It might seem that only larger organizations need be concerned with this but, in truth, contractors of all sizes must be aware of their legal and fiduciary responsibilities.

For contractors, risk management is particular sensitive since its agents are out doing work under contract that involves people skills and the tools and  equipment used in carry out out the work being performed.

In particular tragic accidents sometimes occur at construction sites which can involve the use of onsite heavy equipment.

This article focuses on the use of construction software to manage and mitigate risk exposure associated with equipment service and associated record keeping along with financial record keeping for financial reporting purposes.

To read the complete post, go to CTSGuides.com.

Construction accounting software makes it easier to keep track of direct material purchases.  Direct materials consist of basic building supplies like drywall, wire, pipes, and wood.  Essentially, direct materials are everything purchased for a project.  Sometimes these materials are purchased tax-free or with a builder’s discount.  These items are generally recorded separate of labor costs to ensure accurate profit and loss statements.

Direct labor is another variable that must be kept track of separately.  Labor comes in different forms, each requiring special treatment with regard to taxes.  Some employees are on the payroll while others may be hired on a contractual basis.  Other work might be performed by subcontractors.  Construction software really comes in handy when keeping track of direct labor spending.  Often this software integrates with payroll software to streamline wage calculation and tax withholding.

Although it isn’t necessary to keep track of withholding for contract work, it is still good to generate 1099 forms.  Construction software makes this a simple process, allowing generation 1099 and W2 forms at the end of each year.  In the case of an audit, this software is a time-saver.  It keeps track of your tax information year after year.

Construction businesses must keep track of services in a separate category.  This need is reflected in most construction software.  Services differ from direct labor because workers performing the work are actually in the employ of another business.  For example, workers sent to repair rented equipment or refuel equipment might fall under service expenses.  These expenses are tracked separately and considered a direct expense.

Today it is becoming much more common to subcontract or sublet portions of a construction project.  Some construction business models rely heavily on contracted work and have very few payroll employees.  Some of this sublet work consists of both labor and supplies, while other work consists solely of labor.  Common sublet work consists of foundation work, grading, cabinetry, and even framing.  Construction management accounting software makes it possible to keep track of these expenditures.  The ability to review sublet work allows the construction company to keep tabs on sublet spending.

Some construction companies keep track of expenses in traditional accounting software.  However, this software doesn’t meet the needs of most builders.  Construction accounting software was designed with builders specifically in mind, and it allows them to keep accurate records of costs without devoting excess time to it.

In fact, most of them are probably are a pretty good solution for 97% of what you want to do. But it’s the last 3% that might just do you in. And that is where buyers can take a big hit.

When it comes to entering job cost transactions and running essential reports, most products are just fine. However, if you have to deal with any of the following, straighten-up and pay attention because these are items that separate the average vendors from the stronger ones. And these are areas that sales literature (or so called “Demo” CDs) will never call to your attention:

• Union reporting, especially multistate
• Multistate , multi-tier sales taxes reporting
• Equipment costing
• Fixed Asset tracking
• Purchase order creation, receipt and inventory control
• Custom report writing
• Multicompany consolidations and intercompany transactions
• Workflow for document alerts and approvals
• Project management and accounting integration
• Under the hood technology (database) and potential ramifications
• Posting and ability to access realtime information
• Field capture of labor and transmission to central database.

Vendor sales literature is deliberately vague – an actual case history

A few years back I spoke with a large heavy contractor, doing extensive excavation work with large, expensive machines. He was evaluating a number of programs to see which ones could best handle its need for fully burdened .job cost to include its high cost daily rate of internal machine rental costs in order to compare actual overhead to standard overhead rates.

Fully burden charges per day for his using the machines included wear and tear and salaries to make use of the equipment.

They also wanted to see journal entries with the related amounts. Despite the representations of the salesman that the program could meet this requirement, they found out after using it that it was severely lacking in this area. To get around the limitations they would up spending a lot of time gathering and tracking the information in Excel.

The product did the other 97% of their requirements fine but could not do this critical item and that made the system a major failure for them.

Why does this kind of thing happen?

The prospect was told by the vendor that they did do standard vs. actual costing with variances. Unfortunately the prospect did know not know enough to follow that up with further clarifying questions and made the assumption it would work for them.

Lesson learned:
Salesman demonstrate what their programs do well and try to leave out the hard stuff. If buying prospects don’t ask the right questions and demand to see a demonstration (better yet do it themselves) of the specific inputs and outputs of what they need done, chances are very high they won’t get what they expect.

