’s possible to identify unexpected materials costs, overtime hours and other factors affecting profitability. Most importantly, this data is available early enough to change course on unprofitable jobs.
Detailed job cost data allows for better estimating on future jobs, as well as helps contractors understand what types of jobs are most profitable.
CSI Codes: Software that Speaks Your Language
Most jobs are put out for bid using CSI codes, so it helps if the accounting software is built around those codes. Construction accounting software packages integrate industry-standard CSI codes into their databases. With a CSI dictionary in the accounting system, contractors easily can assign codes to purchase orders and invoices. As a result, all expenses invoiced and paid will be allocated to the right divisions in the job costing system.
A generic accounting system may allocate costs to detailed accounts, but it can’t offer the granularity and standardization of CSI codes. By assigning costs to the right CSI code, contractors can break down each division of the job and know exactly what is spent on permitting, site work and finish work. With that level of costing, it’s easy to see which components of the job are exceeding the budget.
Audit Trails: Track Down Mistakes and Fraud
As a company grows, so, too, does the number of people using the accounting system. Unfortunately, employees are imperfect and sometimes dishonest. What happens when someone makes a mistake and tries to cover it up by deleting it from the system?
A sophisticated construction accounting system offers an added level of security and auditing to avoid these risks. With detailed audit trails, contractors know which user changed what and when it was changed. Contractors also can assign various permissions so different users have different levels of access to different jobs and different authority throughout the system. For example, rigid workflows can be put in place on approval processes to cut checks.
Reporting: Fast Answers to Important Questions A construction-specific accounting system can transform an accounting department from a tax compliance and financial management entity into a valuable operational resource.
With an integrated job costing and accounting system, contractors can provide field project managers and executives with powerful reports that answer questions such as:
- How many hours and dollars have been spent so far?
- How does that match up with the budget?
- What is the cost to completion?
Complex Payroll: Comply and Simplify Performing prevailing wage work complicates payroll because these jobs require certified and auditable payroll reports.
A construction payroll system tracks hours, ethnicity, Social Security numbers, work type, check numbers, images, fringe benefits and anything else needed to comply with federal, state and local payroll requirements. Accurate reports can be produced for each worker, making compliance efficient and thorough.
Insurance Certificates: One More Thing to Track
Insurance and risk management have become two of the most important issues in the construction industry today. A general contractor is responsible for verifying and tracking subcontractors’ insurance levels and documentation. The more subcontractors involved, the more complicated it is to track compliance for each phase of the job.
Unlike generic accounting packages, a construction-specific system can track certificates for each subcontractor by job. By integrating complex insurance certificate tracking with accounting, contractors can withhold payables until they receive the necessary certificates.
While the investment in a construction accounting system is substantial, the returns make it worthwhile. Contractors may be surprised how much of their staff’s time is spent generating basic reports and how many opportunities exist to make errors. By automating more construction-specific processes in their accounting systems, contractors are sure to get a better handle on their businesses.