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General Accounting vs. Construction Specific: Why spend the money?
By Larry True, Systems and Business Consultant
I can’t count the number of times I have heard
contractors mention that they bought MAS90 (or
Great Plains or Peachtree or QuickBooks – just
pick one) and that it didn’t seem to fit all of their
needs.”
I wonder to myself, “Why?” Not why it didn’t fit
their needs, but why they selected a general purpose
accounting system for their construction company in
the first place.
What I’ve learned is that many contractors simply do
not realize that construction-specific software exists,
so they buy a popular brand name with little regard
for what the program could actually do. In other
cases they receive bad advice – unfortunately
sometimes this advice comes directly from their
accountant.
Consider the differences between general purpose
accounting software and construction-specific
software. Most smaller construction companies
typically need general ledger, accounts payable,
accounts receivable, payroll and job cost. All systems
have those packages so why not pick any one of
them, right? Not necessarily. Here are a few things to
think about before making that decision.
Job Cost
Let’s consider job cost first. Most general accounting
job cost systems are geared toward the needs of small
manufacturing companies, or, at best, they handle
very simple project accounting needs.
In my experience, the needs of a small contractor
really aren’t that much different than those of a larger
one; but both are very different than the needs of
manufacturing companies. For contractors, projects
need to be organized into tasks or phases and,
depending on whether they do highway work,
commercial building work, or housing, the coding
structure may be different. Many general contractors
use the CSI (Construction Specifications Institute)
coding structure for their job costing, while highway
contractors often use their state DOT codes. Housing
contractors sometimes use the HUD coding structure
which is quite different from the others. You get the
picture. The needs vary quite a bit."
What about project revenue recognition and
over/under billing? Many general systems simply
don’t deal with revenue recognition or over/under
billing at all, forcing the contractor to handle this task
off-line-usually in an Excel or Lotus 1-2-3
spreadsheet. This makes extra work that is
completely unnecessary.
And forget about management reports. Most general
accounting job cost systems provide a standard
budget versus cost report with no thought about
budget revisions, change order tracking, projected
cost, committed cost or estimated cost at completion.
Subcontracts
Subcontracts are rarely handled well in general
accounting systems. Subcontracts are a special type
of accounts payable that includes agreement for
services as well as the specific payment terms, insurance requirements and frequently a tie to the
owner’s payment to the prime contractor. Most
simple general accounting systems have accounts
payable, and some have purchasing. Rarely will you
see commitment analysis and insurance tracking,
much less change order management or any link to
the prime contractor’s billings to the owner or higher-tier
contractor.
General Ledger
Consider the general ledger. Many construction
companies have complex organization structures with
different divisions, locations and profit centers. Most
general accounting systems can accommodate some
type of organization structure, but many of them
can’t even begin to handle all of the relationships
between sub-modules and the general ledger that
exist in a construction company.
Equipment and Cost Management
Equipment and cost management is another
important issue. If a contractor owns equipment, and
the accounting system doesn’t handle it, the
contractor is left to create or buy a separate system to
meet his needs. This results in extensive efforts to
either create journals that can be imported back into
the general ledger or manually re-key the information
into both the job cost and general ledger systems.
It is true that the maintenance tracking function does
not necessarily need to connect to the accounting
software, but charging the equipment cost to jobs and
booking the depreciation and repair costs to
equipment certainly do.
Payroll
Don’t forget payroll. Contractors who use
QuickBooks or Peachtree may be able to create
payroll checks and book the cost to the general
ledger. However, the level of detail will not be as
comprehensive or informative and the ancillary tasks
associated with a construction payroll will most
certainly take longer using a general accounting
system versus one that was designed for construction.
Additionally, what about all the reporting needs?
Union reports, certified payroll reports, EEO reports -
these are never adequately accommodated within a
general accounting system. Users find themselves,
once again, performing operations off-line, either
manually or within a spreadsheet program.
Workers’ compensation insurance calculations must
also be done by hand. All of this takes valuable time
away from thinking about important business issues.
Management may not even be aware of the lost
efficiency due to all of the manual processes that go
on when the system is not construction-specific.
When it finally is added up, it can be substantial. So
when somebody says, “Why do we need to spend
more to get a construction specific system? Can’t we
just use QuickBooks?” the answer is simple. Do the
math and it will be apparent that you can’t afford not
to buy a system that fits all of your needs, not just the
minimum accounting requirements.
About the Author…
Larry True is a Systems and Business Consultant
with over 30 years of construction and related
experience. Over the past 20 years, Larry has been
involved with selection and implementation of more
than a hundred systems in companies ranging in size
from under $1 million to over
$1 billion in annual revenues.
Larry has sold, implemented
and supported systems ranging
in size from a few users to
hundreds of workstations, all
in A/E/C and manufacturing.
His hardware and
systems experiences include
mainframe, midrange and
networked systems with hands-on
software experience with
over a dozen different
integrated construction
accounting, estimating and
project management systems.
Larry's construction
background includes
estimating, accounting, cost
engineering and project
management experience over a 22 year span. He has
a BS in Civil engineering, with Honors, from the
University of Colorado and has been an active
member in a number of construction societies and
professional associations including CFMA, AGC and
ABC. He is a frequent speaker and author.
Mr. True can be reached at Dorfman-Robbie, CPAs
in Albany, NY 518-464-4080 or at
ltrue@dorfmanrobbie.com
http://www.dorfmanrobbie.com
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