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Accounting Tips & Advice

How to Create a Job Cost Report Using Construction Budget Software

Construction projects are complex. Getting accurate job cost information can be difficult if you’re not tracking costs and revenue in an organized manner. Trying to track budgets on multiple projects using spreadsheets and generic accounting programs simply doesn’t work. Financial Construction Software is a must-have for any organization that wants to be in financial control of their jobs and overall business.

The most challenging part of any system is to make sure the foundation is set up properly from the start. Project budgets must be broken down into cost items and cost types. Commitments are posted against these codes to help provide an accurate picture of what is remaining on the budget. Any deviations from this should be tracked via a change order so you can have an accurate picture of where a project stands, where it will finish, and analyze the month over month variance. If the job cost data is entered properly, it is easy for the accounting team to match the commitment and identify any red flags. This way businesses can rely on the job cost reports and there is less risk that you are caught with surprises at the end of the job. Having the information in real-time makes it easy to drill down to view the information and make more informed decisions, faster.

Setting up job cost accounting software

Setting up a job costing system isn’t complex if you have the right software, but it does require some planning. Here are some recommendations to help you better track your job costs using proper financial construction software.

Break down the job estimate into cost items and cost types. These codes represent specific types of work or areas on each project. Most companies use Excel to build out their job estimate as it can be very sophisticated with specific calculations. Other companies leverage 3rd party bidding/estimating packages specific to their industry. Premier Software provides up to five levels of job cost breakdown so you can track costs by the job number, cost types, cost items, and an additional 4th and 5th level of breakdown which are completely configurable to track further breakdown by buildings, units, lots, areas, custom levels etc. You can also group the cost items by CSI division codes.

Enter the job estimate into your financial construction software. In basic accounting systems, most users have to manually rekey the job estimate into their accounting system which can be very time-consuming. In most Construction Financial software solutions, you can upload the job estimate from excel or any 3rd party in just seconds. In Premier, you can do just that so you save valuable time.

Once uploaded, you can lock the original estimate so if anyone applies changes, they are properly tracked via change orders. This gives project managers better visibility into the variances and holds project managers accountable to their original estimate. Cost types are available on the job cost reporting but they are typically connected to your financials to the COGS or WIP accounts. This way business owners can get a macro view on how the company is performing across the jobs. Examples of cost types include Labor, Material, Subcontract, Equipment, Hard Costs, Soft Costs, Marketing, Other. Whereas, the cost items do not roll up to the financials. These are the phases of the job that typically provide the detailed job cost breakdown to help project managers assess the performance of the job. Examples include Electrical, Foundation, Demolition etc. These are typically sorted and grouped by CSI Division codes which are helpful when running summarized reports.

Enter commitments. Commitments are typically used to track labor hours, subcontractor agreements, and/or purchase orders for all material purchases. These should be entered into the accounting system as they are issued so it’s easy for a project manager to see what is remaining in the budget. You can set alerts or hard stops if a commitment is exceeding the budget or if a user is allocating incorrectly.

In Premier, you can automate the generation of these commitments to help save valuable time and ensure proper allocation.

Track change orders in the system. Both owner change orders and internal changes need to be entered into the system to properly track job costs. Change orders are used to track requested or required changes to a job that were unanticipated at the start of a job.  It is imperative to track change orders since they often have a financial impact to either the company running the job, the customer, or the subcontractor that is working on the job.  Budget Transfers are an auditable way to move funds between cost items on a project. They’re often used to allocate to and from the contingency and balance the allocation of budget when one part of the project is performing better than another.

Allocate actual costs to the job. Accounts payable, GL entries and payroll costs should be allocated to the proper job cost on a timely basis so project managers compare it against the budgeted cost of those activities, so that the cost variance from budget is known continuously. … especially valuable if the organization performs many projects that are very similar to each other. Payroll costs should include burden, such as employer taxes, benefits, and employer-paid insurance.

Running job cost reports

Once the project has been set up, the job budget is entered, commitments are posted, change orders are updated, and actual costs are posted, the estimate at completion should be accurate and you can rely on the job cost reports. Premier Software has several out-of-the-box reports and project dashboard that consolidate accounting and job costing information which make it easy to see where you stand on the job, help you identify red flags, and make it easy to drill down into the details.

Project dashboard. The project dashboard provides project managers and executives a high-level overview of each project and drill down into any job cost or accounting details in just seconds. It provides useful KPIs to help identify the original vs. forecasted margins, overbudget items, overpaid vendors, WIP, cashflow, retainage, and AR & AP information. Also, a PM can easily create or view submittals, RFIs, meeting minutes, daily job logs, and unbilled change orders. Take action to approve, view, or electronically sign pending subcontracts, change orders, AP invoices, AR billing, and more.

