Accounting software for small construction business

With small construction business, being productive and staying profitable are two of your biggest concerns. This is why so many of you are turning to accounting software to help manage your business. But as with any software, they can be difficult to use and time consuming to program.

Construction accounting software has become a valuable tool for small construction businesses. It allows them to track costs and earnings so that they can plan accordingly. To learn more about construction accounting software, read the following article.

The accounting software for small construction business is designed to be easy to use, without too many bells and whistles.

It has a simple interface that makes it easy for your in-house accountant to manage your books. There are no complicated reports to worry about, because the software will automatically generate reports based on what you need.

The software is compatible with all major operating systems – including Mac and Windows – so you can run it on whatever system your business currently uses. This gives you the freedom to choose what platform works best for your company’s needs.

Accounting software for small construction business

Construction Accounting Software Buyer’s Guide

What is Construction Accounting Software?

Construction accounting software performs a type of project accounting that has been developed for construction projects. These systems will track the financial data of every construction project you complete in real-time, while also monitoring your expenses (like the cost of materials and labor), revenue, as well as invoicing and payroll.

Construction accounting can also be found as a portion of a fully-integrated construction management software. Whatever solution your business desires, unique functionality included in construction accounting software modules include:

  • Job costing: Track and report transactions specific to each job.
  • Contract Revenue Recognition: Determine when to officially record income and expenses on a project.
  • Retainage: A set amount of payment withheld until project completion.
  • Specialized billing: Includes fixed price, time and material, unit price, and progress billing.

The construction field uses many terms not used in other fields of accounting, such as progress billing, which involves invoicing the customer based on the percentage of work completed for that billing period. Construction companies also need to account for vehicles and equipment which may or may not be owned by the company as a fixed asset.

Construction accounting is more complex when it comes to sales, cost of goods sold, expenses, and your breakeven. Construction companies usually have a variety of products and services being sold. This leads to a variety of direct and indirect job costs, leading to extremely complex expenses that can be difficult to calculate. This is because most of your projects will be custom jobs and will be harder to predict in your books.

Sage 100 Contractor Projects Overview Construction Accounting Software
The project overview in Sage 100 Contractor shows your cash position, job cash flow to date, and income from operations.

What Features Are Needed In Construction Accounting Software?

When shopping for construction accounting software, your business should focus on the features that make construction accounting software unique. Some of these features include:

FeatureDescription
Job CostingAssign costs to labor, equipment, materials, and subcontractors associated with each project.
General Ledger (GL)Tracks all information related to income and expenses of the company. Creates balance sheets and income statements. Maintains all details to track profitability and help make financial decisions.
Accounts Payable (AP)Manage expenses from labor, equipment rentals, and materials. Maintains cash flow to ensure your bills are paid on time.
Accounts Receivable (AR)Stores details on customers and integrates into the general ledger. Includes construction billing and invoicing such as AIA, time and material, and progress billing.
Financial ReportingCreate custom reports to visualize where your time and money is being spent for each project. Analyze expenses and net profit to see where improvements can be made to increase ROI.
PayrollManage wage calculation, direct deposit, and tax management for subcontractors and employees assigned to the project. Manage all types of construction payroll including Certified, Union, and Non-Union.
AccuBuild Payroll Construction Accounting Software
Handle certified payroll with customized deductions in AccuBuild.

What Are The Benefits of Construction Accounting Software?

Construction businesses that use manual methods to handle their accounting are at a huge competitive disadvantage to their competitors. Alternatively, construction businesses that use the wrong construction accounting software, or use multiple systems that all handle unique features, may struggle with integration issues or waste time on double-entry tasks.

Whatever your pain points may be, you’ll want to explore these benefits of construction accounting software to find out if an upgrade is for you.

Improved Job Costing

Job cost software facilitates the assignment of costs to individual cost categories to enable improved cost control and job profitability. In construction accounting, job costing supplements the company’s general ledger. Tracking labor, equipment, material, and subcontractor costs is useful to both project managers (to ensure projects stay below budget) and financial managers (who attend to the big picture of the company’s financial health).

The biggest benefit of job cost accounting software is comparing estimated vs actual costs. This will let you monitor your financial performance in a job in real-time. Only software developed with the construction industry in mind will be able to handle both small and large jobs for your construction business.

How many construction companies need job costing? In our Construction Technology Trends report, we found that job costing was the 2nd most desired feature in construction software, with 72% of buyers saying it was necessary to be included in their ideal solution.

Construction software buyers preferred functionality
72% of construction companies searching for software desired job costing.

More Profitable Projects

Detailed records of every financial movement your company makes are the first step to increasing revenue. By understanding your costs associated with completing each project, such as job costs and overhead, you’ll be able to better determine what needs to be done to become profitable. Quality construction accounting software will be able to monitor every piece of income or expense accumulated during a construction project.

Good project management will also lead to improved profitability. This is because project costs are always tied into what is deemed as a successful project–keep costs down and finish the project under budget and within a specified amount of time. Make sure you track all costs and bill for them appropriately.

Better record keeping via time tracking, material costs, change orders, and details on work a subcontractor has performed can also lead to more profitability. With better insight into these pieces of information, you’ll have a more complete view of not only your financials but also your operational plans and expectations. If a project is not performing up to standards, you can find out before you affect profits or incur a loss.

ComputerEase Job Center Construction Accounting Software
Monitor profitability in the Job Center in ComputerEase.

Improved Reporting

Construction accounting software can provide financial reporting that gives you better insight into your operations. These reports can help facilitate better managerial decision-making and let you monitor the performance of your business continuously.

Given the importance of job costs within construction accounting, it is important to have teh chart of accounts and job cost ledger set up professionally. Cost allocations will become easier and more accurate–meaning job cost reports will be more accurate and useful for your business.