When it comes to buying construction accounting software, never assume anything. Check it out for yourself.

Input that is “Nice to Have” (highly recommended)

The following individuals are recommended to be included in the software selection team.  They may not need to be permanent members, but their input should be taken in to consideration.  In most cases, the size of your company, more than anything, will dictate how involved each member needs to be.

• End users (anyone that will ultimately be using the new software)
• Management (all levels in large companies)
• Accounting (they need to provide input on how the new software will impact their operations)
• Payroll
• IT ( they will need to know the technical aspects of the software implementation, among other things)
• Sub-contractors (if necessary)
• Suppliers
• Vendors (once selected)
• Other members that are deemed necessary, which will vary depending on each unique company

Factors that Must be Considered in Any Evaluations

Smaller companies, especially, will probably not have the time and resources to justify dedicating an entire team to a full-time software evaluation.  Additionally, the benefits in terms of process improvement that a formal team may be able to identify and implement will likely be less significant in smaller companies.

Thus, smaller companies need to make the most out of what resources they do have.  They cannot afford to be lazy in evaluating software any more than larger operations can.  At a minimum, the following things need to be thoroughly evaluated for each construction accounting software package that they consider:

• The number of varieties of each product and what makes each version unique
• The number of available vendors
• The history of the product, including testimonials from current users
• The history of the vendor, including testimonials from current users
• The functionality of the product
• The product interface and any potential issues that it may create
• The necessary steps require to integrate the new system with current processes
• Other factors that are unique to your company

To help make the most out of your next purchase, I’ve composed this article that discusses the most common problems that companies experience that lead to changing software.  When looking at new construction management softare, make sure you keep these things in mind so that you don’t find yourself needing new software again in 6 months.

Functionality Problems: Perhaps the construction management software doesn’t offer the functions that are needed or the company has dramatically changed their processes and procedures such that new functionality is needed.  If the software you have or are considering is very rigid and not capable of adapting to changes, you’ll be forced to either find new software or delay making the necessary procedural changes.

Maintenance Costs: Improper or inappropriate data input can create all kinds of problems in a software system.  Sketchy reports, inaccurate statistics, and unnecessary frustration will result.  This leads to a need for continuous maintenance that can get expensive over time, or a sketchy workaround and manual manipulation of data that takes power from the system and takes valuable time.  Therefore, be sure to look in to how much it will cost to keep your system up to speed.  If it is too expensive, you’ll be shopping around for new software sooner than you’d like.

Impatience on the Part of Staff: When companies have to wait for accurate information (which can be a result of numerous factors), they often become impatient and feel that new software is needed.  When researching and installing new software, take the time to ensure that those issues are dealt with proactively.

Level of Vendor Support: It would be great if all construction accounting software performed perfectly from the instant that it is implemented to the day that it is replaced, but we all know this is not the case.  Therefore, the amount of support available from the vendor becomes extremely important.  If you buy software from a vendor with lackluster support, you may quickly find yourself searching for a new solution where you will get the support you need.  As such, researching the vendor becomes as important as researching the software itself.

On the other hand, there are countless examples of companies that think they need new software when the reality is that they simply aren’t using their current software properly.  End-users (those responsible for data input) must be thoroughly trained and constantly reminded about the importance of inputting accurate and honest data in to the system at all times.  If they begin to cut corners, your system will quickly become less functional and more troublesome to use, adding less value to your ongoing operations.

The truth is that the optimal solution will be different for every company.  Some construction companies will benefit from tracking payroll internally while others will be better off having this task outsourced.  The following factors will weight heavily in to that decision:

• The size of your company
• The number of employees you have on payroll
• The business acumen of employees
• The number of departments in your organization
• Your overall budget
• How available other alternatives are
• Business-specific parameters

Construction companies, more so than most companies, must keep a close eye on payroll impacts on projects and profits.  Decision makers need up to the minute and real time project data to make informed decisions, and this is only possible with a stable and powerful piece of software that has accurate data collection methods.

To put it another way, the more accurate and up to date your software is, the better you’ll be able to make decisions that will enable you to maximize your labor force and profit margins.

However, we all know that no business or part of a business will ever operate perfectly.  That is not to say that you should not strive for perfection, though, especially when it comes to maximizing the use and beneftis of your construction software.

With the right software, properly implemented, you will be able to constantly improve your processes and procedures with the constant goal of maximizing efficiency and working smarter, not harder.  This can be done regardless of where payroll data is collected, so long as all systems are integrated properly.

