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Is Your
Accounting
Software Overstressed?
These five signs that
construction-specific
software could benefit
your business
Start small and build. That’s how most construction
businesses operate. New equipment is added if, and
when, the growing workload demands it.
But when workloads in the back-office grow, the need
for new equipment, or software technology, is sometimes less
obvious.
Most small contractors begin their businesses with the help of
a common tool: small business accounting software. Affordably
priced and easy to use, this is typically all a small construction
company needs to handle basic accounting and bookkeeping
tasks. But once a construction company grows beyond a certain
level, off-the-shelf systems simply become less than efficient.
How to tell: Processes take longer, data entry is duplicated, and
contractors have no easy access to reliable data.
THE FIVE SIGNS OF OVERSTRESSED ACCOUNTING SOFTWARE LISTED
BELOW INDICATE THAT IT’S TIME TO INVEST IN A BETTER SYSTEM.
1. The Accounting System Does Not Work
the Way Construction Works.
Construction is significantly different from nearly every other
industry because it is project-based. Contractors must keep
accurate costs for projects and project components in order
to control the costs of current projects and for bidding of
future projects. It stands to reason that there will be major
differences between general purpose accounting software and
construction-specific software.
Generic accounting systems that claim to do job costing can
generally handle only very simple project accounting needs.
Instead of organizing projects into jobs, phases/cost codes
and cost types, they force contractors to track costs by item or
category. In contrast, a good construction-specific package
will provide a coding system capable of producing the general
ledger information accountants need and the job-costing
information project managers and owners need. Equally
important, the system will make sure that these numbers are
always in balance. Without a detailed job-costing design, an
accounting system is virtually incapable of producing such
essential reporting as over/under billing, retainage and revised
estimates with change orders.
Generic accounting programs fall short for growing
contractors because they were not designed to handle the
many unique business and accounting issues that contractors
face—such as retention, WIP schedules, unions, prevailing
wages, multi-state payrolls, AIA billing and T&M jobs. Even
among construction-specific software systems, not all products
are equal. 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
best-fit features and functionality.
2. The Current System is Overly Dependent on Spreadsheets.
When contractors spend their time maintaining, updating and
manipulating data outside the accounting system, it usually
means one thing: Their current system is not providing the
information they need, in formats they can use.
When a system is incapable of providing job-cost
reporting and other essential information, users are forced
to re-enter data into a separate program, such as Microsoft
Excel. The result is disconnected sets of data, all of which
must be constantly updated and maintained with each new
transaction, job change, equipment use and so on. Time consuming
and inefficient, this method guarantees only that
too much time will be spent gathering information rather
than actually analyzing it.
Sometimes, contractors become dependent on spreadsheets
simply because they are not taking advantage of their current
software’s reporting capabilities. It’s possible that some users
are reluctant to give up their spreadsheets, or others simply
need more software training. But it could also mean that the
current software is lacking. In that case, contractors should
consider a construction-specific accounting system which
offers accurate, instant and extensive reporting capabilities.
3. The Company’s Accounting System Does Not Give
Detailed Job Information When it is Needed.
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 compiles data too slowly, it is a clear
sign of software deficiency.
Most small business accounting systems are designed
to automate financial recordkeeping, but their reporting
capabilities are weak. For example, some of the reports an
owner may want to see are production, estimate versus actual,
unit price, projected cost to complete and committed cost.
With simple accounting systems, accessing this information
would be difficult and time-consuming. Most good
construction-specific programs, however offer advanced
reporting features such as standard reports, customizable report
writers and easy data input and export into popular third-party
software products.
4. The Current Software Does Not Easily Handle the Payroll.
A major indication that a company has outgrown its generic
accounting software program is painful payroll activities.
Even for a company with 20 or fewer employees, payroll
activities and the reports derived from payroll information
(multiple tax jurisdictions, worker’s compensation, certified
payroll, union) can be complex.
Small-business accounting software might be capable of
generating payroll checks and booking 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 offer time-saving
efficiency and productivity when it comes to the payroll.
From a single timecard a good system will automatically:
• calculate an employee’s time to multiple jobs or phases;
• compute multi-state and local taxes, prevailing or union
wages, deductions and fringes and other burdens; and
• update both the general ledger and job costing modules.
The bottom line is when users perform manual payroll
calculations or create payroll reports outside the accounting
system, they’re not working as productively as they could be.
5. The Current System Is Slow and Inefficient.
Designed around finite proprietary databases, small-business
accounting systems are equipped to handle limited transactions
for companies with 20 or fewer employees and annual
revenues of less than $2 million. However, some businesses
track information differently, it’s possible for contractors with
less than 20 employees and less than $2 million revenue to
quickly outgrow their accounting systems. The rule of thumb
should be: The more transactions, the more robust the database.
Some of the more obvious signs that a system is inefficient
include the following:
• Users turn off audit trails and other preferences
to gain more speed
• The system can handle only one or two users at the same
time
• The same information is entered into the
system multiple times
• There are many steps required to complete simple tasks
• The system is extremely slow
The Bottom Line.
After considering these five warning signs, many contractors
want to know how their small-business accounting system,
which served well in the past, is no longer meeting their needs.
Ironically, the advantages that simple accounting systems provide
can become disadvantages as a company grows.
For example, the software’s limited construction functionality
(which makes it easier to use) and its minimal database performance
(which makes it cheaper to buy) are often the largest
roadblocks to accounting efficiency and productivity for expanding
contractors. Over the long term, construction-specific
accounting applications, can offer cost-saving advantages that
busy, growing contractors cannot afford to be without.
This article was provided by Foundation Software Inc., which specializes in job-cost accounting, scheduling and
project management software for construction. For more information, please call 800.246.0800, e-mail
info@
foundationsoft.com or visit www.foundationsoft.com |