Since cost overruns do happen in the construction industry, a work in progress reports (WIP) is another report that only a construction-focused solution is going to provide. This report tracks past work against a profit analysis schedule (useful for large or bid spread jobs), provides real-time insight into estimated earnings vs. current billings, and/or conducts a deep dive on all jobs in progress to determine which are the most profitable.

All WIP schedules will include details about the work being performed, the contract price, the estimated cost, how much has billed already, and how much cost has already occurred. These reports can be considered a 360-view of your projects that can also help show potential clients, banks, and contractor how reliable your company is.

Other reporting options within construction accounting software include consolidated financial statements, budget vs actual margins on jobs, cash and working capital status, and profitability by customer.

CoConstruct Estimating Construction Accounting Software
CoConstruct estimates can be more accurate with better control of your job costs, leading to more profitable projects.

Construction Accounting vs. General Accounting Software

Your business may ask the following questions:

What is the difference between generic accounting software and construction accounting software?

With general accounting software, the functionality is built around a general ledger and allows you to track your income and assets, expenses and liabilities, and more within an accounts payable or accounts receivable module. This software was usually developed to be used by multiple industry types, and therefore doesn’t offer tips, tricks, or features unique to any one industry. The most common example of general accounting software is a product like QuickBooks Online.

A construction accounting software will have the same features of a general accounting software but also include modules specific to the needs of construction professionals. This includes project accounting, which focuses on the financial transactions related to managing a specific project rather than the company as a whole. Project accounting will track costs, billing, and revenue.

Progress billing is another construction accounting feature that would be as prevalent within a general accounting software. This invoicing method provides regular payment cadence throughout a long-term project–letting companies bill customers on a predefined timeline based on completion percentages or hitting certain milestones.

Whether or not your company can get by using a general accounting software will depend on the size and scope of your operations and the projects you’re working on. Larger companies will more often than not find comfort in the use of somethign built for their industries, while a small business may be able to pick freely depending on their budget.

What is the difference between construction management software and construction accounting software?

A construction management software will have more of a focus on non-accounting features such as estimating, scheduling, and project management.

A construction accounting solution will focus more on reporting, financial statements, and job costing.

A construction management software may sometimes lack a traditional accounting setup of accounts payable, accounts receivable, and a general ledger. This will require you to use a secondary solution for accounting.

A construction accounting solution can sometimes be defined as an accounting solution designed to be used by a construction company. This will include the AP, AR, and GL features, along with job costing and progress billing capabilities.

Rather than having two standalone solutions that work together, all-in-one tools will provide the benefits of both. A large percentage of construction software options will include accounting as either a core or optional feature. Likewise, a solution may be marketed as construction accounting software but will include non-accounting features such as estimating, scheduling, and project management.

What Software Does Your Construction Business Need?

Depending on the size of your business or the types of projects being handled, you may look towards more advanced solutions.

Small Businesses

Job costing will be the most important feature to help you manage your basic construction accounting. Most entry-level accounting solutions should offer some sort of costing functionality. A small contractor may be able to survive using industry-neutral software such as QuickBooks or Xero, but may find themselves limited. It’s important to weigh the benefits of cost-savings in software to not having the ability to categorize costs and analyze what jobs are profitable.

Mid-Sized Construction Businesses

Growing construction businesses should desire a more in-depth estimating tool and some level of bid management. They will also need to have an industry-specific tool and won’t be able to survive using manual methods or a generic option like QuickBooks or Peachtree. These specialized options will also have vendors who specialize in implementing their software into construction environments.

Large Construction Businesses

Larger construction enterprises may specialize in a specific field and need specialized software to meet their needs (such as a large commercial real-estate developer, or a civil contractor). They may also have multiple entities with a need for many end-users. These enterprise-level organizations should look into a fully-integrated construction ERP solution that provides every accounting and management tool necessary to run their day-to-day operations.

Is QuickBooks a Construction Accounting Software?

QuickBooks can be used as a construction accounting software given the availability of invoicing, job costing, and reporting features. You can monitor spending and make for each job, upload photos of receipts, and tag hours and expenses to jobs. Optional payroll features let you manage your contractors and save time on 1099s, W-9s, and tax ID inputs.

Construction companies looking to use QuickBooks for construction accounting will need to choose a version that includes QuickBooks Projects, which includes the job costing feature. This feature is only available to QuickBooks Online Plus and Online Advanced customers.

A few users of QuickBooks explained why they use QuickBooks in a construction environment:

I use it for client invoices, change orders etc… keeping track of subs costs on each job, overages on jobs for materials. It is a powerful tool that used properly will help your business with paper trails. kevjob, ContractorTalk.com

You are pretty much breaking things down into categories and then into sub categories. So if you want to know how much you spent on subcontractors… … [or] want to know how much you spent on subcontractors for job A, Job B, and Job C, you can. fast fred, ContractorTalk.com

Pricing for QuickBooks Online Plus will start at $35/month for the first 3-months. After the introductory rate, the software continues at $70/month. This includes up to 5 users. If needed, payroll will cost an additional $18/month + $4/employee/month.

QuickBooks Online Project Management Construction Accounting Software
Manage the income, costs, and profit margin for your construction projects in QuickBooks Online.

Best QuickBooks Alternatives For Construction Accounting

While QuickBooks may work for some businesses, others will want to review alternatives or explore options that offer features QuickBooks doesn’t. Our QuickBooks Alternatives study surveyed over 4,000 cases of QuickBooks users searching for replacements.

Common functionality requirements for contractors replacing QuickBooks included better job costing, project management, equipment management, bid management, and field service management.

QuickBooks Alternatives Construction Companies
Sage 100 Contractor was the most reviewed software among construction firms looking to replace QuickBooks.

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