Since the software will only be as good as those that use it, it is imperative that you invest in quality training for all users when you purchase new construction management software.  Users need to understand their specific tasks and interactions with the software as well as how their input impacts the overall system.  In short, they need to be able to see the forest from the trees.

Concerning payroll, users need to understand the importance of accurate payroll tracking as well as any important federal, state, or local regulations that will impact their reporting.  They need to be able to see how their input has a “butterfly effect” on the entire operations of the business, and good software should be able to show this quickly and easily.

Finally, before investing in new software, construction companies are urged to ensure that their operations and standards are up to speed with current best-practices.  New construction accounting software will be designed with those in mind, so taking care of these modifications before installing new software will make the transition much easier, faster, and more effective in the short term.

Every company will come to the table with existing processes in place, regardless of whether or not those processes are the most efficient or are best practices.

However, in most cases, companies are better off looking for new construction software that fits their specific business models.  There are a number of commonalities in nearly all construction businesses that are accounted for in most software, so being aware of how well a piece of software matches with your unique business models is the key.

Construction projects all require manpower, materials, equipment, vendors, and other components that are similar for most projects.  Therefore, when selecting new construction software, make sure your new solution includes a user-friendly workflow module that will give you the ability to monitor and manage resources in real time with a certain degree of flexibility.

Workflow processes in the construction industry are pretty similar from company to company and many projects need the same resources to be executed effectively and efficiently.  Thus, although the workflow module is important to have, rest assured that most construction management software packages have a workflow module.

Additionally, construction software should be flexible enough to change orders when confronted with inevitable unforeseen circumstances.

Also important is to ensure that the new construction software has an integrated accounting module.  Construction accounting software gives companies the ability to track and control costs in real time.

Finally, consider the new software’s functionality in relation to field operators.  Many field supervisors use wireless devices to keep projects up to date and manage data.  If your company uses field operates to this degree, make sure that your next construction software package has web-based applications that will allow these activities to take place.

In searching for the next software for your company, make sure that you begin by mapping out the busineeses processes.  Once you can see how things are done within your organization, you can check to ensure that any new software will align well with your processes to provide your company the greatest benefit.

Whether you are talking about job cost, project management or financial accounting or more specialized applications like purchase and inventory control, there are literally  hundreds of ways of entering, editing and processing transactions in  most construction management software systems.

I don’t think it’s an exaggeration to say that the quality of training and implementation may actually be more important than the software itself!

So once users understand the critical function that training plays in software successes, the next question is how is that training going to be  delivered?

There are three primary models that vendors offer for training:
* On site
* At vendor headquarters
* On-line  or a blend of the first two

On-site (user location)

The main argument for on-site is simply that your company location is where the software is going to be used and it makes most sense to train people in their home environment. You can also “read” people better as to how they are catching on to the new software as well as their openness to new software.   There is total focus on you and communications between staff is optimal when questions come up as they always do. You can also have hands on access to old reports, information, etc that is needed for setup and training.    If you are away at a vendor’s location and only certain staff is there for training, it’s a lot more difficult to get answers from executive management on how certain things must be done, for example.

It is during software setup that key decisions must be made on how to go about configuring the software to accomplish certain tasks.  Examples might be how configure job and phase codes, the way purchase orders and inventory transactions will be accepted, and deciding how to handle month-end payroll accruals. When specific information is required, it is much easier to access when staff is on-site.

One major  disadvantage of on-site training is that, due to travel time and cost, on-site training usually needs to cover several consecutive days.   This can be overwhelming and when the session is done the employee(s) may not have time to do their “assigned tasks” since they just lost a day or two working on the new software.  They can also suffer from “burn out” and not absorb everything over multi-day intensive sessions.

Vendor headquarters

There are some vendors who do not offer the option for on-site training and  require that you go to their headquarters for training. This can be successful if all key personnel are involved in the training and the company can afford to pay for all their travel expenses.  The vendor’s technical staff will be available if and when difficult questions come up.

It may  also be helpful in terms of avoiding distractions by being away from their regular work place.

On-line Training

The major advantage of on-line training is the flexibility of scheduling training sessions – both in terms of when they are scheduled and for how long.   For example, it could just take an  hour or two to show a client how to enter customer, vendor, and general ledger accounts in new construction accounting software.   Trainees could then complete their assigned task of entering this information and then schedule another on-line session.   A strong  argument  can be made for numerous, shorter training sessions in implementing new software for smaller, less formal companies.

