Construction accounting software: Custom fit like an NFL offense
By Fred Ode
In 2012, the Washington Redskins drafted a tall, athletic, strong-armed quarterback named Robert Griffin III. Instead of forcing “RG3,” as he was called, to fit the traditional mold of a National Football League offense, the Redskins coaching staff molded their offense to his skills.
The result was the unorthodox -- but highly effective -- “pistol” offense. If you want the details you can Google the X’s and O’s, but here’s the bottom line: By designing their offense around their star’s skills, Washington made a smart decision.
You can make a similarly smart choice when choosing your construction accounting software. You should find a system that fits your business — not fit your business to the features of a particular software system.
The following are some guidelines for navigating the many options you’ll find when shopping for construction accounting software. This “Is it for you?” questions at the conclusion of every item will help you determine what’s best for your company.
Every offense needs a quarterback, linemen, running backs and receivers. That’s non-negotiable. So are certain aspects of an accounting system: You need a general ledger. You need an accounts payable module. If you like getting paid, accounts receivable is pretty important. And payroll is pretty darn important … unless your employees love you so much that they’ll work for free!
So, assuming you (and your employees and vendors) like to make money, these basic functions are vital. They’re also pretty obvious, right?
Sure, but when you look at the details, there’s a major difference between how these functions operate in a robust construction accounting software package versus a generic, one-size-fits-all program.
The job costing “scouting report”
Construction accounting packages have features that allow you to cleanly track and report industry-specific figures such as prevailing wages, multi-state payrolls, AIA billing, work-in-process (WIP) schedules and more. Good programs also give you information that can function much like a scouting report on your company.
Job costing is key — in fact, it’s the foundation around which a good construction accounting software program is built. For example, a job-costing function allows you to track projects by jobs, phases and cost codes. For owners, CFOs and project managers, it will produce detailed information such as over/under billing, cost-to-complete, and estimated versus actual costs. The job-costing module also allows you to keep track of your various projects by breaking down production, unit pricing and projected costs.
For accountants, job-costing accounting will also produce the higher-level, general ledger numbers. And it will do both of these seamlessly, with the click of a mouse or the tap of a tablet screen.
Generic accounting systems, on the other hand, will likely have you tracking costs by items and category, forcing your data-entry people or accountants to waste time culling through spreadsheets and re-entering information. Those resources should be spent pursuing new business, not reformulating data.
Is it for you? If your business is big, or growing, or both, you should be using construction accounting software. It’ll give you better and quicker information and allow your company to align resources in a way that makes you leaner and more competitive.
Supercharge your performance
A football team’s playbook features basic plays, along with several “specialty” plays for specific situations. Likewise, construction accounting software packages have several add-on features that may be useful. Here’s a look:
• Executive dashboard: This tool uses charts and graphs to give owners, executives and project managers a real-time, snapshot view of how the company is performing. You can also use it to isolate individual projects and dig into the details: Which jobs are performing well? Which aren’t? What’s over budget? What’s under budget?
Is it for you? Frankly, this tool is valuable for everyone. It gives you essential information, and you don’t have to wait on your finance department to compile numbers. The data is already there.
• Project management and document imaging and routing: Picture an electronic filing cabinet where documents are immediately funneled to the proper place. With these tools, you can view a specific job and see all the associated documents, from submittals to change orders. You can see which issues are closed and which are awaiting a response. Much like a contact-management system, you can track correspondence related to a project. Vendor invoices can be sent to a project manager for approval before paying the bill. You can even save digitized Human Resources documents (for example, driver’s licenses and W-4s) associated with a specific job.
Is it for you? If your company could better organize its paper trail, or if you’d like to move toward a paperless system (the trees will thank you!), these accounting modules will work for you.
• Project scheduling: Essentially, this is a job mapper. Enter all the tasks, including start date and anticipated length, for a specific job and the software will create a detailed calendar in the form of a Gantt chart.
Is it for you? This is a nice bells-and-whistles feature that helps you load your resources – both human and equipment – where they’re needed most.
• Service dispatch: Specifically designed for contractors who work in fields like electrical, plumbing, HVAC or any others with a service division, this feature gives you a calendar dispatch board that also allows you to generate an invoice immediately from the software upon completion of the work.
Is it for you? Yes, if you have a service division and would benefit from speedier invoicing. (And who wouldn’t?)
• Equipment service and usage tracking: Back to football: Maybe your backhoe is on the field and consistently earning you money while your dump truck is too often “benched,” or sitting idle. And, if that’s the case, then the backhoe might be due for some service soon; an important point that, if overlooked, could result in costly repairs.
Or maybe that backhoe is idle most of the time, and you’d be smarter to sell it and rent one as needed. And maybe you’ll also discover you’re renting a piece of equipment so often that you’d be better off buying it.
