Most companies transition from a general accounting system to a more specialized accounting solution suited to their projects and industry.
Most general accounting systems let businesses maintain financial accounts with a focus on maintaining accounts payable and receivable, assets and liabilities, capital, expenses and revenues. The most popular general accounting software is QuickBooks.
On the other hand, construction accounting software includes most of the same features and more construction-specific modules such as progress billing, job costing and project accounting. It also lets you track your expenses in real time.
Whether you can manage with a general account tool is dependent on project scopes and business size. Smaller companies with a few projects of similar size and type might manage with general accounting software, but construction accounting software is a must for companies that have multiple projects running concurrently across locations.
ERP vs. Construction Accounting Software
ERP software tracks data about suppliers, employees, finances, assets, contractors and subcontractors. Generally, an ERP includes accounting features, but since they aren’t the focus, the accounting module may not be designed to meet all the requirements of a construction business.
Since construction accounting software’s sole focus is maintaining accounts related to construction, it will provide more in-depth reports and maintain records against various expense heads. That being said, larger businesses often find an ERP more suitable to their comprehensive requirements, while smaller firms may find an ERP to be more than their business requires.
Often, an ERP is more expensive than standalone construction accounting software.
Three Reasons You Need Construction Accounting Software
Three aspects of the construction industry that make construction accounting systems a requirement are:
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Long-term Projects: Unlike most businesses that have standardized costs, construction projects are long-term, and revenue generates based on project completion levels. If project costs and revenue aren’t tracked properly, it creates a mismatch in cash flow, leading to stalling a project or a complete shutdown.
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Decentralization: Construction happens in the field, not the office. Resources such as labor and equipment have to be available according to the needs of the project and have to be tracked carefully enough so that the project continues smoothly.
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Project-based: Construction, while it’s a continuous business, is ultimately made of many projects running parallelly, and every project has different requirements. Since it isn’t always possible to predict such costs, you should be able to record expenses against relevant headers.
Construction accounting tools can also be implemented as part of an application of suites since they integrate with project management, document management, fixed asset accounting, inventory management and equipment tracking tools.
Types of Buyers
Construction companies come in all sizes, varying from businesses that manage multi-million dollar projects to smaller firms with just one ongoing project. That’s why, before you choose a tool to manage your finances, it’s imperative to identify the type of operation you have.
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Large Construction Company: This category includes owners and commercial developers with multiple concurrent projects at various locations. Since their operations are large-scale, an ERP is a better choice than a construction accounting suite.
An ERP will be more expensive, but it’ll include project management and accounting capabilities, though you may need workarounds to generate reports.
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Civil Contractor: Also known as general contractors, civil contractors don’t need an ERP with all the bells and whistles. Civil contractors need software that can handle invoicing, payroll and job costing. They may also implement project management software to manage subcontractors.
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Service Contractor: Subcontractors and specialty contractors fall in this category. Their operations aren’t large-scale, and they’ll typically look for a tool that simplifies invoicing, payroll and billing. If your projects involve predictable costs, the software will be easy to implement.
Construction accounting software is less expensive than full-suite general accounting or project management software.
Primary Benefits
Accounting software for construction has a host of benefits if implemented correctly. Some of these advantages are:
Boost Project Control
At every step in a construction project, you make or lose money. Efficient software tracks, records and manages costs, time, change orders, materials and subcontractor work. Such data provides operational and financial details of the project in real time. These details help identify when a project is and isn’t going well so you can take corrective measures and improve profitability.
Increase Client Confidence
The efficiency and cost at which you complete projects are proportionate to how you manage various aspects of construction. Well-managed projects impress clients, adding credibility and helping win more jobs in the future.
Safeguard Record Keeping
Maintaining and protecting proper documentation is necessary as it opens businesses up to lawsuits. If there is no document, chances are, the data doesn’t exist. It is equally important to back up your data at regular intervals.
Enable Reporting and Tax Filing
Construction accounting software saves you from having to keep track of reams of receipts and paperwork. It lets you generate reports automatically for analysis. It also calculates taxes accurately, defending against false charges from tax authorities and paying them on time.
Improve Estimates
Developing estimates for future projects becomes easier since construction accounting software provides an overview of job costs across active and inactive projects. Reports from previous jobs help identify labor and material cost trends, where construction jobs go over budget and unanticipated expenses, resulting in better cost control.
While estimating, construction firms can incorporate the above factors while submitting bids.
Strengthen Visibility
These systems provide better visibility and insight into a project’s profitability and leverage drill-down tools to explore fine details. Data collection and reporting tools give you insights into the costs involved in their projects. Compared to generic accounting systems, construction accounting software provides vital insights into job and project costing.
Tracking job and project costs using spreadsheets is an inefficient and error-filled process, thanks to double entry. Double entry, lost information and errors result in erroneous reports and inaccurate data analysis. Using a single job costing and accounting system results in fewer errors and better estimates.
