Sustaining a solid financial performance is paramount for an industry plagued with crisis after crisis. The growth of the construction sector was optimistic. In 2021, the market value peaked at 1.6 trillion US dollars.
Between 2020 and 2021, the combined value of residential, non-residential, and non-building construction increased by over eight percent. But the increasing shortage in the workforce and mental health issues are causing construction firms to keel over its aftereffects.
Executive leaders are looking at financial executives and their accounting teams to navigate the challenges of cutting project costs and boosting company profits. From a long-term perspective, financial leaders are searching for ways to efficiently allocate resources to maintain the construction firm’s strong economic performance.
Construction accounting software can provide an edge over other tools with its combined power of tracking financial performance and taking the pressure off complex accounting processes. This article covers the basics of accounting software, from the benefits to the selection process.
What is accounting software and how will construction firms benefit from using it?
Accounting software is similar to the tools a company may use to simplify an otherwise complicated daily process. As an accountant’s technological ally, you can expect accounting software to automate standard accounting tasks, including payroll, ledger, accounts receivable, and accounts payable.
Leading product review platform CompareCamp elevates this tool description by highlighting an accounting software’s ability to generate timely reports on the firm’s financial health. In other words, this suite of programs does more than automate construction accounting tasks. It helps financial leaders make essential decisions regarding financial resources and performance.
Considering the innumerable factors that could undermine a construction firm’s financial performance, such accounting software tools should be the norm. For instance, the chances of manual accounting errors are high and increase with complex tasks. Unlike other industries, construction accounting considers the duration of construction projects – 10 years or more. This means it isn’t good enough to have accounting software that you can’t configure beyond annual reporting.
In addition, the duration can drastically change because so many factors come into play for most construction projects. Besides adjustments in the contractor’s terms, weather conditions and local issues crop up and impact the construction project cost.
Accounting software might require more customized features than what people may associate with such software platforms.
Benefits of accounting software
Accounting software for your construction firm will not only help you track financial performance. Depending on its features and technologies, the software can also help meet critical benefits, including:
- Maintain data integrity: Many financial decisions rely on the accuracy of financial reports. Erroneous data in one document can carry over to other financial documents. Construction accounting software protects your data from errors when manually adding or removing financial data.
- Ensure availability: Delayed system updates and other issues can cause some accounting software to crash or become unstable. Some software tools come with good support. This helps the problem to be fixed in no time, ensuring that productivity isn’t severely impacted. Construction companies generally turn to cloud-based software for accounting tools to improve the availability of their financial records.
- Saves time: Manual processes can swallow up to 65 percent of your finance and accounting team’s time. Automation can reduce this by 30 percent, according to a McKinsey report. Some functions can be fully automated, and others partially automated. Teams can use the extra time to analyze and draw recommendations for the construction firm’s financial health.
- Boost productivity: Some accounting teams already use accounting tools. But since they use tools for different accounting tasks, the team juggles the cost and management of other applications. A comprehensive accounting software tool can address this problem and bring more savings. Additionally, they can use a single dashboard to access relevant documents and financial reports.
- Secure financial data: Construction accounting software has encryption, multi-factor authentication, and other security mechanisms beyond passwords. This ensures protection against unauthorized access, theft, or stolen company assets (e.g., laptops).
- Tax compliance: In the US, tax-related tasks take up to 175 hours per year. Unfortunately, this is one area you cannot cut corners; otherwise, you’d have to pay penalties and harm your construction firm’s reputation. Most accounting software comes with tax planning features, adjusts calculations to reflect updated policies, and integrates with other tools to compare income tax returns. Accountants only need to check if the software’s templates comply with the International Financial Reporting Standards and the Generally Accepted Accounting Principles.
- Support scalability: Accounting software possesses data that it can use to generate real-time reports. This information allows financial executives to focus on the key metrics (e.g., inventory) that can negatively or positively affect the firm’s financial health. Also, construction accounting software may come with modules that integrate with other business tools. Some capabilities no longer in use can also be removed.
- Enable remote access: The pandemic has caused a stir among businesses that used onsite tools and were forced to pivot to applications that support remote access without compromising security. Accounting software that offers onsite and remote access is a must for firms. By building in safety nets and training staff members on best practices when implementing new software, a business can ensure there is company wide adherence and security.
- Reduced audit time: One of the most challenging accomplishments for every accountant is to receive good audit feedback. Standard accounting software supports organized documentation. It enables auditors to speed up their auditing and, in most cases, allows them to provide favorable feedback or positive pointers.
- Facilitate secure financing: Accurate financial statements are essential components of secure bank financing. Some accounting software offers financial statements that fit bank requirements, so accountants should check this function, too.
Types of accounting software
When choosing accounting software for a construction firm, consider the different types or combinations.
