Unlike traditional accounting, construction accounting is primarily project-based and focuses on tracking individual project costs and revenues. It utilizes specialized revenue recognition methods and emphasizes job costing, handling frequent project changes and various contract types. Over- and under-billings and excess costs within those projects can significantly impact project profitability and lead to financial discrepancies and compliance issues.
Additionally, construction accounting deals with long-term contracts, industry-specific compliance regulations, and practices, like retainage, requiring expert knowledge and robust systems. Despite this, many construction companies still heavily rely on paper-based systems, leading to errors and inefficiencies.
Accurate accounting is crucial in the construction industry for maintaining financial health, complying with regulations, and, ultimately, winning more bids. Automating the accounting function with a modern solution is one way to ensure accurate financial reporting.
Challenges of Antiquated Financial Systems
Once considered a “tried and true” method of accounting, manual, paper-based accounting is outdated and may actually be costing your construction company money in the long term. Maintaining these systems is more time-consuming and prone to errors, which further divert attention from critical business activities and decisions.
Contractors often habitually keep paper invoices and important notes on scraps of paper, which can cause delays due to late project inputs as a result of lost documents, cluttered desks and file cabinets, and difficulties deciphering handwriting.
Benefits of Automation in Construction Accounting
By integrating accounting automation, construction companies can not only enhance their financial management but also position themselves for growth and competitive advantage in the industry. Accounting automation offers a host of benefits for construction companies, including:
- Improved accuracy and efficiency: Automated systems reduce the likelihood of human mistakes that can occur with manual data entry, such as incorrect numbers or misplaced entries. Automation also provides more reliable data for decision-making as financial records are updated consistently.
- Reduced risk of errors and omissions: Automation helps ensure that financial activity is recorded as it occurs, preventing delays and/or oversight. Overall, the process is much more seamless.
- Increased productivity and profitability: Automation frees up significant time that would otherwise be spent on repetitive tasks, allowing employees to focus on more strategic activities and client management. Employee resources can also be allocated more efficiently, leading to cost savings and increased profitability.
- Improved compliance: Automated systems are often configured to adhere to current state, local, and federal regulations, helping to maintain compliance and reducing the risk of costly penalties. Automation also provides a detailed and easily accessible audit trail, simplifying the audit process and, again, reducing the risk of non-compliance.
Automation To Support Certification From the State
Certification from the state is crucial for construction businesses as it ensures compliance with local regulations, verifies the company’s legitimacy, and is often required for bidding on certain projects. It demonstrates that the company meets specific industry standards and is qualified to perform construction work safely and effectively. Accurate financial reporting plays a significant role in meeting these legal requirements, and automation supports this by providing efficient financial management and compliance tracking.
Automated systems also help with the proper documentation and tracking of lien waivers and certificates of insurance (COIs) for both accounting and legal purposes. By streamlining these processes, documentation remains up to date and easily accessible. Your accounting department can efficiently track payments, ensuring that funds are correctly allocated and that all parties are paid. Additionally, these systems can help mitigate potential risks associated with construction projects, such as accidents, injuries, and damages.
Tools and Accounting Software for Construction Companies
There are several automation systems and tools available to help streamline the construction accounting process, including:
- Industry-tailored accounting software: Available on the cloud or on-premises, tools such as Sage Intacct Construction and Sage 300 Construction and Real Estate (CRE) are specifically designed to enhance construction financial and project management through a comprehensive ecosystem.
- Mobile apps: These tools enhance accessibility and convenience, allowing for easy tracking of expenses and invoices on the go.
- Electronic payment systems: These tools help streamline payments to vendors and subcontractors, simplifying the transaction process and reducing the manual handling of payments.
- Automated payroll and tax filing systems: These tools help ensure timely and accurate employee payments and tax filings.
- Integration with other construction management software: These tools allow seamless connection to other systems, improving overall project management efficiency.
Are You Ready To Automate?
Automating your construction company’s accounting function can be highly beneficial, but it’s a significant change that involves more than simply acquiring new tools. The switch requires careful planning to ensure a smooth transformation. Here are some best practice steps you can take to automate your accounting processes:
- Assess your current processes: Conduct a thorough analysis of your existing workflows to identify repetitive and time-consuming tasks. Determine processes where automation could have the most impact, significantly boosting productivity and reducing errors. These areas are most often accounts payable, accounts receivable, payroll, month-end financial closes, procurement, expense reports, job costing, work-in-progress (WIP) reporting, project billing and invoices.
- Select the right tools: Research and choose an automation tool(s) that aligns with your business’s specific needs, goals and regulatory requirements. Consider your existing accounting technologies and other factors such as scalability, integration capabilities, and user-friendliness.
- Utilize an implementation partner: Collaborate with a partner who possesses extensive experience with the tool(s) and understands your business and industry requirements. Their support can greatly facilitate a smooth and timely transition, providing seamless data migration and integration of automation solutions into your operations.
- Provide training and support: Equip your team with the necessary training to utilize the new system(s) correctly and effectively. Continuous support and resources will be essential to help employees adapt to changes and maximize the benefits of automation.
- Monitor and evaluate: Continuously assess the effectiveness of your automation tool(s) by regularly reviewing key metrics. Gather feedback to identify any areas for improvement and adjust as needed.
Your Guide Forward to Construction Automation
At the heart of every successful construction company is a strong accounting and finance function tailored to the industry’s complexities – and that’s exactly what our Outsourced Accounting Services, Digital Advisory and Enterprise Resource Planning (ERP) teams deliver.
Cherry Bekaert’s dedicated construction accounting professionals specialize in project-based financials and can help build and manage a modern accounting system with optimized workflows that provide accuracy, efficiency and compliance at every stage. We understand the importance of tracking job profitability, managing WIP, and calculating over- and under-billings in real time to align cost with revenue recognition using methods like percent completion and/or milestones.
Related Insights
- Case Study: Transforming Financial Management with Sage Intacct and Outsourced Controller Services
- Article: Enhancing Growth: The Crucial Role Outsourced Accounting Services Play for Growth-Minded Construction Companies
- Article: 7 Key Benefits of Sage Intacct for Construction Companies
- Article: Propel Your Organization’s Financials Using the Power of Cherry Bekaert and Sage Intacct
- Article: Sage Intacct Construction Accounting Software: A Blueprint for Success
