Download
this construction software article
Accounting Software Checkup
BY: FRED ODE
|
 |
| |
 |
See why contractors use FOUNDATION as their construction accounting software!
(click here) |
|
 |
|
| |
 |
| |
|
NO. 4: GET RELIEF FROM WEAK
FINANCIAL REPORTING
Editor’s Note: Following is the fourth article in our ten-part series called,
“Accounting Software Checkup: Ten Ailments That Can Hinder a Healthy Bottom
Line,” by Fred Ode, CEO, chairman and founder of Foundation Software. Each “ailment”
will be discussed in detail to help you determine if your seemingly healthy
business has an underlying problem.
Sharp or dull. Constant or
intermittent. What’s the
worst kind of pain? Some
contractors describe it as
the feeling they get when
trying to produce accurate financial
statements on a regular basis.
The problem is, contractors often
treat accounting and bookkeeping
requirements as the necessary evils
that come with the business side of
construction. They pay little attention
to their financial statements and even
less to how these reports are created.
Unfortunately, construction business
owners can become quickly and
acutely aware of their weak financial
reporting capabilities at tax or audit
time, when they are turned down
for financing, or when they cannot
secure a bond to bid on projects. And
that’s when they also discover that
their accounting software system may
not be up to the task of meeting their
financial reporting needs.
The Painful Realities
of Financial Reporting
Requirements
In the good old days (like the 1990s),
when money was cheap and the economy
was booming, it was much easier
for contractors to secure credit and
bonding for construction projects.
All that has changed in today’s tight
economy. Banks are taking a closer look at the loans they make, and sureties
have more stringent standards for
bonding than ever before. The focus of
their attention usually begins—and
ends—with the contractor’s financial
reports.
According to a 2007 Surety Credit
Survey for Construction Contractors,
the top two criteria in obtaining
surety credit comes down to 1) the
strength of a contractor’s balance
sheet and 2) the financial statement
presentation. Also, the company’s
history of successful projects is in
the top five. And where does that history
come from? You guessed it—past
financial reports.
Accurate financial reporting has
also become more critical to contractors
as a result of increased regulation throughout the industry. With the
advent of the Sarbanes-Oxley Act of
2002, (not to mention ever-increasing
government regulation at the federal,
state and local levels) public and
private contractors alike have felt the
pressure to improve their methods of
reporting and accountability.
Financial Reporting Needs
Evolve as Contractors Grow
Most small contractors start out with
a small business (or off-the-shelf)
accounting system to run their books
and prepare their tax returns at the
end of the year. And that may be all
they ever need. But as a contractor’s
volume begins to grow and the company
seeks to increase their credit
or bonding limits, so, too, does their
need for accurate and timely financial
reporting. Most small generic
accounting systems, however, simply
cannot produce all of the financial
reporting in formats that these entities
require.
In Accounting Software Checkup
No. 3 (Construction Business Owner,
April 2008), I talked about how construction-
specific accounting systems
can help contractors gain access
to hundreds of job cost reports for
important decision-making data. But
let’s not overlook a software’s capability
of producing the company’s financial
reports. In addition to preparing
basic financial statements, (such as
the income statement and balance
sheet), a contractor’s accounting software
package should be capable of
producing such key financial reports
as over/under billing, overhead allocation
and cash flow, to name a few.
Most general accounting systems do
not have the design or the integration
to capture the kind of data necessary
to drive these reports.
Take, for example, the over/under
billing report. This critical piece
of information ties directly to the
financial statement and is generally
required by surety companies in
determining a contractor’s viability.
Yet, it is extremely difficult to prepare
using a general accounting software package. Without an automated job
costing system, contractors could
easily spend a day or longer each
month gathering the information
needed to calculate this report. It’s so
time-consuming, in fact, many companies
produce this report just once
annually, at year-end.
Using Financial Reports
for Executive-Level
Management
Producing accurate financial reports
for outside entities—such as banks,
sureties or taxing authorities—is
one reason contractors should look to
sophisticated construction-specific
accounting software. Need another
reason? Successful construction business
owners are also using these
reports, in conjunction with their
detailed, project-level reports, to help
improve their company’s internal operations
and financial performance.
Using and understanding work in
progress, overhead allocation reports,
cash flow statements and the like,
contractors are able to get a bird’s eye
view of how their company is doing.
But consistency is the key. Rather
than producing these reports on a
semi-annual or annual basis (simply
because banks and sureties require
them), more and more contractors
like to see their financial reports on
at least a monthly basis. When viewed
over time, these “one-line-per-job”
summary reports help owners and
managers identify both trends and
inconsistencies.
The purpose of financial reporting
is to provide information that is useful
in making business and economic
decisions. Banks and sureties, for
example, use these reports to decide
whether a company is well-managed
and financially stable enough
to receive the credit and financing
necessary for job growth. Financial
reports also provide savvy construction
business owners with the decision-making data they need to help
improve their companies’ financial
performance. Thanks to construction-specific accounting systems, contractors
are finding fast relief from their
once tedious and inefficient methods
of financial reporting.
Fred Ode is the CEO/chairman of
Foundation Software, developer of construction
job cost accounting software
called FOUNDATION for Windows. For
further information on FOUNDATION
for Windows, visit www.foundationsoft.com.
Fred Ode can be reached directly
by phone at 800.246.0800 or e-mail
fred@foundationsoft.com.
|