- Time and expense software is an accounting tool that includes features for improving performance and decreasing turnaround time. This type of software identifies bottlenecks in a construction firm’s operations, which is helpful for firms that want to enhance their efficiency. An example of this software is Fyle, which involves expense management, reporting, and reimbursement.
- Billing and invoicing software supports the basic accounting tasks that cover buying and selling transactions. An example of a billing and invoicing tool is Slickpie, which equips people to handle live bank feeds, invoicing, and data entry.
- Payroll software is another accounting solution specially designed for managing company wages. It can help convert person-hours to salary and factor in deductions, taxes, and more. Accounting by Wave is a free integrated platform that includes payroll for a nominal fee. The platform handles invoicing and accounting and is a good fit for small construction businesses.
- Enterprise resource planning is a comprehensive software for large construction firms. It contains modules for inventory management, project management, and more. An example of enterprise resource planning software is Odoo, an open-source software for accounting, customer relationship management, logistics, and HR tasks.
How do you select the best accounting software program?
One of the most essential aspects of choosing an accounting software for a construction firm is the inclusion of critical users. Many firms do not consult with their accounting teams before prescribing platforms or technologies for them to use.
This mistake could cost precious time and affect your team’s morale. Even though the software is for accountants, they might resist using it. Including them in the process ensures end-user adoption because the company takes their opinions about the accounting software into consideration.
Besides hands-on knowledge, it is possible that some members of your accounting team already have experience with accounting software (perhaps from previous employment). This means they might already have a clearer idea of which software features to watch for and which ones to avoid.
Firms must sit with their accounting teams to select the ideal construction accounting software and list the features they want. Then they must organize these features by buckets: features that support short-term and long-term goals.
The next step is for the team to prioritize the software’s top features and then find the software programs. Other factors to consider include pricing, support team, and trial periods. Finally, they must narrow down the list to pick their final choice. All these steps are discussed in detail below.
1. List the features your team is looking for in accounting software.
As cited, putting together a team of end users is critical for selecting accounting software for your construction firm. Worth noting is how some features matter more to some accountants, but only a little to finance professionals. This is why it’s essential to lay out all the accounting features that each member thinks are critical for any software.
These features may include accounting software that can easily collect tax forms which can be used to hold payment from non-compliant payees. Others may want software for accounting and other core tasks, such as finance, sales, or marketing.
2. Organize these features by short- and long-term goals.
The goals that the accounting team or department has for each month, quarter, or year can be used in filtering in the ideal construction accounting software. Using these targets, the selection group can see which features make sense today, but may not in the future.
Furthermore, by organizing features by goals, the end-users can compare the long-term costs of one software, which can place it at a disadvantage (if the returns aren’t sufficient or take a long time). During this step, leaders and members can also discuss construction trends that demand more (or less) from the features. For instance, when the world was still going through the COVID-19 pandemic, were the accountants able to use their accounting software remotely?
3. Discuss and prioritize the top features of your accounting software.
The third step is one of the trickiest phases in choosing accounting software for your construction firm. Discussing prioritized features means some accounting features will fall off the list, causing friction among team members or leaders.
However, ranking or rating the accounting software features is inevitable. If you choose to skip this, you risk buying software with features your accountants don’t need yet. However, if you can prioritize, you can select software that covers the basics and could scale up as your construction business grows.
4. Find accounting software programs with these prioritized features.
Once you have a final list of prioritized features, you can start looking at the construction accounting software market, and expand your search to general accounting software, too. As you review various accounting software, be wary of straying from your listed features. Avoid making compromises and focus only on your team’s top accounting software features.
5. Consider other factors besides features.
As you check the market for accounting software programs, consider the budget and other significant costs, such as upgrades or customization. Reach out to the software company and request a demo with your accounting team.
Provide your team members with their roles in the meeting. Each must have their assigned topic and questions so you can cover many points during and after the demo. Besides a live demo, does the software company allow trial periods so accountants can try out the key and advanced features?
Construction firms must consider the type of customer support the software company offers and ask what issues they usually handle. Ask them what learning resources they offer or if they have an onboarding process to ensure quick adoption.
Further, consider what features they support during customization. This is important because clients or subcontractors need to access your accounting software during project management. After looking at these other factors, you need to select a mechanism for determining the final construction accounting software (e.g., voting).
After the selection process, continue to communicate with the team. Collate feedback and use this information to request or discuss further improvements with the software company. They may be happy to accommodate and customize further with an additional fee or none.
Boost Business Productivity With Accounting Software
The selection process of selecting the best construction accounting software begins with listing all the accounting software features. Your end users, finance professionals, and accountants should be the ones to fill this list because they know the key functionalities that matter.
Together, you need to organize these features by goals and prioritize features. Using the final list of accounting software features, you can start researching the available construction accounting software and take note of their pricing, support services, and other factors. With sufficient time and diligence, you should be able to purchase a software tool that will boost your construction firm’s productivity, and your team’s morale.
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