Construction Accounting Article -
Financial Reporting Capabilities of Construction Accounting Software

Source: Construction Accounting and Taxation Journal. Volume 1, Number 4.

Target Audience: Construction Industry Professionals, Construction Firms, Accounting Software Interest

Summary:

Choosing the correct accounting software is critical to construction companies due to the significant amount of data collection, processing and interpretation required.

• From 1990-1998, more than 10,000 construction firms failed (13% of total US failures).
  
• Only 26% of newly established construction companies will be in business after ten years.
  
• Budgetary and macroeconomic issues represent 83% of the reasons for construction company failure.
  
• In 2006, 1,200 North American construction companies revealed that financial concerns rank high on the list of serious problems for contractors.

Contractors, both large and small, need to regularly perform financial reporting on two levels in order to monitor and manage the overall performance of their company.

Executive-level reports:

Provide an overall view of how the company is performing.

• Gross profit report by job, provides a broad overview of profitability of each job by listing total contract sales less direct job costs.
  
• Job overhead allocation, is a report that allows management to see the true profit/loss from each job, taking into account indirect job expenses.
  
• Over/under billing, allows the construction owner to address under-billings on a job (which cause serious cash flow problems), or adjust over-billings (which inflate the company’s profits if not accounted for).
• Cash flow by job, quickly assesses if the company has the financial resources and lines of credit available to handle the anticipated work volume.

Project level reports:

Answer the how, why, where, and when details of a job by;

• identifying where the job stands today,
• predicting where the job is headed,
• and creating a database of history that contractors can use for future bidding, evaluation of jobs, and better decision making.

Evaluating your real need:

Not every contractor is in the position to take on some of the complicated accounting software that is now available. Some critical questions to ask before purchasing include;

• Is your current accounting system meeting your financial reporting needs?
  
• If not, are you ready and willing to produce financial reports on a regular basis?
  
• Are you ready and willing to put processes in place to collect accurate job cost data in a timely manner?
  
• Do you have people in place capable of customizing and analyzing financial reports?

It is essential that contractors use construction-specific software that addresses the needs of their company. The software must have reporting capabilities and flexibility to be valuable. Numbers are virtually useless to a contractor unless they can be placed in a report format that can explain their meaning.

Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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