Five Signs You’re Due for an Accounting System Change

Ever feel like your accounting software just isn’t cutting it anymore? There’s a good chance it could be time to upgrade. This often starts when contractors purchase small business accounting software because it is affordable and offers user-friendly functionality. It’s a great fit for the small contractor and startup company, but as the contractor grows, serious limitations begin to surface. Soon, the overstressed software is no longer boosting efficiency and productivity; rather, it’s creating overstressed users. Following are five questions to ask yourself to determine if it’s time for an accounting system change.

1. Are you overly dependent on spreadsheets?

In other words, are you creating “customized” reports outside the accounting software for things such as work-in-progress, billings, job costing or labor-production analysis? This is a sure sign your current accounting software is not meeting your reporting needs.

When software is incapable of providing information the way contractors need to see it, users are forced to re-enter data into separate programs, such as Excel®. In effect, they create a second set of books, which must be continuously updated and maintained with each new transaction, job change, equipment usage and so on. Time-consuming and inefficient, this method only guarantees more time will be spent gathering information than actually analyzing it.

Sometimes, contractors overuse spreadsheets simply because they are not taking full advantage of their current software’s capabilities. It’s possible some users are reluctant to give up their spreadsheets, or others simply need more training. However, it could also mean the current software is lacking. In this case, contractors should consider a construction-specific accounting system that offers accurate, instant, and extensive reporting capabilities. What’s more, systems built upon secure databases and designed to handle tens of millions of records and multiple users produce reports that can be shared and accessed without tampering concerns.

2. Does your accounting software work the way construction works?

Construction contracting, which operates on a project-by-project basis, is significantly different from most other businesses. So, it stands to reason that major differences between general purpose accounting software and construction-specific accounting software will exist.

Consider job costing. Most generic accounting systems that claim to do job costing are geared to handle only simple project accounting needs. These systems force contractors to track costs by “item” or “category” instead of organizing projects into jobs, phases/cost codes and cost types. A good coding system should produce the general ledger information accountants need, as well as the job costing information project managers and owners need. It will also make sure these numbers are always in balance. It takes a detailed job costing design to produce such essential reporting as over-/under-billing, retainage, revised estimates with change orders, and more.

When you consider the many unique business and accounting issues contractors face — such as retention, WIP schedules, unions, prevailing wages, multi-state payrolls, AIA billing, T&M jobs, etc. — it’s easy to see why generic accounting programs fall short for growing contractors. Even among construction-specific software products, contractors need to understand their particular business, their processes and procedures, and the requirements for running the company in order to select an application with the best features.

3. Can you get detailed job cost information on the fly?

Accurate and timely job cost data is critical to any construction business. Information that cannot be retrieved on the fly is of little use to decision-makers or project managers who need time to turn a job around. When a software system is incapable of producing such reports, or requires too much time to compile data, it may be a clear sign of software deficiency.

Most small-business accounting systems are designed to automate financial recordkeeping, but their reporting capabilities are weak. These systems provide financial statements, cash flow, current balances and breakdowns of expenses by job, but they have serious limitations when it comes to extensive and customizable reporting. For example, some of the reports an owner may want to see are production, estimate vs. actual, unit price, projected cost to complete, committed cost, etc. While the owners have access to this information through a series of different reports and spreadsheets, a small business system would not be able to produce these reports. The owners would have to compile the information, which would take time.

Meanwhile, robust reporting is the cornerstone of most good construction specific accounting programs. They typically offer advanced reporting features such as standard reports, customizable report-writers, and easy data input and export into popular third-party software products.

4. Does your accounting software handle payroll efficiently?

For growing contractors using generic accounting software, painful payroll processes will often raise a red flag on software deficiency. Even with 20 or fewer employees, payroll processes and the reports derived from payroll information can be complex. Off-the-shelf accounting software can generate payroll checks and book the costs to the general ledger, but most packages lack the sophistication to handle multiple jobs, prevailing wage, multi-state deductions and other construction payroll issues.

Mid-level construction accounting systems, on the other hand, offer time-saving efficiency and productivity when it comes to the intricacies of construction payroll. For example, from a single time card, a good system will automatically:

• calculate an employee’s time to multiple jobs/phases;
• compute multi-state and local taxes, prevailing or union wages, deductions and fringes, and other burdens; and
• update both the general ledger and job costing modules.

The bottom line is that if you are performing manual payroll calculations or creating payroll reports outside the accounting system, you’re not working as efficiently as you could be.

5. Is your current accounting software slow and cumbersome?

It could be that your growing business has stretched the limits of your accounting software. These systems typically use proprietary databases, which are designed to handle transactions for companies with 20 or fewer employees and annual revenues of less than $2 million. However, because businesses track information differently, it’s possible for contractors with less than 20 employees and less than $2 million in revenue to outgrow their system. Thus, the rule of thumb should be that the more transactions contractors complete, the more robust their databases need to be. In contrast, many mid-range construction accounting software products use an open-system database, like Microsoft SQL, giving them more power, speed and integration capabilities.

Following are the more obvious signs your company has outgrown an existing accounting software.

1. To gain more speed, users turn off audit trails and other preferences.
2. The accounting software cannot handle more than one or two users at the same time.
3. Users manually enter the same information multiple times throughout the system.
4. Simple tasks require many steps to complete.
5. Users complain that the accounting software is painfully slow.

Considering all these factors, is it possible your off-the-shelf accounting software is dragging you down? Could the program that once served your company so well be draining your resources?

Ironically, it’s the very characteristics that make off-the-shelf accounting software products so appealing to small contractors that actually create problems as a company expands. The software products’ limited system features, which make them easier to use, and their minimal database performance, which make them cheaper to buy, are often the largest roadblocks to accounting efficiency and productivity for growing contractors. But don’t worry! Converting to a more sophisticated, construction specific accounting software may be just the cure your company needs.