5 Accounting Challenges for Construction Firm and How To Tackle Them

Construction is a growing industry, the growth of which is measured by its project efficiency and the time taken to complete a project. In order to thrive in the industry, organizations strive for safety, the speed of execution and giving attention to detail while keeping the project profitable.

With the various ups and downs involved in the construction arena, the primary focus has been to complete the project according to specifications, and on time. However, in this process, accounting takes a backseat.

Various issues make construction accounting challenging and make the project suffer due to these bottlenecks.

Challenges in Construction Accounting

1. Scope Limitations

In construction management, even the planned projects are subject to last minute changes. Information like material available, building site condition, workforce availability, weather, and atmosphere can change your plan.

Along with that, clients can ask for add-ons or iterations, also known as scope creep, which can change the entire planning. You can’t deny these changes as client satisfaction is the organization’s top priority but keeping note of cost is also important.

For this, project managers and the accounting team need to work together to determine the cost and the task which are feasible and then only provide the new project document with the changes to the client.

2. Lack of Communication

If all of the projects and communication is not stored in a central database, it becomes difficult to share a clear overview of the project. When the project status is up in the air, client expectations fall, and he can sense that something is wrong with the execution.

In such a case, a cloud-based construction software solution such as Sage 300 CRE cloud hosting can be used which offers a unified database for all project stages and is aligned with the original estimate and timeline. You can easily control all the past revisions and compare it to check the current profitability.

3. Overhead Charges

Construction projects have various overheads which include the cost associated with the workforce, material, rent, office space, and equipment. These overheads fluctuate from season to season and job to job due to the ever-changing nature of construction.

Without an estimate, it becomes hard to determine that the project will be profitable or not, even if your paper planning shows profitability. Construction companies generally declare revenue when it’s collected, and the project is finished.

This leads to massive reconciliation issues when it comes to determining how profitable each segment of the project was and ultimately leads to cash flow problems in the long run. If a bill for a project comes when it is complete, the cost that accumulates throughout the project could vanish your cash reserves, and you might end up with a false projection of overall profitability.

4. Payment Release and Manual Tracking

Manually tracking payments and raw materials can be incredibly excruciating and time-consuming. Manual work also has a large scope of human errors and lost data. Ideally, whenever a payment request is made, the project manager should store and enter the data into an accounting system. This is a lengthy process which makes accounting delayed and full of errors.

Tracking vendor payments and bad debts give a hard time to the project and stakeholders. While planning, it’s easy to underestimate the cost, and you may end up needing more materials, equipment, and workforce than what you had anticipated. Calculating again and again and creating new budgets can additionally cost thousands of dollars and make the project unprofitable.

5. Lack of trust

All the stakeholders and project managers associated with the project should trust their financial software to make calculated decisions in the construction project. They need to be sure that the data they have is up to date and correct. Only one person having access to the financial statements can arise a lack of trust in the organization.

How to Tackle the Challenges?

Manually inputting the finances cost plenty of as resource and time. A cloud-based construction management system includes bookkeeping, enterprise planning, and enterprise content management which can be accessed by multiple devices anytime and anywhere.

When the team has access to construction software, decision making becomes faster and managing payment slips for workers and assets from various dashboards increases the overall productivity of the company.

A construction software can also ensure that the workers are paid on time. The project manager will also be aware of the equipment, tools, and materials being used in the following month and can easily plan the next month’s requirements by avoiding the bottlenecks.

Unlike many businesses, construction businesses are not primarily operated from a centralized office. For daily payroll, billing, and administration, construction site creates a small office to run the day-to-day operations. Hence, it is essential to stay connected with the main office in terms of project progress and remuneration management.

With the cloud, the project manager and accounting team can efficiently manage all invoices and bills seamlessly which can be accessed on a computer, a smartphone or a tablet. Seamless connectivity across all stakeholders and employees improves communication and smoothens the flow of operation which enhances the project feasibility and keeps everyone on the same page.

Without a doubt, 2019 is expected to be a breakthrough year for the construction industry. A sector which drives on data will have to emphasize on collaboration tools and real-time communication.

As an unorganized sector, this industry has a lot of scope in process enhancements through technology and starting with automating the finances is the need of the hour. Cash flow management is the heart for any organization and overcoming the above set of challenges will give you an edge over the competition and provide you growth in the long run.

Choosing a system which is intuitive yet easy to use, will cut down the training costs and will save you money.