Manage construction projects with the job dashboard in PremierJob Cost Progress views – This report provides a detailed or summary view of the job providing a full breakdown of the costs and revenue. View the original estimate, commitments, remaining budget, actual costs, monthly costs, % complete, estimate at completion. With multiple filters available, project managers can easily filter by cost item, cost type, cost groups, and more. Easily evaluate project managers and hold them accountable to key KPIs.

Work in progress report. The WIP report shows businesses whether active jobs are overbilled or underbilled. Cost overruns are common in the industry. It’s far too easy at the mid-point of any project to misjudge billing against the actual status of the project. The success of a WIP report depends on keeping accurate cost records and consistent documentation.

Forecasting reports. Project managers should forecast monthly and review M2M variances. A forecast can be considered a precursor to a Potential Change Order. Unlike a change order, however, a forecast is a well-informed prediction of trends that are arising that need to be identified and captured prior to a change order. Any predicted trends that turn out to be true, can then be converted into a change order and become part of the project budget & schedule. Premier helps by allowing PMs to enter in anticipated costs. The anticipated cost value impacts the estimate at completion providing a more accurate picture of where they will end on each line item.

Premier Construction Software makes accurate job cost reports easy

Using financial construction software for accounting, job costing, project and drawing management makes project managers’ jobs easier. It automates the most time consuming and complex processes so they can focus on what matters. Trying to track and report on this data by hand is difficult and time-consuming. Premier Construction Software helps project teams know their profitability and see potential issues quickly and easily.

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Accounting Tips & Advice

7 Benefits of Outsourcing Payroll Versus In-House Processing

Making the decision about whether to outsource payroll or keep it in-house takes a lot of thought and preparation. Construction payroll can be complicated, and you also have to make sure that your payroll costs are allocated appropriately.

Before you decide what to do about your payroll, keep in mind these seven benefits of outsourcing construction payroll.

Benefits of outsourcing payroll

1. Save time

Processing payroll takes time. If you’re just starting out with new software or new employees, there’s the software set up, employee set up, timesheet review, timesheet entry, and then calculating pay and taxes. Depending on the size of the company and how frequently employees are paid, payroll processing can require a part-time or full-time staff member. Administrators can easily spend 20 hours a week just processing payroll and dealing with payroll-related items.

By outsourcing payroll processing, you’ll free up hours that have been spent on these administrative tasks. Instead of staff working part-time to process payroll, they may only need to spend a few hours getting the information ready for processing. Having another company provide these services will give your staff more time to work on the business and serve your customers.

2. Expertise

Most construction companies ask their office staff to provide many services, of which payroll is only a small part. Unless you need a full-time payroll processor, you look for potential admin employees that have multiple skill sets, because admin staff often spend their time working on a variety of tasks. All this means that payroll knowledge is often secondary to other skills.

A payroll service specializes in providing only payroll processing, so you know they have the expertise needed. Also, outsourcing services use the most up-to-date software ensuring that your payroll is accurate and that it’s performed as efficiently as possible. When updates occur, as they always do, you won’t have to spend valuable time getting up to speed or paying your employees to learn a new process.

3. Keep current staff level

As your company grows, payroll begins to take more and more of your administrative staff’s time. You may find you need to hire more staff just to handle the workload from payroll. There’s added cost and time for onboarding a new employee, training them, and getting them up to speed. Spending time and money on acquiring staff and training them keeps you from doing your work.

By outsourcing, you won’t need to add more staff just to handle payroll as your company gets larger. The service will be responsible for expanding to meet your needs. If you outsource, you can easily assess your staffing needs without having to worry about added payroll processing.

4. You’re always in compliance

It’s imperative to your business that you obey and comply with the laws and regulations for record-keeping and storage of documents, especially when it comes to payroll. Payroll laws are always changing, and software updates are a regular occurrence. Keeping up with the latest and greatest is time-consuming and can be confusing when staff are working on other tasks as well.

A payroll service is always up to date on the most current legislation and tax amounts. They’ll inform you of any changes that need to be made in your business practices, and the rest will be handled as part of your service package. You can rest easy knowing that your payroll is in line with the latest regulations.

5. Lower costs

Processing your own payroll means you have to purchase software, pay for a payroll service subscription, and provide staff time for software set up and payroll processing. Not only that, but you also have to maintain the security of your payroll records and ensure that sensitive information isn’t accessible. All these expenses quickly add up, making providing your own payroll processing a giant headache.

Having someone else do your payroll, including providing the software and set up, allows you to spend your resources, both time and money, on the work you do to make a profit. The savings in software expenses and staff time more than pay for the cost of outsourcing.

6. Complicated payroll is easy

Construction companies often work in multiple locations and multiple states. This complicates the payroll process by involving multiple jurisdictions, taxes, and compliance regulations. Keeping track of all this information for each state your company works in can be overwhelming even for the most experienced administrators.

