Construction Accounting Software
There are two major types of construction management software: Construction Project Management and Construction Cost Accounting Software.
Construction project management software helps to manage a project from start to finish, while construction cost accounting software tracks costs incurred during an ongoing project. Both systems integrate with other applications, such as ERP or CRM.
Construction accounting software offers contractor firms financial management tools to manage their construction business financials. This includes job costing, payroll, accounts payable and accounts receivable (AP/AR), general ledger, cash management, financial management, financial reporting, and audit reporting.
While construction accounting software may be offered as a standalone software product, better solutions will provide capabilities and integrations with construction estimating software, construction timesheet software, or construction project management software.
With the construction industry being one of the most competitive industries, the competition is high to both be successful and support firms with the best financial solution. There are hundreds of different accounting software solutions, each claiming to offer the best solution for contractors. Many claim to provide the "best" accounting product, but how do you know what works? How do you choose the perfect construction accounting software?
This construction accounting software guide will review the aspects of leading construction accounting software solutions and what features are critical to your company's growth. We'll show you why some are better than others and help you find the best fit for your needs.
Construction Accounting Software vs. General Accounting Software
Both accounting systems may do the same thing, so why select one over the other? The answer is simple; it depends on what your needs are for your construction business.
A generic accounting or bookkeeping solution is an application designed for small businesses to keep track of their finances. Furthermore, a general ledger system for tracking finances is an application designed to help companies manage their daily cash flow. Like Quickbooks, most general ledger systems offer basic functions related to managing monthly income and expenses. Most general bookkeeping programs allow you to create an account for each customer, vendor, employee, etc. and then enter transactions into these individual records.
In contrast, construction-specific accounting software includes these same features but adds more features tailored to the needs of construction businesses. Construction-specific modules within financial software include project accounting, job costing, and specialized progress billing. Suppose you are looking for a purpose-built solution to create invoices, estimate projects, run jobs, and perform other functions related to your construction business. In that case, you should look at a construction accounting system built for your industry.
A construction accounting system will allow you to enter data directly into the program, so you don't have to enter information manually. It will also help you keep track of your finances, allowing you to see how much money you spend on materials, labor, equipment, and payroll.
These solutions have many deployment options, including desktop software, cloud-based applications, and mobile apps. However, if you have multiple employees and multiple jobs and need to track all the associated time and expenses, then you should consider using an industry-specific accounting system.
Benefits of Using Construction Accounting Software
There are several reasons why construction firms use purpose-built accounting software for the construction industry:
Improved Operational Efficiency
Construction firms that are not using the right software often need help managing their projects effectively. Having the wrong software can lead to poor planning, missed deadlines, high-cost overruns, and other problems. In fact, according to the American Institute of Certified Public Accountants, construction firms that use inefficient software lose billions annually due to poor management practices alone.
Better Information Management
Construction firms often need help managing the enormous amount of information required to run a successful operation. They must deal with multiple types of contractors, suppliers, subcontractors, banks, and customers—all while keeping tabs on budgets and schedules. The complexity of the business can often lead to inaccurate invoicing, missed deadlines, and poor cash flow.
Better Project Management
Construction software is essential to every construction manager because it allows them to manage projects effectively. It helps contractors monitor and analyze cost performance, improve profit margins, and reduce risk. Construction accounting software provides real-time visibility into key metrics such as labor hours, material usage and contract pricing. These tools help managers decide how much to bid and what type of contracts to pursue. They allow them to forecast budgets and plan accordingly. And they enable them to identify potential problems early enough to prevent costly mistakes.
Improved Communication
In addition, construction accounting software improves communication among team members by providing access to information across departments. Managers can easily see where resources are deployed, whether equipment needs maintenance, and what tasks are left undone. This level of transparency leads to greater collaboration and faster decision-making, resulting in higher profits.
Better Reporting
Finally, construction accounting software streamlines the process of generating reports. Instead of having to go back and forth between spreadsheets or databases, managers can generate reports from within their programs. Reports include financial statements, job costs, work in progress, and more.
By deploying construction accounting software, you will be able to build:
- Effective construction project management
- Better cash flow
- More accurate forecasting
- Faster decision making
- Higher profitability
- Increased efficiency
- Lower costs
- Reduced risk
- Real-time visibility
- Streamlined reporting
- Better customer service
- Better teamwork
- Faster and more accurate Accounts Receivable and Accounts Payable
- Faster bank reconciliation
- Better budget management
Understanding Construction Accounting Software
There are many different types of construction accounting software out there. Some focus on one specific area of construction management (such as estimating), while others cover all aspects of the industry. The most popular types of construction accounting software include:
Estimating Software
A construction firm's ability to estimate work correctly is critical for success. Estimating software helps construction firms create accurate estimates based.
