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Accounting Software Checkup
BY: FRED ODE
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NO. 5: ARE UNTIMELY AND INACCURATE
BILLINGS CAUSING FINANCIAL
DISTRESS?
Editor’s Note: Following is the fifth 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.
Construction business owners,
like the hard-working people
from Smith Barney, prefer to
make money the old-fashioned
way. They earn it.
Unfortunately, some contractors
never see all the money they’ve earned.
Or at least they don’t receive those
earnings in time to stay in business.
Bad billing and collection procedures,
as well as an ineffective accounting
system, can quickly result in cash flow
problems. And, as the experts tell us,
negative cash flow is the leading predictor
of contractor bankruptcy.
Here, in part five of our “Construction
Accounting Software Checkup”
series, we will take a look at how your
current accounting software stacks
up when it comes to the bookkeeping
tasks known as accounts receivable.
No matter what type of billing contract
a contractor takes on (lump sum,
cost plus, time and material, unit price
billing, etc.), the type of accounting
software the company uses is likely to
have a huge impact on its billing efficiency and accuracy.
Are Time and Material
Billings Slowing You Down?
From a time and materials standpoint,
the differences between
generic accounting programs and construction-specific software products
can be significant. Before sending
receivable invoices, a contractor
using generic accounting programs for
billing must first make sure that all
historical job data has been gathered
(such as employee timecard information,
material and equipment costs,
subcontract costs, burdens and overhead
expenses). Next, all job expenses
must be marked up according to predetermined
rates. And finally, the invoice
must be prepared.
As a construction company grows,
the ability to produce timely and accurate
time and material billings using
a generic accounting package becomes
more and more of a challenge. Because
generic programs do not integrate with
job costing, payroll or accounts payable,
contractors must use a manual system
of gathering data for each invoice.
This means pulling timecards, finding
receipts, shuffling through filing cabinets
for invoices and hoping that no
expenses were overlooked… or double-billed.
Once all the job costs have been
gathered, the contractor then must
calculate the markups, which are usually
broken down into numerous categories.
The entire process is as time-consuming
as it is prone to error.
In contrast, a good job cost accounting
system will eliminate virtually all
the manual work involved in time and
material billings. The system gathers
job data, calculates markups and creates
invoices. The tracking of time and
material job costs happens automatically
with every timecard entry and
every accounts payable transaction.
In most cases, users are able to define
both the costs to be included and the
format of the invoice. As for markups,
most programs will allow contractors to
define markups in an infinite number
of ways, such as employee by trade,
department or earn code. Once the
company has defined its settings and
formats, the switch to a construction-specific system often results in hours
or days of time-saving efficiency for
companies doing predominantly cost-based
billing.
Are Progress Billings
Becoming Progressively
Painful?
Contractors who use progress or lump
sum billings often complain that their
generic accounting systems are inadequate
for these all-important tasks.
The billings, which are almost always
done outside the system, become
increasingly difficult as the company
takes on more and more jobs. Because
these invoices are tied to the percent-complete
factor of a job, the importance
of having an integrated system becomes more obvious.
Take, for example, the contractor
who is four weeks into a $100,000 contract.
How does this contractor know
how much to bill at this point in time
by using a generic accounting system,
which does not put costs to specific
jobs? Either someone must manually
add up all the costs, or they take a
guess. By using an accounting system,
which collects detailed job costs as
they occur, the contractor will know
what the percentage of completion is,
and therefore, how much to bill. If the
system says the job is 50 percent complete,
the contractor bills $50,000. It’s
really that easy. There is no guesswork
and, better yet, no tedious, manual
billing process.
Recognize the Signs of
Inflexibility
When construction business owners
use accounting systems that were not
designed to work the way contractors
work, a lot of time is spent doing
work-arounds. The functionality of a
system’s billing application is a perfect
example.
Many contractors spend hours
trying to produce their billings in
specific industry formats, such as
those meeting the American Institute
of Architecture (AIA) specifications.
Others, who perform work for their
state Department of Transportation
(DOT) or other government agencies,
spend hours re-entering data into
specialized unit price billing formats.
And the list goes on. Whether it’s the
need for specific cost and coding structures
to create invoices or the ability
to track and release retainage items, a
good construction-specific accounting
system should do all this and more.
So, when it comes to your construction
company’s billing needs, how does
your accounting system measure up?
Untimely, inaccurate or inefficient billing
problems may lead you to consider
a healthy alternative: construction-specific, job cost accounting software.
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.
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