What is Xero?
Xero is cloud-based accounting software for small and medium businesses, including construction companies. It can help you do your bookkeeping. Xero features include invoicing, accounts, vendors or clients, payroll, and much more. It can even connect to your bank so that you can easily sync bank and financial information.
Since it is popular accounting software used by a lot of customers, there is a lot of information available on how to best use it. Thanks to this, you can easily find solutions to all of the questions you might have when implementing it. In addition to that, there is a large app store which opens up a whole other world of solutions for your problems.
Is Xero good for construction accounting?
Xero is a great tool for G/L accounting, covering all aspects of the business including invoicing, payments, taxes, payroll, and more. But is it a great tool for construction accounting?
The short answer is that it almost is. The only problem with the solution from Xero is that they only let you add the information halfway. You can either only add the job or project as additional info. But none of the solutions are really fit for construction, where both the project and job categorizations are needed.
Let’s first look into why construction accounting is different so that we understand why it does not work perfectly.
What is construction accounting?
Construction accounting is different from G/L accounting in the way that the financial tracking is rather on the project level. In addition to the accounting cost code, also the project and job costs are stored in an ideal case. This granularity of data is very valuable in estimating future projects since the previous data is easily accessible.
In short, in addition to just tracking a company’s general financial performance, the performance of each job and project is also tracked. Oftentimes, the term job costing is used to describe the process of construction accounting. Job costing can be used in the context of both estimating a new project and also adding up the incurred costs on an ongoing project.
We have a detailed article on our blog about construction accounting that will give you a better overview of the differences.
Using Xero for construction accounting
Xero does provide some options on how to track the job and project costs as well. You can use tracking categories for this purpose. However, there are limitations to the details that you can track with this method. While you can create some visibility thanks to this method, for most construction companies it is not a valid option.
We have a detailed article on our blog about job costing in Xero that will give you a better overview. And if you would like to read a detailed case study of one of our customers, then go read our article on how Higgihaus manages construction accounting using Planyard together with Xero.