Learn More About Construction Accounting Software
What is Construction Accounting Software?
Construction companies of all sizes constantly communicate and work with contractors, subcontractors, and field crew teams, which inevitably complicates payroll and accounting responsibilities. Hence, accounting is one of the most important areas in construction. The unique business model of construction companies—each project is essentially its own business, with its own revenue, expenses, payroll, and moving parts—requires accounting software that is designed specifically for the construction industry. What distinguishes construction accounting software from generalized accounting software is an integrated job costing feature. Job costing that integrates with the general ledger enables the accurate tracking, utilizing, and replenishing of construction resources.
Construction accounting software reports on the profitability of each job and can even point out significant contributing factors to the profitability of a job. With construction accounting software, project managers and contractors can track financial data of projects and attribute data to specific projects. Ultimately, construction accounting software improves project performance, encourages visibility and transparency into utilized resources, and synchronizes project information across all players.
Key Benefits of Construction Accounting Software
- Optimizes accounting tasks as well as relevant financial-based operational tasks throughout the entire construction project lifecycle
- Connects information and systems via a centralized source of truth, bringing together field teams with administrative and accounting teams
- Provides insight into the financial health of individual construction projects or the entirety of a construction company’s project portfolio
Why Use Construction Accounting Software?
Construction accounting software enables construction companies and contractors to operate efficiently. Effective construction accounting software allows construction businesses and firms to keep track of the financial aspects of construction projects. For example, if a project has already reached half of their budgets but hasn’t completed half of the jobsite, then accountants and project managers can better address inefficiencies and gaps with construction accounting software. Construction accounting software streamlines financial reporting and tracking capabilities, fully integrates financials with construction project documentation, and provides historical financial details that will help identify, analyze, and resolve irregularities. Additionally, construction accounting software smoothens the flow of sharing project financial information, to better keep stakeholders up to date on the progress and the health of projects.
Provides a comprehensive picture of the finances and operations — Updates project cost information in real time, enabling communication with the field, ensuring job costs do not deviate too drastically from initial estimates, and generating cost reports that can be used for future project planning. Construction accounting software records and keeps track of any and all actions on a construction project that makes, costs, or contributes to money.
Enables greater productivity and better information sharing — Construction accounting software does not need to integrate with construction project management software to facilitate information flow. On its own, construction accounting software enables a clear data trail for both auditing and project management purposes. Construction accounting software offers easy-to-use approval processes, which contributes to fewer mistakes, more efficiency, and accurate cost reporting.
Increases potential client confidence — With construction accounting software, users can tighten up how they track and record both financial and operational components of a construction project. This validates a company’s ability to complete a project in a timely and cost-efficient manner. Additionally, construction accounting software simultaneously eases the manual effort to keep a company’s finances in order as well as helps in impressing clients with outstanding bookkeeping instances.
Who Uses Construction Accounting Software?
The finance or administration team at construction firms, independent contractors, land and building developers, and commercial real estate owners or operators can utilize and benefit from construction accounting software. Cloud-based construction accounting software is accessible anywhere, whether it’s at the office, on the jobsite, or on the move with clients. Construction accounting software facilitates seamless connectivity between employees, crew members, and relevant stakeholders, improving communication and flow of operations.
Kinds of Construction Accounting Software
The kinds of projects that construction firms and contractors work on as well as any specialty trades that are contracted on projects determine which construction accounting solutions can match those needs. The size of construction companies also play a role in the kind of construction accounting software that is sought out by businesses. While more and more construction accounting systems (in addition to other types of construction software) are migrating to the cloud—to better fit the on-the-go and on-the-site realities of a construction professional—some solutions are still offered as on-premise solutions. One more thing of note: services companies do exist to streamline the training and consulting, and implementation and integration processes of deploying construction accounting software. The construction industry is a legacy one and while cloud-based, automated solutions have emerged to help modernize construction companies, it’s not easy for such companies to pivot. Service providers have emerged to bridge that gap, providing professionals with human resources that ease the burden of deploying and integrating brand new systems.
Construction Accounting Software Features
Contractors, construction project managers, and construction accountants leverage construction accounting software to track the financial data of each project they manage. Construction accounting software provides construction companies an industry-specific financial management solution that efficiently handles job costing in addition to general ledger and payroll functionalities. The following features are core accounting modules that can be found in any construction accounting solution:
Construction payroll — Payroll is a necessary component of effectively managing contractors and construction workers. Construction accounting software ensures that a company’s payroll complies with regulations as set by federal and state agencies, equal employee opportunity (EEO) minority compliance, multi-state and multi-locality, automated fringes, and unions.
Construction billing and procurement — Billing is another important element that construction businesses must accurately record and track. Construction billing functionality from a construction accounting solution has to be able to generate and track invoices for time and materials, provide full visibility into bookkeeping, track both estimated and actual job costs, and generate standardized American Institute of Architects (AIA) billing forms. Some construction accounting solutions also integrate equipment management functionality, which enables the tracking of any physical assets or equipments borrowed to comply with IRS regulations.
General ledger — Effective construction accounting software provides an easy way to generate and manage general ledgers as well as any relevant financial reports that can help make informed business decisions.
Project accounting — Project accounting enables project managers and construction accountants to track revenue and costs that are allocated to a construction project. Job reports can be generated to help businesses understand whether a project is on or off track. Those job reports can include anything from over or under billing, estimated versus actual costs and production tracking, and cash flow analysis.
Integration or compatibility with other construction systems — While construction accounting software can exist and work on its own, it depends on the size of a construction company or the kinds of projects the company contracts. Software that is built to integrate with other construction solutions helps streamline all workflows and reduce any gaps in communication or handoffs.
Forecasting — Construction accounting software that records and stores data and financial results effectively creates a historical record of job costs and trends. That historical record can be leveraged to better forecast and predict similar projects in the future. This helps construction companies maintain and ensure profitability of future projects.
Potential Issues with Construction Accounting Software
Size of company — The needs and requirements of a smaller construction company are not the same as the ones for a larger construction company. Some construction accounting solutions are more suited for a smaller business that take on less high tech projects; the same goes for solutions that are more suited for larger businesses that take on projects like warehousing and distribution centers for tech giants. Buyers must be able to suss out which accounting software will make the jobs of their accounting team (or person) easier.
Vendor support— Vendor support is crucial to ensuring that the deployed construction accounting solutions make good on the company’s investment. Regardless of the immediate, short-term benefits that a construction accounting system may bring to a construction company, if sustained vendor support (for both long-term support and initial training and integration support) isn’t provided, then construction companies will be left with an expensive, sophisticated system that can be just as arduous and ineffective as their previous legacy systems.
Communication and collaboration — If the database that a construction accounting solution provides or contributes to isn’t centralized, then the number and types of reports generated serves no purpose. If the construction accounting software doesn’t easily integrate with other existing construction systems, then the software cannot be as effective as advertised. Buyers need to ask questions about integrations and user access levels when researching appropriate construction accounting software to get the most out of their investment.