Summary

There are a number of approaches to training, all of which can be useful ways of preparing company personnel for software success. They key to making it all work is employee and management commitment based on realistic expectations of what has to be done and allocating the necessary resources to do it.

Larger companies rely on the segregation of employee duties as the backbone of their control systems.  This is more difficult to do in a smaller business, as there are often fewer employees who perform a broader range of job duties within the business.  Here are a few ideas of controls that can be easy to implement, yet result in stronger deterrents against fraud.

It is not unusual in a smaller business to have one person who is able to record cash transactions and reconcile the checkbook.  Sometimes this person can also either sign checks, or has access to the signature stamp.  Taking away the ability to sign checks, or custodianship of the signature stamp from the person that reconciles the cash accounts is a good first step.

Presenting the check signer with the vendor invoice, purchase order and receiving slip (if applicable) along with every check for the check signer to sign is another good procedure.

An additional control procedure would be to mail the bank statements with checks or check copies to the owner’s home, rather than to the Company’s place of business.  The owner would briefly review the returned checks or check copies prior to turning them over to the person that will reconcile them.  This will improve the chances of detecting someone writing an unauthorized check.  The owner reviewing the bank reconciliations and lists of outstanding and cleared checks and deposits is also a good procedure to implement.

Many accounting software programs, including QuickBooks, allow a user to change the vendor name on a check or delete a transaction after a check is issued.  Using a software program that requires transactions be reversed and not allowing them to be changed or deleted is much better.  Turning on the audit trail function in QuickBooks, while not nearly as strong, can help detect unauthorized changes to transactions if the owner will review the list of changed and deleted transactions each week or month.

More robust construction accounting software programs have stronger controls over user access to sensitive areas or functions.  If your company’s software will control access to vendor maintenance, consider implementing procedures to require all vendor changes and deletions to be signed off by the owner and to be made by a person or persons without any other accounts payable or check writing duties.  If your software isn’t able to do this, consider changing to one with better access controls.

Another good procedure that is not to hard to implement is to export both vendor and employee lists to Excel, and sort both lists by street address.  Compare the street addresses of the two files and investigate any vendor activity where there is a match.

These were a few relatively easy procedures to implement.  A good system of controls protects employees from unwarranted suspicion in the event of fraud.  Employers benefit from the reduction in exposure to fraud.

Special Thanks to John Reed, Principal, LarsonAllen LLP, Fort Myers, Florida for his help in writing this article.

Much of the modern construction software is designed to help construction companies with keeping communications open with their customers; not only while construction projects are in progress, but after they are complete, as well.  Of course, good software is capable of keeping customers abreast of their ongoing project work; including cost, changes, problems, milestones, and more.

Communications features are always important, and software companies recognize this.  Most reputable software companies usually include solid customer account management in their products.

Some software customer account functionality helps with establishing periodic customer ticklers; such as scheduled mailers and other advertising instruments, to be sent to existing and potential customers.

Sometimes all it takes to pick up new work on construction projects is for a past customer to receive some type of reminder of previous work performed for them, coupled with an invitation to help with any new work on their planning horizon.

In addition, some construction companies use construction accounting software for automated billing of long-term and ongoing customer work-accounts.  For example, if a construction company is contracted to provide a particular repetitive construction service, the construction software can be used to keep track of charges, and for automatic billing and overall contract reconciliation.

Construction company customers, of course, come in many shapes and sizes; and each customer is unique in their own way. Construction software helps construction companies in their marketing strategies, with focused promotions and communications targeting customer profiles.  When construction companies decide to incorporate construction management software into their business practices, it is important that they remember to clean up the current customer account records, in order to start with a clean, fresh customer account database.

Construction software often allows for archiving out of date customer records; even if the customer is no longer a viable account.  Some states or jurisdictions require record retention for specific periods of time; thus, management of some of the older records becomes a necessary part of the new software functionality.

There is no magic about keeping good customer account records, but it is perhaps one of the most important records a company can keep track of, as explained earlier in this article.  Without accurate customer account records, and without the capability for automating some of the customer follow-up contact and marketing strategies, construction companies will be less effective, in the overall view, which can waste a lot of money over time.

“There is no substitute for quality”, it is often said.  And this is so true in this case, as well.  Construction companies need to treat their customers with quality services; and with quality follow-up; and with quality communications; and with quality marketing and advertising.  Remember; it is the customers that provide the butter for the bread!