Is the road to success the same as the road to profitability? Some would say yes while others would say that success is defined as a job well done or by a customer’s satisfaction. For today’s discussion, we’re saying it’s the same road, and the road can be fraught with pitfalls. However, those pitfalls can become opportunities when project-based construction companies implement accounting and construction software within a comprehensive cloud ERP solution.
The construction ERP software a construction firm chooses should provide the project accounting capabilities needed to make accurate estimates, manage time and resources, generate billing and determine the profitability (or lack thereof) of every project. NexTec and Acumatica Cloud ERP have a new and complimentary eBook, Project Accounting: 6 Opportunities and Potential Pitfalls on the Road to Profitability, which discusses this very thing and includes some interesting project management statistics:
- Businesses see “capturing time/costs against projects” as their biggest challenge in project management (Capterra)
- 60% of SMBs use manual methods for project management, non-project management software or nothing at all to manage projects (SoftwareAdvice)
- 52% of projects experience scope creep (Project Management Institute)
There are more, but these three are particularly relevant as they relate to the pitfalls awaiting project-based businesses and the opportunities to be found with construction management ERP software.
From Pitfalls To Opportunities With Accounting and Construction Software
Construction project management is a complex undertaking. With the pre-planning, planning, execution and project close combined with financials, inventory, staffing (in the office and out in the field), equipment and customers, there are many moving parts. Successfully managing every aspect while getting the project in on time, under budget and done to the customers’ satisfaction is always the goal, but there are potential pitfalls lying in wait.
Per the eBook, there are at least six potential pitfalls. We’ll address three of them today and explain how they can be transformed into business-building opportunities.
1. Scope Creep
Essentially, scope creep is when changes are made to the original, documented plan or the Statement of Work (SOW). These changes may include material shortages, unknown hazardous material removal and client requests. Though oftentimes frustrating, scope creep can lead to some great opportunities.
For example, because these changes are inevitable and should be anticipated, the construction firm can open the lines of communication with the client by acknowledging scope creep and establishing a formal change request procedure. This allows both sides to transparently assess the impact of each change.
The eBook also points out that, “Change requests are an excellent opportunity to upsell the client on better or additional functionality.”
2. Accurate Estimates
The decision to accept or reject a proposed project most often rests on its profitability. If there is no project baseline (34% of projects have no baseline, according to Wellingtone), then a construction firm is potentially signing on to a project that may cost their business rather than profit it. Are there opportunities to this potential pitfall? There are a few.
For example, construction professionals who recognize the importance of developing accurate estimates will take the time to do so in advance. When preparing the estimate, the eBook says to consider such factors as when revenue is collected and how much materials, labor, rented/purchased equipment, workers, time spent in meetings/reading emails and overhead will cost.
The benefit of advance preparation? Sidestepping an unprofitable project.
3. Revenue Recognition
Construction companies with complex, multi-element sales scenarios may run up against revenue recognition challenges required by ASC 606 and IFRS 15. Remaining compliant requires accurate contracts that identify separate performance obligations and that declare their revenue appropriately, notes the eBook. The eBook provides additional information regarding revenue recognition for recurring revenue situations and long-term contracts.
The opportunities found in the new revenue recognition standard include consistent financial statements across industries (with more detailed records to track their contracts), improved planning and performance and greater flexibility to recognize revenue based on a company’s unique situation.
How Accounting and Construction Software Helps Construction Companies with Pitfalls and Opportunities
Companies that use QuickBooks or software without project accounting capabilities are unable to overcome the pitfalls and embrace the opportunities we just reviewed, but companies that use construction ERP software with project accounting capabilities, like Acumatica Cloud ERP and Acumatica Construction Edition, can.
- Easily Manage Financials: Accurately forecast and manage costs, payroll, profits, cash and taxes through revenue balance, percentage completed and finished contact accounting; utilize multiple entities, currencies and languages; manage subcontractors and materials using purchase requisitions, inventory control and advanced warehousing for stored materials.
- Easily Manage Job Cost Accounting: Gain insight into job costs, including cost to complete, cost at completion and percentage of completion, which helps accurately estimate future projects.
- Easily Stay Ahead of Scope Changes and Cost Impacts: Manage projects and budgets and track all activities, issues, change orders, project documents and job costs from one central platform.
- Easily Manage Budgets Accurately: Budgets link to contracts, accounting and the project plan for managing hard and soft costs, change orders, profits, overheads and fees in real time.
And Acumatica has advanced revenue recognition capabilities, so remaining ASC 606 and IFRS 15 compliant is easy.
Curran Young Construction, a Florida-based General Contractor firm, needed construction accounting software, and their search led them to Acumatica Construction Edition and Acumatica Project Accounting. They see Acumatica’s construction accounting software as their blueprint for growth.
“Everything in the product is efficient, available at your fingertips, and the flow of information and accessibility is incredibly powerful,” says co-founder Chris Curran.
His business partner and co-founder Bruce Young says, “Comparing other financial software and legacy construction tools to Acumatica is like comparing black to white. Learning Acumatica and being able to run with it in just a few weeks speaks volumes. [We’re] not accountants but the learning curve has been short because Acumatica is easy to access, and its intuitive nature is awesome.”
More Opportunities Using Project Management Functionality in Acumatica Construction Edition
The full list of pitfalls and opportunities is available in NexTec’s Project Accounting: 6 Opportunities and Potential Pitfalls on the Road to Profitability. The road to success and profitability may have its unexpected (and sometimes expected) challenges, but modern project accounting and construction ERP software can help morph the challenges into opportunities. Keep in mind, there are certain features to look for in accounting and construction software, and NexTec knows what they are.
With over 25 years of experience as technology advisors, we believe Acumatica Cloud ERP and Acumatica construction can help construction firms have a successful journey. Contact us today. We’d love to chat.