An outsourcing company knows the laws and regulations for each state and what to do when your employees are working in multiple states. Their software is already set up to handle even the most complicated of payroll situations.

7. Certified payroll is effortless

If your company works on public projects that are subject to prevailing wage laws and require certified payroll reporting, payroll processing is complicated. Union companies also have detailed reporting requirements. Setting up a software system to handle certified payroll or union reporting is a complicated process that can take your staff hours to complete. On top of that, not all payroll software provides the necessary reports for this type of payroll, meaning that your staff has to spend extra time compiling the information required.

Outsourcing companies that specialize in construction payroll have the systems in place to handle prevailing wage and certified payroll reporting with ease. You simply provide the information for each project and the processor takes care of the rest. They’ll send you the reports you need with each processing and you simply turn them in to your clients or the union.

Payroll outsourcing saves time and money

Save your company time and money by outsourcing construction payroll. You’ll ensure that your employees are paid correctly, and records are stored securely, keeping your company in compliance. You’ll save staff time and admin costs, making your company more efficient and profitable.

Author Biography:

Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator.  Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.

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Accounting Industry Insight

The Main Types of Billing in the Construction Industry

While many industries operate around a fixed price or point-of-sale billing structure, the construction industry tends to be a bit more complicated because of its long-term, project-based nature. Every construction project is unique and comes with its own set of requirements and challenges. Because of this, contractors may use a number of billing styles and methods, which then requires the use of construction accounting software in order to track, create and manage those billings.   

A construction contract is a legally binding document that stipulates how and when payments will be made once a project is executed. The contract type is usually defined by how disbursements will be made, and will include other pertinent project information like duration, liability, quality requirements, and more. 

While there are a number of variations that can be made to meet the specific needs of a project, this blog will focus on the most common construction contract types and billing options.   

Fixed Price / Lump Sum

Fixed price contracts (also referred to as lump sum contracts) are the most basic type of construction contract because they outline one total price for all construction-related activities. Sometimes, incentives are built into these contracts for early completion, but they may also include penalties (called “liquidated damages) for projects that are completed late. 

  • Pros: Fixed price contracts simplify the bidding process by naming one total price in lieu of submitting multiple bids. Because the project price is already set, finishing under-budget results in higher profit margins.
  • Cons: Because there’s one set price that’s agreed upon, any unexpected changes or setbacks cut directly into profit. Therefore, it’s critical to try to account for every variable upfront, which can be difficult to predict, especially on larger and more complex projects. 

Cost-Plus

Under a cost-plus billing structure, the owner agrees to pay the contractor for the project costs plus a fee, which may either be a fixed fee or calculated as a percentage of costs. 

  • Pros: This billing structure provides the most flexibility, and allows owners to make design changes along the way while also providing the contractor with assurance that they’ll be paid for any extra time or materials those changes require.
  • Cons: Cost-plus contracts require contractors to front and justify costs, which can sometimes be difficult to account for, and owners may be reluctant to reimburse for indirect costs like mileage or administrative expenses. And because the owner is ultimately responsible for payment of any unforeseen costs, this structure provides owners with the least control over costs.Automate your cost-plus billing process using Premier Contstruction Software

Time and Materials (T&M)

With a time and materials billing structure, the contract price is based on the cost of materials, plus an established pay rate. 

  • Pros: T&M billing is easy to use for small projects, and a good option when the scope of work is unclear or undefined. It’s attractive for builders because it means they’re not completely limited by budget, although price caps are commonly established to mitigate the owner’s risk.
  • Cons: Tracking and logging the cost of time and materials can be tedious, but failure to do so results in lower profit margins. Also, because this billing type pays by the hour or by the day, there’s no real incentive to finish a project early unless the contract includes a stipulation to pay a bonus for finishing ahead of schedule.  

AIA Progress Billing

Named after the American Institute of Architects (AIA) that produces its official forms, AIA progress billing invoices the customer based on the percentage of work that’s completed during that billing period. This type of billing is common in projects that last a long time as it allows the contractor to fund themselves and the project while it’s in progress.  

  • Pros: AIA contract documents are widely-used, standardized forms that are applicable to many project types, and they can be customized to include specific terms like retainage rates or interest rates on late payments.
  • Cons: While the AIA standard contract documents can be customized, the contractors may have to pay for these modifications to be made, which can be expensive. Additionally, any changes to standard documentation invites the potential for legal risk and, therefore, should be reviewed by legal counsel.

Conclusion

Understanding the different types of construction contracts and billing models is critical to determining the right fit for you and your project. Premier Construction Software supports cost-plus billing, progress and time & materials with built-in automation to streamline your billing process into seconds. To learn how Premier Construction Software can help streamline your AR billing needs, click here

 

Author Biography:

Kathryn Dressler is a content strategist with more than 10 years of experience across the spectrum of marketing services, including blogging, social media, public relations, copywriting and editorial services.