• Construction accounting software: that tracks equipment and usage will give you useful information such as utilization hours, production, tracking equipment cost against the project, and alerts when maintenance (oil changes, tire rotations, engine repairs) is due.
Is it for you? Answer this question: Do you know which pieces of equipment are most, and least, profitable for you? Do you have easy access to those financial figures? If not, this feature will improve your business.
• Specialized billing features: A time and material billing feature makes life easier for contractors who use a cost-plus model. Enter your hourly rate, plus mark-ups, and your accounting system will automatically track billing and generate real-time reports on how profitable (or not) a specific job has been for your company. It’s also a great benefit for contractors who use multiple labor billing rates. You can enter the negotiated rates for regular time, overtime and different specialties, and the system will calculate the bill for you instantly. This can save you hours of scouring spreadsheets and reports and doing manual calculations.
Similarly, a unit price billing feature will help you track and bill for work based on quantity, such as highway striping or fence removal. It can track work that bills for different rates (say, fence removal, excavation and stone backfill) and create a bill that shows the customer the quantity completed.
Is it for you? If you use one of these specialized billing models, yes. Unit price billing is especially useful for Department of Transportation contractors.
• Other extras: A strong accounting package will also offer you modules that track the depreciation of fixed assets, real-time inventory and, if you have multiple companies and need to merge financials, a consolidated general ledger.
Is it for you? That depends on your company’s needs and how much you’re looking to invest in your accounting system. Talk to the software company, ask how other customers have used these add-on features, and use that information to make a decision.
• Third-party software: Depending on your company’s work, you may need to integrate third-party software. An estimating package that works well for an electrical contractor may not fit an excavating company. If you’re a general contractor, your estimating needs are likely to be different. Integrating third-party software that fits your unique needs may be a key step in customizing your accounting program.
Is it for you? Could be. These third-party packages should integrate seamlessly with your accounting software. When shopping for an accounting system, be sure to ask about third-party options that would benefit your business. A good construction accounting software company should have recommendations and be unafraid to refer you to them.
Making it happen
Of course, a solid playbook doesn’t help a team win unless it’s executed on the field. To make your construction accounting software a winning investment, you need to closely consider the logistics:
• Mobile reporting and entry: This option is growing in popularity, but if you invest in it, you need to make sure you’re ready for it. The basics of mobile are simple: Data can be sent seamlessly between the field and home office, making real-time reporting easy and eliminating doubling of data. Time cards, for example, can be entered on a tablet or smartphone, instead of scribbled on paper and keyed in back at the office. Usage of equipment and materials can be logged in from the job site. GPS monitoring can be used to verify when employees arrive at and leave a job site.
The benefits are numerous, but it’s important to have buy-in from the people in the field. If they’re untrained or not inclined to use mobile consistently, then you may have a fleet of iPads used only for web browsing.
Is it for you? My recommendation for most companies: Implement mobile in increments. Start with one crew, then add another and, slowly but surely, integrate it into the culture of your company.
• Cloud options: The cost of construction accounting software depends on the number of modules and users, but it’s always a big investment. Today, there are options that can make it more affordable.
Choice 1: You can buy the software, install it on your computers, and have full control of it. This requires updated hardware, a network, servers, and possibly an IT staff. Most companies who buy software also pay an annual maintenance fee that includes updates and phone support.
Choice 2: Purchase the SaaS (“software as a service”) model, which gives you access to the program in the cloud via a web browser. The software is automatically updated and data is backed up automatically, too. This option works well for smaller contractors or ones who don’t have an IT staff. That said, many large contractors are also using this model, which is increasing in popularity every year. Many industry experts – me included – think this will become the primary method for software delivery.
Is it for you? SaaS is becoming more prominent in the construction industry, though there are still many companies that prefer to own their own software. The choice is ultimately yours, and should be based on the resources you have and the resources you can invest.
Choosing a construction accounting software system can be daunting. So is moving a football 100 yards downfield. So make it a team effort. When shopping for a system, involve everyone -- from your owner or company president to your CFO or controller and your data entry people -- seek your accountant’s opinion, too.
Getting buy-in at every level will help you call the right plays (translation: ask smart questions and consider all the options), and deal with the inevitable challenges. After all, RG3’s sophomore season was marred by injury, and the jury is still out on whether he’ll return to his rookie form. If he does, it’ll be not only to his credit, but to the system around him.
Similarly, a smartly built accounting system will help you navigate issues with clear information and focus on what you do best: Run your business.
Fred Ode is the chairman and CEO of Foundation Software, a company he started in 1985 after several years of working as a teacher and software developer across North America and Europe. His leadership has been integral in the design and growth of the Foundation for Windows construction accounting software program. He’s also the founder of Payroll4Construction.com, which provides payroll services specifically tailored for the construction industry. For more information or to contact Fred, visit www.foundationsoft.com.
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