Construction accounting software is used to keep track of transactions that the company has been part of. Construction companies can also automate some reporting tasks depending on how trade-specific the tool is.
In the earlier stages of construction or contracting company, it is perfectly fine to get by via e-mail and paper documents. As the headcount and project complexity increase, more advanced tools might be needed.
What is construction accounting?
In short, construction accounting is mainly focused on keeping track of the finances per project and per job. This is different from how other companies usually want to see whether the company as a whole has been profitable.
We have a detailed article on construction accounting here, which explains the ins and outs of construction accounting.
Accounting software – QuickBooks, Xero, etc
Pros of accounting software for construction accounting
As the title of this article speaks about construction accounting, it makes sense we look at the suitability of general accounting solutions. There are quite some accounting software options that can help with some of the challenges. Some of the options are Xero and QuickBooks, both also integrate with many other platforms.
For construction accounting, it can be a bit tricky to make the general accounting tool work perfectly. The issue comes down to the need for tracking costs on a project and job level. One option is to create unique accounts for each job of each project, but that increases the complexity too much and it doesn’t too much sense. What can work is to have a few construction-specific accounts for the whole company or have some subset of those costs for each project.
Cons of accounting software for construction accounting
Even though this solution seems to resolve some of the issues regarding job profitability tracking, it also creates new potential issues. For example, the accountants and bookkeeping have to be in frequent contact with project management to make sure what accounts are used for what invoices and whether the jobs are not already over-invoiced.
Also, general accounting software usually does not make it very easy to keep track of your estimates compared to the actual costs. This means that project managers still have to keep track of their estimates, forecasted outcomes (if costs increased or decreased drastically), progress reports, and actual costs in a separate spreadsheet file.
An additional downside of using accounting as the main source of truth is that the costs are delayed. You will not know in advance if a cost will be coming or what the status of your jobs is. We think that finding out whether a job or project is profitable is too late. Too many companies have gone bankrupt due to no forecasting abilities.
What common tools can a project manager use to keep track of everything regarding their construction budget?
General productivity tools
One of the easiest ways to start to improve your processes regarding construction accounting is to use general software. Probably the most popular program to use is Excel, where you can define your budget and also keep track of it. Albeit it needs a bit of manual work to keep in order. In addition to that, Outlook comes in handy for receiving the documents from your subcontractor and forwarding the costs to accounting.
You might use Excel to initially estimate your project costs by using a custom template. We have an Excel template here for this purpose. After estimating your project you probably want to keep track of your costs somehow. With the feedback of many construction project managers, we also put together a template for keeping track of it. You can find the budget template here. Both of these documents assume that you have some kind of cost structure already in use. If you don’t, just look at our proposal for some ideas here.
Outlook (or similar) is just an e-mail client where you can keep all of your communication and all of your subcontractors. If an e-mail is unread, then it is still to be dealt with, if it’s read you possibly dealt with it already. Of course, you can never be sure and issues might arise from this.
As soon as you receive an invoice via e-mail you can go and update the actual cost excel file to make sure that you know where your project is at. With just a few contractors and invoices it is probably easily manageable and the risk of mistakes is low.
As soon as your team or projects increases you may need a bit of additional structure. But what kind of structural support do you even need from a construction financials tool?
What to look for in a construction accounting tool?
The needs of every company are very different. They depend highly on the crew, the projects they do, and what kind of customers they have. According to an article by NerdWallet, a good construction accounting software usually has to at least provide the following:
- Job Costing – to keep track of the profitability of each job that the company has worked on. Thus understand which jobs were profitable;
- Project Management – they define project management as something bigger than just knowing what stage the jobs are in;
- Budget and completion analysis – budget and completion analysis gives you an overview of the current status and outcome of construction accounting project. It is highly critical to know whether you will be making a profit. And whether you need some extra liquidity at some point in time;
- Change order tracking – the article says that a construction project without change orders is rare. We know from our customers, that almost all subcontracts are adjusted due to some unexpected things to resolve.
One thing we would add to the list is accessibility – the software should be accessible for all team members wherever they are. And what devices they have with them. This oftentimes rules out on-site solutions, which have the downside of additional IT efforts as well. This means that it probably would need to be a cloud-based solution available via the internet.
