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Question from contractor - "After years of suffering with outdated accounting software, I’ve decided to buy a new system for my construction company. The vendor has agreed to help me with installation and training. But what really worries me is actually using the software. What are the typical problems you’ve seen contractors encounter when implementing a new accounting system?"

Many construction company owners buy accounting software and, even if the installation goes well, quickly grow frustrated when they don’t get the return on investment they’d expected. From an accounting perspective, some of the primary implementation risks that contractors face are bad data, missed opportunities and cutting corners.

Cleaning up

You’ve probably heard that old tech adage, “garbage in, garbage out.” The “garbage” referred to is bad data. It is extremely important to take the time to review current accounting records and clean up bad data like inaccurate inventory counts, duplicate vendor entries, or aging accrual balances. On a more serious level, your accounting records may contain improperly closed periods, inaccurate liability balances, or outstanding retainage balances on old jobs that have been written off or collected.  If the data is bad in your old accounting system, converting to a new accounting system will not improve it.

What are the steps to take when cleaning up your accounting records before converting to new accounting software?

1. Transition at the end of a quarter or year-end – this creates a clean cutoff date between the two systems for historical purposes.
2. Review your chart of accounts, customer list, employee list, vendor list and any other lists to eliminate duplicates or unused accounts.
3. Complete a thorough audit of each account on your trial balance to be certain that the balance is accurate.  You may not be able to carry forward the account detail into the new system, so if your account balance is carried forward with an inaccurate balance, it will remain as such unless you reach back into the old system.
4. Ask your CPA or outside accounting support to review your work to allow for any recommendations that will make your new accounting system work to your advantage.

Seizing opportunities

Another major risk to construction accounting software implementation is imprecise or incomplete job-costing data. Contractors face a distinctive challenge in integrating not only general business accounting data, but also the details of multiple, ongoing projects. A typical approach is to move job-costing info from the old system to the new one as quickly as possible, using whatever on-the-fly method seems most expedient.

Naturally, doing so can lead to data transfer errors. But, again, there’s also a risk of missed opportunity here. When upgrading to a new system, you’ll have the chance to improve your job costing. You may be able to, for instance, add new phases or cost code groups that allow you to manage project expenses much more efficiently and closely.

What steps should you take with your job costing data before converting to the new accounting software?

1. Complete an audit of your current open jobs – is there work to be done on the project or can it be closed?  Are the contract amounts and projected costs corrects?  Have all change orders been recorded?  Transferring an accurate open job schedule is the first step in creating an effective WIP report in the new accounting system.
2. Evaluate your current job cost structure to determine whether it is meeting all the needs of your project management and accounting staff.
3. Ask your CPA or outside accounting support for any recommendations of successful industry practices that will make your job costing in your new accounting system work to your advantage.

Don’t cut corners on training

Cutting corners on training for the new software system almost guarantees failure.  Not every software is intuitive.  Invest the resources and time in training to be sure that at least one person in each department that will be using the software thoroughly understands it.  These individuals can then act as champions within each department to be certain that each user gets the training they need at a lower cost to the company.

Making a transition to new accounting software is not about bells and whistles, it’s about getting the right tools into your company’s hands to enable it to make the next steps towards being successful.  Taking the time beforehand to clean up your data and consider improvements to your job costing structure will set you up for a successful and worthwhile software conversion.  Lastly, invest in training. It will pay off double in the long run.