Construction Accounting
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Construction Accounting Software – Why You Need To Have Specialist Construction Project Management Software
There is no shortage of general accounting packages available however if you are in the building and Construction Industry you should seek out a specialised solution designed just for your industry. Why? ………Because construction is so different and it’s so easy to fail.
The issues start with the construction projects themselves. These can often involve large value contracts and what concerns the business is that changes in the scope of works (called variations) are often greater than the project’s planned “gross profit”.
Unless variations are managed properly the viability of the business is at risk. Purpose built Construction Accounting Software will include facilities to highlight these and to produce the required paperwork through the various stages a variation goes through before it is approved by the client. This ensures that should either the Head Contract or Subcontract be disputed then the required paperwork is in place to help the business justify its claims in a court of law.
With construction project varying in their scope of works; the corresponding changes to the value of contracts and subcontracts; and payments being made out of sync with deliverables, it is easy to see why the stakeholders strive to clearly recognise their position in all projects and to implement corrective actions to avert liquidity issues downstream.
Construction companies generally fail for liquidity reasons – therefore, Construction Accounting Software will focus on providing tight liquidity management with the current status for all projects always available. To complicate matters, good project managers will aim to maximise, under the terms of the contract, the income from their projects. This will result in an influx of funds however funds received prior to expenditure should not be confused as “profit”. They are “project prepayments” and should be clearly reported as such.
Profit reporting is another unique feature of the industry. Traditional accounting assumes that the client is only invoiced for work provided. However construction projects are typically executed over a number of financial periods and depending upon the contract this could mean that the client is invoiced in advance. Using general accounting software, companies would then overestimate their profits and pay tax on them. Later they would have to do reversals when all the activities required to complete the project required payment. A proven approach is to report on current “earned value” by projecting both Income and total project costs to completion.
Construction Accounting Software needs to take a wider view of the world than standard accounting systems. For example, the projects themselves involve considerable risks that can cause cost increases or time delays or both. Firms need to manage these risks and ideally the construction project management software would feature an integrated operational risk management software system. This would ensure the key items of work, decision or verification are properly managed and account for the value of the identified risks.
The Taxation Laws (of Australia and probably elsewhere) are another reason why construction accounting is different. Tax treats certain construction specific transactions in a special way. For example:
* Goods & Services Tax (GST) on Progress Claims
* Retentions
In summary, Standard Accounting Systems, fail to provide what the industry requires; namely a package that mitigates disputes, manages risks, conforms to industry Taxation requirements and accurately reports liquidity and profits. These functions can only be effectively met through specialised Construction Accounting Software.
About the Author
Ron has extensive management experience on major construction projects. He established Muli to develop an integrated construction accounting software solution with an emphasis on construction project management software and job cost software.
Ron knows from first-hand experience that Construction and Building companies need to focus on liquidity and profitability and so has adopted a strong management accounting approach to software design and process management.
The flagship product, Muli, is an integrated software solution comprising job cost accounting software, work order management software, operational risk management software, project accounting software and earned value project management.
Will personal opinions, values and ethics affect the construction of accounting theories?
What do you think?
Only those of Gorden Brown 
Construction Estimating Software Accounting Software Project Management Software Training
In by gone days all a contractor had to do was give the customer good quality and good service and he/she would be set. Then set back and let your customers do your selling for you. They would tell a friend and then that friend would tell a friend. Your phone would be ringing off the hook. I remember as an Architectural designer some days I would have up to four people wanting to schedule appointments for designs. Those days are long gone! But Fear Not! Click Here For Help
