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5
Signs You’re Due for an Accounting System Change
by Fred Ode
You’ve heard of Chronic Fatigue Syndrome? Well, in
construction, there’s an ailment among bookkeepers
and accounting managers referred to as Construction
Accounting Software Deficiency (CASD). It’s brought
on by slow and inefficient processes, spreadsheet
abuse, duplication of data entry, and the inability
to retrieve timely job data. And the symptoms?
Irritability, frustration and headaches!
OK, CASD is not actually a medically defined ailment, but that doesn’t
mean thousands of sufferers aren’t out there. The condition usually goes
something like this: non-financial-type contractors purchase small business
accounting software because it is affordable and offers user-friendly
functionality. It’s a great fit for the small contractor and startup company,
but as the contractor grows, serious limitations begin to surface. Soon, the
overstressed software is no longer boosting efficiency and productivity;
rather, it’s creating overstressed users. Read on to discover the five signs of
accounting software deficiency.
1 Are you overly dependent on spreadsheets?
In other words, are you creating “customized” reports outside the accounting software
for such things as work-in-progress, billings, job costing or labor-production
analysis? This is a sure sign your current accounting software is not meeting
your reporting needs.
When a software is incapable of providing information the way contractors
need to see it, users are forced to re-enter data into separate programs,
such as Excel®. In effect, they create a second set of books, which must
be continuously updated and maintained with each new transaction, job
change, equipment usage and so on. Time-consuming and inefficient, this
method only guarantees more time will be spent gathering information than
actually analyzing it.
Sometimes, contractors overuse spreadsheets simply because they are
not taking full advantage of their current software’s capabilities. It’s possible
some users are reluctant to give up their spreadsheets, or others simply need
more training. However, it could also mean the current software is lacking.
In this case, contractors should consider a construction-specific accounting
system that offers accurate, instant and extensive reporting capabilities.
What’s more, systems built upon secure databases, and designed to handle
tens of millions of records and multiple users, produce reports that can be
shared and accessed without tampering concerns.
2 Does your accounting software work the way
construction works?
Construction contracting, which operates on a project-by-project basis,
is significantly different from most other businesses. So, it stands to reason
that major differences between general purpose accounting software and
construction-specific software will exist.
Consider job costing. Most generic accounting systems that claim to
do job costing are geared to handle only simple project accounting needs.
These systems force contractors to track costs by “item” or “category” instead
of organizing projects into jobs, phases/cost codes and cost types. A good
coding system should produce the general ledger information accountants
need as well as the job-costing information project managers and owners
need. It will also make sure these numbers are always in balance. It takes
a detailed job-costing design to produce such essential reporting as over/under billing, retainage, revised estimates with change orders, and beyond.
When you consider the many unique business and accounting issues
contractors face — such as retention, WIP schedules, unions, prevailing
wages, multi-state payrolls, AIA billing, T&M jobs, etc. — it’s easy to
see why generic accounting programs fall short for growing contractors.
Even among construction-specific software products, contractors need to
understand their particular business, their processes and procedures, and
the requirements for running the company in order to select an application
with the best features.
3 Can you get detailed job cost information ... on the fly?
Accurate and timely job cost data is critical to any construction business.
Information that cannot be retrieved on the fly is of little use to decision
makers or project managers who need time to turn a job around. When a
software system is incapable of producing such reports or requires too much
time to compile data, it may be a clear sign of software deficiency.
Most small-business accounting systems are designed to automate
financial recordkeeping, but their reporting capabilities are weak. These
systems provide financial statements, cash flow, current balances and
breakdowns of expenses by job, but they have serious limitations when it
comes to extensive and customizable reporting. For example, some of the
reports an owner may want to see are production, estimate vs. actual, unit
price, projected cost to complete, committed cost, etc. A small business
system would not be able to produce these reports. The owners have access
to this information through a series of different reports and spreadsheets,
which take time to compile.
Meanwhile, robust reporting is the cornerstone of most good construction specific accounting programs. They typically offer advanced reporting
features such as standard reports, customizable report-writers and easy data
input and export into popular third-party software products.
4 Does your accounting software handle payroll efficiently?
For growing contractors using generic accounting software, painful
payroll activities will often raise a red flag on software deficiency. Even with
20 or fewer employees, payroll activities and the reports derived from payroll
information can be complex. Off-the-shelf accounting software can generate
payroll checks and book the costs to the general ledger, but most packages
lack the sophistication to handle union benefits, multiple jobs, prevailing
wage, multi-state deductions and other construction payroll issues.
Mid-level construction accounting systems, on the other hand, offer
time-saving efficiency and productivity when it comes to the intricacies of
construction payroll. From a single timecard, for example, a good system
will automatically 1) calculate an employee’s time to multiple jobs/phases; 2)
compute multi-state and local taxes, prevailing or union wages, deductions
and fringes, and other burdens; and 3) update both the general ledger and
job-costing modules. The bottom line is: if you are performing manual
payroll calculations or creating payroll reports outside the accounting
system, you’re not working as productively as you could be.
5 Is your current accounting software slow and cumbersome?
It could be your growing business has stretched the limits of your
accounting software. These systems typically use proprietary databases,
which are designed to handle transactions for companies with 20 or fewer
employees and annual revenues of less than two million dollars. However,
since businesses track information differently, it’s possible for contractors
with less than 20 employees and less than $2 million revenue to outgrow
their system. Thus, the rule of thumb should be: the more transactions
contractors complete, the more robust their databases need to be. In
contrast, many mid-range construction accounting software products use an
open-system database, like Microsoft SQL, giving them more power, speed
and integration capabilities.
Below are the more obvious signs your company has outgrown an
existing accounting software: 1) To gain more speed, users turn off audit trails and other
preferences; 2) The accounting software cannot handle more than one or two users at
the same time; 3) Users of the accounting software manually enter the same information
multiple times throughout the system; 4) Simple tasks require many steps to
complete; 5) Users complain the accounting software is painfully slow.
Considering all these factors, is it possible your off-the-shelf accounting
software is dragging you down? Could the program that once served your
company so well is now draining resources?
Ironically, it’s the very characteristics that make off-the-shelf accounting
software products so appealing to small contractors that actually create
problems as a company expands. The software’s limited system features,
which make them easier to use, and their minimal database performance,
which make them cheaper to buy, are often the largest roadblocks to
accounting efficiency and productivity for growing contractors. But not to
worry! Converting to a more sophisticated, construction accounting
software may be just the cure your company needs!
Fred Ode is the CEO of Foundation Software. Mr. Ode has managed
the company’s growth to serve more than 2,000 clients across a variety of
construction trades. You can reach him at fred@foundationsoft.com. Reprinted
with permission.
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