This list is a very standard list of items and you might need something additional that you might find basic. Such as subcontract retentions, construction bidding, main contracts, etc. This is why you have to look into the options on the market. Ideally, you can also do very shallow testing of tools before committing to something.
What software solutions are able to provide some or all of these required features?
Construction accounting software compared
Due to the limitation of only comparing online tools, some industry-standard tools from the previous decades might have been left out. Here below is just a shortlist of solutions that have been voted as the most user-friendly and with the highest ratings.
Procore is the largest construction software solution with tens of thousands of customers and revenues in hundreds of millions. It has all the features a construction company might need – from site tools to financials. Since the tool has been in development since 2002, it might not be as user-friendly and easy to use as modern tools.
Some of the mentioned pros are that it makes communication with the client and subcontractors much more efficient. An additional mentioned benefit is that the integrations on the marketplace are great and you can find a solution there for most things.
On the other hand, the mentioned cons are the confusing parts of the financial tools since there can be many irrelevant items there. Some users also find the bidding tool confusing and not user-friendly. In general, the bidding tools have rather received positive reviews.
An additional thing to consider when using Procore is that the pricing model might not be straightforward since there is a revenue component included. We have not been able to figure out if there is a way around it yet.
Either way, we think that Procore is a very good option if you have the budget and company size for it. We have an analysis of the complexity of Procore here and an analysis of the price of Procore here.
Knowify is a cloud-based solution for residential contractors and smaller subcontractors. The tool is mainly for companies who are not doing much subcontracting themselves. This means that it can lack tooling for budget management with subcontractors involved.
The reviews bring out the ease of use, the bidding tools, and invoicing capabilities as the best features.
The downsides are about UX (user experience) issues and small bugs, which according to the review, are fixed quickly. Some users claim that their customers complain about invoicing.
All in all, it is a very relevant tool for subcontractors who do not have subcontractors themselves.
CoConstruct is a construction project management software that provides custom home builders and remodelers with tools for managing projects, financials, and clients. It is positioning itself to be for smaller contractors who also have subcontractors doing parts of the work.
Many of the positive reviews bring out the benefit of communication with clients and subcontractors in one place. In addition to that, some say that the platform includes all of the documents of the project in one place which makes life easier.
Some other reviews mention that they think the UI could need a facelift and some structural changes as it tends to be sluggish sometimes. Some reviews mention that it can be difficult to navigate around sometimes.
We absolutely recommend this product for renovators and remodelers, who want to improve their processes.
Planyard is designed to make construction accounting easy for construction contractors who build large-scale projects. They have many subcontractors and often don’t almost have a site team at all. They would like to track their budget progress compared to the estimate and see the fulfilment of subcontracts.
The available tools include forecasting, RFQs, estimations, subcontracts, expenses, and progress reports by subcontractors. Most of the financial flows are run through Planyard then the data gets linked and leaves a paper trail.
According to positive reviews, Planyard takes away a lot of the headaches from manual data entry and keeping spreadsheets up to date. Gives a clear and easy visual display of your construction budgets and links to Xero/QuickBooks so your bookkeeping is in sync with your spending and your budget.
Some older reviews bring out some glitches that have happened in the past, but it is claimed that the issues were usually resolved quickly.
The attractive thing about Planyard is the pricing – you can start using the platform in a smaller scope at first. And you can unlock more features if you want to automate more of the work.
In short, there is no one-fits-all solution for construction accounting. It all depends on the type of company you have and what your structure is like. The main factor in choosing the software for yourself is the size of projects you do – subcontracting, residential houses, or medium and large contractors.
There are quite many software options on the market available for construction accounting. The pricing and features depend on the specific solution – some are made for smaller home builders and renovators, while others are made for large enterprises. Since the companies are in such different stages, the tools they need are also different.
We would recommend Knowify for smaller subcontractors. CoConstruct for renovation jobs. We would recommend Planyard for all other construction projects that have a lot of subcontractors/vendors, and that need accurate job costing and forecasting.
To see a more in-depth comparison of the tools, do read the «Construction accounting software compared» section.
Is your construction accounting software supporting your growth or slowing you down?
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