Estimating the costs of a construction project is an integral part of construction management. After meeting with your client, the construction estimating phase is usually your next move to determine the project's feasibility, the actual construction budget, and the completion schedule.
Construction cost estimating and scheduling covers all elements of project costs, including equipment, escalation and adjustments, administrative fees, labor costs, materials, profits, preconstruction takeoff, sub-contractor, and more.
Job Cost Accounting Software
Construction accounting records the total costs incurred during a project. Costs include materials, utilities, labor, subcontractors, taxes, insurance, etc. Construction accounting is different than general accounting because it tracks the actual costs of each activity. General accounting focuses on the overall profitability of the organization as a whole.
The key difference between job costing and general accounting is that job costing records the costs of each specific task performed during a particular project. Cost records enable project managers to see the costs of building a house and whether the project is breaking even or losing money.
Revenue Recognition Software
Construction accounting is complex because it deals with the timing of recognizing revenue. In short, revenue recognition refers to recording revenue earned during a period. Revenue is recorded on either a cash or an accrual basis. Under a cash basis, revenue is recognized immediately upon receipt. Under an accrual basis, revenue recognition occurs over the life of the related contracts.
Cash-based accounting is common among smaller contractors because it simplifies financial reporting and makes it easier for small businesses to manage their finances. However, it does not allow for complete transparency into revenues. For example, a contractor could report $1 million in gross sales without realizing that $500,000 is still outstanding. Companies that use cash-based accounting are less likely to realize the full potential of their operations.
Accrual-based accounting allows companies to record revenue accurately and fairly. Accrual-based accounting requires companies to carefully monitor the performance of their projects and bill customers accordingly. It also helps ensure that contractors do not pay themselves prematurely.
Construction Billing Software
The construction industry uses a wide range of billing methods to invoice clients. These vary depending on whether the contractor bills hourly or lump sum. They also vary by how much work gets included in each invoice and whether there are multiple phases or stages to the project.
Time and materials projects typically bill hourly, allowing contractors to charge for the actual hours worked on a job. This method is often preferred because it provides greater transparency into the cost of a project. However, it requires careful tracking of tasks performed and hours spent on the job, making it difficult to accurately estimate project costs without additional information.
AIA progress billing is based on the percentage of work completed, and invoices provide detailed breakdowns of the types of work completed and billed. This method is effective for estimating costs but requires the contractor to keep meticulous records of the amount of work completed and the total number of hours spent on the job.
Retainage is not billed the same way as other client billing and requires special treatment. Clients may withhold part of the initial contract payment until they are confident that the project will be completed within budget. This withholding could occur at any stage during the project, including before beginning work. Once the project is complete, the withheld portion becomes due immediately.
Construction Payroll Software
Construction Payroll Software helps small businesses manage their human resources by automating the process of paying employees and complying with union policies, tax withholdings, and wage reporting requirements.
Managing construction payroll can be challenging for companies with a part-time HR department. This complexity is especially true when considering the many factors involved in determining a fair pay rate. There are multiple considerations to take into account, including prevailing wages, unionization, and state and local taxes. These challenges make it essential to have accounting systems to help accurately calculate payroll, keep accurate records, and ensure compliance with regulatory rules.
Best Construction Accounting Software
There are several different types of construction accounting software available today. Some offer only basic features, while others include advanced functionality such as multi-currency support, time management tools, and more. The best construction accounting software should meet your company's specific needs and allow you to track all aspects of your business efficiently.
Deltek ComputerEase is a cloud-based ERP solution that helps construction firms manage every aspect of their operations. The software includes flexible job cost accounting and computerized construction management software to power job success. Additionally, it provides a robust CRM module that integrates seamlessly with its accounting system.
Built specifically for contractors and construction professionals, Deltek ComputerEase centralizes all critical data into one place to help you manage costs, job site productivity, and project profitability.
Industry-leading construction software features include:
- Job Cost Accounting: Track labor hours, material expenses, subcontractors, equipment, and more.
- Construction Management: Manage projects from bid through closeout. Create work schedules, track progress, generate reports, and analyze performance.
- Dashboard: View real-time information, including budgets, forecasts, and invoices.
- Customizable Reports: Generate customized spreadsheets and charts to meet specific needs.
- Multi-Currency Support: Easily switch between U.S., Canadian, and Mexican currencies.
- Time Tracking: Automatically record billable time spent on each task or client.
- Billing & Payment: Process payments quickly and efficiently using electronic funds transfer (EFT) technology.
- Invoice Approval: Accept or reject an invoice within seconds.
- Project Management: Plan, schedule, and monitor projects from start to finish.
- QuickBooks Integration: Import transactions directly from QuickBooks®.
- Mobile App: Access your data anytime, anywhere.