CONSTRUCTION Accounting ARTICLE - Contractor Gets Specific with His Accounting Software
Target Audience: Construction Industry Professionals, General Contractors, Construction Accountants
The owner of an excavation business had a problem. He found himself constantly battling with his accounting system to get the information he needed. Multiple, confusing steps were often required to enter and extract data specific to his projects and customers.
Although he didn’t have much money to spare, the contractor started to wonder whether it was finally time to move to a construction-specific accounting application. To get a better idea of the pros and cons of doing so, while keeping an eye on his budget, he met with his CPA.
Going granular
The CPA agreed that the contractor was right to consider more advanced accounting software. Many generic accounting programs may be too limiting to perform construction job costing accurately.
Construction-specific accounting programs, on the other hand, feature detailed job costing and reporting modules that allow contractors to pinpoint factors that cause budget overruns. The contractor could use these detailed reports to:
- Identify specific drains on profit,
- Figure out how to fix profit drains and other financial inaccuracies, and
- Determine whether certain types of jobs are less profitable than others.
The contractor’s cost breakdowns could go even more granular if he purchased a product with Construction Specifications Institute codes. This feature would allow him to assign a code to each company activity so that he could perform in-depth financial analyses. For example, he might focus on improvements in permitting operations after seeing reports that his company was regularly exceeding its budget in this area.
Taking a step beyond
The contractor’s CPA also pointed out that many cost-estimating programs can integrate with other construction-specific software to support purchasing activities, scheduling, productivity monitoring and more, taking a step beyond direct cost and payment tracking.
Another consideration: payroll. Compensating the various types of workers in the construction industry can be complex because of, among other things, prevailing wage laws, which require certified payroll reports. Many construction-specific accounting products come with this capability.
Naturally, there are downsides to consider as well. The CPA warned that the higher-end products can be expensive, straining cash flow and creating pressure to get every possible use out of the software. More complex systems also lengthen the employee learning curve and may even require formal training.
Getting a better picture
After getting the facts on construction-related accounting software, the contractor had a much better picture of the alternatives to his current, creaky system. This wasn’t a decision to undertake hastily, but it was one that held great promise for the future of his business.
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