Accounting may seem like a universal language, but when it comes to construction, it’s a different ball game altogether.
Construction accounting isn’t your run-of-the-mill number crunching; it’s a specialised field with its own set of rules, challenges and priorities.
While it’s rooted in traditional accounting principles, construction accounting operates within a unique landscape, where projects are the heartbeat of financial management.
Construction accountants navigate dynamic environments, constantly juggling costs, revenues and project complexities.
So, what exactly sets construction accounting apart from the regular kind? From tailored strategies to specialised tools, this article breaks down the key differences you need to know.
Construction accounting isn’t your typical number-crunching gig. It’s a specialised discipline tailored to meet the unique demands of the construction industry.
Sure, it involves the usual suspects like cash flow management and transaction recording, all in pursuit of profit. But here’s where it gets interesting.
Construction accountants must wrangle with a myriad of challenges: intricate cost structures, sporadic revenues, lengthy project timelines and more.
It’s a complex dance that requires immense attention to detail. Unlike regular accounting, where the books are often open-ended, construction accounting follows a project-by-project rhythm.
There’s a clear finish line where accountants can take a bow, knowing their job is done — well, until the next project kicks off.
Wondering how construction accounting stacks up against its regular counterpart? Here’s a closer look at five key distinctions:
While regular accounting offers a bird’s-eye view of an organisation’s financial landscape, construction accounting zeroes in on individual projects, ensuring each one turns a profit.
Precision in costing becomes paramount, especially given the large scale and extended timelines of construction projects.
Managing costs across multiple simultaneous projects and sites adds another layer of complexity to the mix.
While many businesses operate from a centralised location, construction companies navigate a decentralised landscape, spanning various project sites.
With team members, equipment, materials and subcontractors dispersed across these sites, accurately allocating costs to each project becomes a logistical challenge.
This includes accounting for indirect costs and expenses incurred between sites, such as travel and transport. Furthermore, tax structures, wage scales and regulatory obligations may differ from one project to another.
Leveraging technology that allows workers to enter information in the field can help you better track and manage these costs.
Construction contracts are characterised by their long-term, irregular and flexible nature.
Contractors must manage a schedule of payments based on work milestones, where the timing of payments is often subject to change due to various factors like material shortages or adverse weather conditions.
Change orders are also a fact of life for most large projects, and have the potential to cut into profits if the predicted financial impact of every change is not carefully documented.
Estimating project costs in construction is particularly challenging due to the combination of extended project durations and fluctuating prices of materials and resources.
While historical data can be used to predict future price changes, unforeseen events can quickly render initial estimates inaccurate.
Stockpiling materials to mitigate price fluctuations is also not always an option due to budget and storage challenges.
Construction accounting demands specialised reporting methods, and these methods can be made simpler, more efficient and more effective with specialised tools.
These tools streamline processes like generating progress claims, ensuring all necessary numbers and supporting documentation are included seamlessly and simplifying complex tasks.
As we can see from the differences listed above, organisations in the construction industry face far greater financial complexity than traditional businesses, which only increases the importance of accurate accounting.
With so many costs contributing to a build, it’s critical that they are properly segmented, and that the actual cost is aligned with the estimated cost.
You must also differentiate the costs that fall within the scope of the project from the variations that don’t.
When done well, you give yourself the ability to gain both a holistic and a granular view of costs, which enables you to better diagnose issues and identify opportunities both big and small, then act on them.
Navigating construction accounting is like solving a puzzle with constantly shifting pieces. Here are some hurdles you might encounter, along with their solutions:
In order to track the financial health of a project, you need total clarity on how your actual spend compares to your budgeted spend. Ideally this data will be delivered in something close to real time, allowing you to keep your finger on the profitability pulse and prevent overruns.
Solution: Enter Lentune, your project costs management ally. With Lentune, you get real-time visibility into your project costs, allowing you to compare actual expenditures with budgeted amounts effortlessly. As expenses and invoices roll in, Lentune updates your spend automatically, keeping you in the financial driver’s seat.
A key aspect of aligning budgeted spend and actual spend is checking that you’ve been charged as expected by a supplier. If unit costs differ, or if there are extra charges that you didn’t properly budget for, you can overrun your budget without realising.
Solution: Once again, smart tools can help to ensure your suppliers are invoicing as expected. For example, Lentune Invoice Automation automatically matches POs to invoices, flagging any discrepancies along the way. Plus, it slashes administrative time by up to 70%, giving you more time for value-add.
Over the life of any large project there will inevitably be variations from the original plan, from minor cost alterations to significant changes in project scope.
Managing these variations is one of the more complex challenges in construction accounting, as all parties need to be on the same page, and the financial impact of any change must be carefully analysed and managed.
Solution: Lentune’s progress claims automation tool streamlines this process, allowing you to pinpoint and address changes in project scope, create change orders and automate progress claims effortlessly.
In order to ensure profitability, you need clarity on the cost to complete a project at any given point of that project. This is only possible through regular work in progress (WIP) adjustments, which tell you what has been done and what is still left to do.
Solution: Lentune simplifies WIP adjustments, automating tedious administrative tasks and data entry. With Lentune, you gain real-time visibility into cost to completion, empowering better decision-making and project management.
Generic accounting software just won’t cut it when it comes to managing the complexities of construction cost management. You need a solution tailored to meet the specific demands of your business.
But with a sea of options out there, how do you navigate the waters and find the perfect fit?
Here’s our blueprint for selecting the best construction accounting software for your business:
Automation will be the main aim of any quality solution. Automation brings two main benefits:
Effortlessly connecting tools is key. Top-tier construction accounting software seamlessly integrates with your existing tech stack, ensuring smooth data flow across all platforms. This unlocks a realm of possibilities, from enhanced reporting and analytics to automated processes.
Lentune syncs with all major accounting and project management software, including Xero, MYOB, Accredo, Procore, Jobpac, CostCon and Simpro, to drive simple, end-to-end process perfection.
You’re the construction experts, not the tech experts. While implementing a new tool can feel slightly daunting, it is made so much easier when you enjoy easy access to all the support you might need.
At Lentune we offer two onboarding options: Basic, for smaller teams with simpler setup and configuration requirements, and Professional, for larger teams with more complex onboarding challenges.
Once you’re set up, you’ll enjoy 24/7 access to our comprehensive Knowledge Base, overflowing with everything from troubleshooting advice to guidance on how to maximise Lentune’s capabilities. And if you need to chat to a human, we’re here to help!
Navigating construction accounting is like taming a different beast altogether, with its project-centric approach, decentralised operations, intricate contracts, and demand for specialised tools.
But understanding these nuances, adopting construction-specific practices, and leveraging purpose-built solutions like Lentune can empower you to conquer the challenges and seize opportunities in construction accounting.
Book a live demo, where we can answer all your questions and give you a clearer idea of how Lentune can help streamline and grow your business.