Selecting an Accounting Software Program for Your Construction Business

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Two years ago, I wrote an article for CBN on accounting software for small-to-medium- sized businesses. In that article, I focused on general accounting software—specifically Peachtree and QuickBooks. Since then, we have received several requests for an article on accounting software designed for specific industries, including manufacturing, retail and construction. Prior to entering the world of academia I was a controller/CFO for a general contractor, so I thought I would focus this article on selecting the right construction accounting software program. Specifically, I’ll share five guidelines that I’ve used in the selection process.

1) Make a wish list. All accounting software programs have basic functions allowing them to easily handle daily accounting transactions and month-end/year-end financial reporting. These functions include general ledger, journals, payroll, accounts payable, accounts receivable and invoicing. Contractors should determine which additional program functions they need to ensure the company’s managers have relevant and timely information with which to make informed decisions. The software program should assist management in making the company more efficient, effective and competitive both now and in the future. Additional functions might include job estimation, job costing (tracking of material, labor, and overhead for each job), job summary, import/export capability and lien tracking. When developing your list, ask for input from your employees who will actually be using the software program and its reports.

2) Do your research. Once you have your wish list together, begin the process of narrowing it down to the top three or four programs that meet your needs. Contact other contractors and ask them for software recommendations. Ask your CPA for recommendations as well. Research current articles on accounting software programs in trade magazines and search the web for software reviews. My favorite resource for unbiased reviews of software is the CPA Technology Advisor magazine. Their most recent issue, April/May 2005, features an extensive review of 14 top construction accounting software programs. You can access this review free of charge at www.cpatechadvisor.com/articles/2005/april/construction.shtm.

3) Test drive a demo. Once you have a short list of construction accounting software programs, contact the software vendors and ask for demo versions of their programs. In many cases, you can download the demo directly from the vendor’s website. Demos usually come with a sample company that you can explore. Using the sample company data, you can try out many of the program’s functions—from calculating payroll to costing a job. Each software program interfaces differently with the user, so find an interface that seems user-friendly. Also, each program will produce different types of reports. Print out the reports that you think will be important in analyzing your business. Are they well formatted and easy to understand? Detailed job cost reports are a must for contractors, so make sure they are easy to interpret.

4) Invest in software. After exploring the demo versions, select the software program that best fits your company. Construction accounting software programs are expensive; however, invest your money up front and get the right software. Don’t try to purchase a program that doesn’t meet your needs with the idea of making modifications to the software in the future. This approach can be quite costly, and it rarely works. Most basic programs designed for small to medium-sized companies start at around $2,500 to $8,000. The exception is the low priced QuickBooks Premier Contractor Edition 2005 that starts at $500. Programs with advanced features can cost $30,000 or more. Although these software programs are expensive, they will provide your company with years of service. Consider the software program purchase a long-term investment.

5) Invest in people. Now that you have made the investment in a construction accounting software program, invest in the program users by providing them with proper software training. Also, some of your employees may have limited experience with more advanced accounting techniques—specifically job costing. Therefore, be sure to teach cost accounting techniques to all of your employees who will be using the software program and its reports. An employee who is well trained will be able to use the software program’s functions fully. For example, an employee who understands cost accounting and the software program’s job costing function can track material, labor and overhead on individual jobs. He or she can then use this cost data to better bid new jobs, calculate profitability of current jobs and determine whether a completed job was over or under budget. Selecting the best construction accounting software program can be time consuming. However, the time spent up front identifying your company’s accounting needs, researching your software program options and test driving demo versions will guarantee you will make the best possible decision. Don’t forget to view the large cash outlay for the software and training as an investment in your company, one that will provide years of benefits.

M. Scott Hays is an Assistant Professor of Business at Central Oregon Community College. He can be contacted by email at shays@cocc.edu or 383-7715.

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