by Fred Ode

Editor's Note: Following is the third  article in our ten-part series called, "Accounting Software Checkup: 10 Ailments That Can Hinder a Healthy Bottom Line," by Fred Ode. Each "ailment" will be discussed in detail to help you determine if your seemingly healthy business has an underlying problem. To read the previous article, click here. To read the next article in the series, click here.

"I don't know how the job is doing."  "I don't have any report to show that."  "There is no data from previous jobs."  These are comments that no contractor wants to hear.

Unfortunately, they are probably all too familiar for many contractors who continue to use general bookkeeping or outdated accounting software to run their businesses. But contractors must identify the main cause of this distress and exasperation rather than take it out on their field superintendent, office manager or estimator.

Why Job Costing Software Makes a Difference

Trying to get job cost reporting from an off-the-shelf general business accounting system is like trying to dig a fifty-foot trench with a garden shovel. You might be able to do it but not without a lot of pain and effort.

Nevertheless, lots of contractors attempt it anyway. Without a job costing module, they often try to do job costing through their general ledger reports. For example, they might set up "Labor Account A," "Labor Account B" and so on. But nowhere does this begin to resemble a system for tracking costs by job. In the end, the general ledger cannot be used for job costing; it is account driven, not job driven. The general ledger has its purpose (providing accurate, current financial reports), which is different from the job costing module's purpose (tracking and reporting all job costs).

Nearly every business accounting system will handle bill paying, invoicing and other bookkeeping functions in similar ways. But only job costing software can produce both financial reporting and the detailed job cost reporting contractors need to run their jobs-and without requiring any additional data entry or exporting of data to another system. Every piece of data entered into a construction accounting system flows directly to a job. There are no detours or dead ends that can cause errors (such as manual reconciliation) or slow productivity (such as duplicated data entry).

Detailed Reporting from One-Step Entry

The real advantage of having a job cost accounting system has more to do with information access than how a report is created. When you suddenly have the ability to see your actual job costs and revenue on a job alongside your estimated costs and profits, you have decision-making power. With every time-sheet entered and every transaction posted, your accounting system is continuously updated with real-time job data. And with instant access to timely job data, you can turn bad jobs around or at least avoid committing the same costly mistakes on future jobs.

Let's say a drywall contractor finishes a job and profits are close to what was estimated. Some would say, "Great, we made money on the job," and then proceed to the next job. But without a detailed job cost report broken down by job code, task or phase, this contractor may never learn how they really did on the project. He may discover that they made more than expected on painting and drywall but actually lost money on the acoustical ceiling work-he might miss the all-telling facts that could help keep his future jobs on track.

Irritability Can Lead to Nausea

Contractors get irritable once they realize their generic/small business accounting systems cannot produce the necessary job costing reports. They think creating reports in spreadsheets is the solution. But spreadsheet solutions almost always cause more problems and more work. Irritability leads to nausea when contractors discover that nearly all of the information needed to run their businesses resides in disconnected islands of data.

With a good job cost accounting system, contractors have access to hundreds of standard job cost reports and customizable reporting options. In a fraction of the time it once took, they can now get immediate access to percent complete, estimated versus actual, unit cost reports, production reports, work-in-progress, over/under billing, cash flow by job and so on.

Are you in distress because of inconsistent, inaccurate or untimely job cost reporting?  Are you having trouble accessing information you need about how your jobs are doing or how you did in the past?  Construction-specific accounting software may be the relief you need.

Construction Business Owner, April 2008