The ability to deliver quality work in your trade doesn’t guarantee your business will profit. You could be the best carpenter, plumber, electrician, etc. in the entire world, but still go out of business if you aren’t managing your jobs properly. So many excellent contractors miss this very point, which is why construction businesses have such a low survival rate.
Why Construction Companies Struggle to Stay in Business
According to a recent study, construction businesses had the lowest survival rate. On average, only 36.4 percent of all new construction businesses survive after five years. Even retail businesses had a higher survival rate – 41.1 percent.
Why is construction accounting different than standard accounting? In short, jobs and/or projects. While it’s not that simple, that is generally what separates construction accounting from standard accounting.
Why Construction Accounting is Different
Let’s take a step back. Imagine you are a retail store selling clothes. In most cases, you have items that you bought at wholesale that you are now selling at retail with margins to drive a profit. There are expenses such as paying employees, rent, utilities, etc. This kind of business model is very common for most small to medium size businesses and standard accounting software is perfect for these businesses.
Construction businesses operate very differently. Because of this, they require a different type of software to manage their budgets. Construction businesses work off a job and/or project. For example, let’s say you are building a school. That would be considered a job or project. The job may take many days, many weeks, or even many months. The margins for each particular job are constantly fluctuating as each day passes. Labor has been spent, materials have been bought, tools have been rented, work has been delayed for weather, and more.
Construction businesses need an accounting software that can track all of these fluctuations in real-time. Construction accounting software gives business owners full transparency into day-to-day costs (e.g. committed costs) to keep any given job under control and profitable.
Why Construction Accounting Software is Necessary
Companies that try to use a standard accounting system, like QuickBooks, end up relying on solutions outside the software. That means post-it notes on spreadsheets or penciled-in notes in the margins to meet the demands of the client and the job. Either that, or mistakes will be made, and potential profit lost. Standard accounting software simply lacks critical features such as job costing, WIP reporting, tracking unposted payroll, AIA invoicing, and so much more that are necessary for a contractor to succeed as a business.
Construction accounting systems, such as ComputerEase, are built to manage the complexity of construction and contracting work. It is designed from the ground up with the construction business owner in mind.
Built with YOUR Business in Mind
The accounting system built for construction covers both direct and indirect costs, with every cost falling into the correct category. Every project is different, and the requirements can be built into the software so you can see and calculate associated costs.
The foundation of true construction accounting software enables a construction business owner to properly bill and manage a job. Profitability can be calculated. The gaps in your billing and project management can be filled in using the proper tool, construction accounting software, so money isn’t lost.
Too many construction companies don’t approach managing a construction business much differently than a run of the mill retail shop. This is the systemic reason they don’t survive. Business success for construction isn’t a mystery. Just as the right tools are needed in the field, the right tools are needed in the office. And that means construction accounting software.
A Final Word on Construction Accounting
Profit margins are razor-thin in construction. Every mistake can mean lost profit. If you own or work for a construction business and are currently using standard accounting software, excel, or pencil & paper, then we suggest exploring ComputerEase. You can learn more by watching a quick demo here: https://www.construction-software.com/video-demo/