Accounting for testing times

Carol Massay, CEO of EasyBuild, explains how an ERP based accounting solution can help construction businesses manage a year of unprecedented challenges

They say that to make a small fortune in the film industry you have to start with a large one. It often seems like that in the construction industry too, which has to be one of the most complex industries to work in. You have architects and engineers from a number of different disciplines trying to come up with a building model that suits them all. Then you have to oversee the construction while balancing resources, manpower and materials and ensure that they are all available on site at the right time.

You also need to be able to make changes to the plans when reality hits the drawing board, keep the cashflow going, raise invoices, pay suppliers and the workforce, oh, and keep the client sweet by assuring them that, actually, it's all going to plan.

At the same time, the industry has to abide by building regulations that specify what materials can be used for different methods of construction, what fire resistance components they have, and who can install them. Employees also need to be qualified before they can be employed and building sites should all be run according to the latest health and safety guidelines.

Keeping track of all of this is no longer possible if a company keeps all of their information in different silos. Everything is interdependent. If an H&V engineer tells the architect that he needs more space to run a different specification of extractor fans, the extra cost involved needs to be used to update the construction costs, so that the budget and cashflow figures can be updated, labour costs recalculated, new items ordered and delivery and installation scheduled. The bottom line, the profitability of the project, will also need to be recalculated.

The backbone of a successful construction company, therefore, is a solid, professional and all-inclusive accounting system, one which processes goods received, bills paid, work done and payrolls met - as it has probably done ever since the company opened its doors for business.

Most companies will probably have started out with simple Excel spreadsheets, but as the demands of the business became more complex, moved through early dedicated accounting systems to fully integrated applications that accumulate large amounts of supplementary information to plan budgets, analyse performance levels, scrutinise costs and, most importantly, mitigate risk.

To make that happen you need to look beyond the basic accounting systems and instead focus on an enterprise resource planning (ERP) solution, which will have access to both a project's common data environment (CDE) and its financial elements - similar to the Cloud-based one we run at EasyBuild.

ERP solutions have to be configured to suit the requirements and working processes of different types of companies however - which is why EasyBuild's ERP solutions have been set up to cater for three different sectors of the construction industry: General Contractors, Housebuilders, and Maintenance and Service companies.

The basic requirements remain the same. Land is acquired, architects are instructed, materials are bought, workers are hired, and so on, but subtle differences require additional accounting procedures. Housebuilders, for instance, rely on a unique set of customers with individual financing requirements, and service and maintenance companies are set up to handle either periodic or ad hoc servicing tasks. EasyBuild's ERP software takes both of these into account and offers a full marketing and financing capability for its housebuilding clients, and scheduling tools for the service companies. Contractors can perhaps be considered the default end of the business.

Properly established, an ERP solution should handle the complexities of the industry and cover the many changes that happen within a project during its lifecycle. The past year though has thrown up many new challenges, which we at EasyBuild have had to address on behalf of our customers.

The value of a complete ERP based accounting solution, we have learned, is not in what it covers on a day-to-day basis, but how it copes with unexpected alterations to the rules, whether by accident, politics, demographics or HMRC edict. Twelve months ago nobody could have foreseen the dramatic unfolding of a global pandemic and the huge impact it would have on national finances worldwide. At the same time, we as a nation have been struggling to define the terms under which we will leave the EU - which are still unresolved at the time of writing.

Both of these have impacted the demographics of the construction industry as foreign employees return home, and the status of those that remain is placed in jeopardy. And to add the final cherry on the 2020 cake, HMRC has changed the way we pay VAT to counter the fraudulent activities of 'ghost' traders.

All of the above have had an impact on the construction industry. COVID-19, especially, has hit everybody hard, and during the first lockdown many construction workers had to down tools, become furloughed, and work from home - as did architects and office workers. The financial repercussions have been huge, and to be able to utilise government assistance, top-up furlough payments and cope with regular company costs, EasyBuild customers have had to dig deep into their new cost projections and operating forecasts to stay afloat.

Part of these costs reflect the expense and the administration of hiring workers from abroad, the possibility of increased tariffs on goods imported from Europe if we leave the EU with 'No Deal', fluctuating currencies and the prospect of new financial regulations that could emerge when we set our own standards and requirements.

If we are lucky, any new arrangement may involve a minimum of software intervention, but even the most optimistic of us should realise that any future transactions between UK based companies and the EU will be reliant on a complete redesign of documentation and a reorganisation of the information required to populate them. Even at this late stage we have to be aware of every eventuality and to start planning for it.

Not content with having to cope with the COVID-19 pandemic and Brexit, HMRC has decided to change the VAT payment rules to combat 'absent trader' fraud. This happens where companies set themselves up to trade within an industry, purchase and resell goods, and pocket the VAT paid by their customers before disappearing.

Apparently, the amount that HMRC believes the British Taxpayer is being swindled out of is well over a hundred million pounds. To prevent this happening, HMRC are making the final VAT registered customer pay the VAT under a scheme known as DRC, Domestic Reverse Charge, which ensures that no VAT payments are floating round the industry waiting to be hijacked.

This, of course, does entail software intervention to enable the billing and subsequent collection of VAT to handled accordingly. That is easy for EasyBuild to do, and a schedule is being implemented by ourselves to do this for those customers who need it.

VAT payments going through the books, though, are sometimes used by clients to smooth out their cashflows, as VAT payments are required quarterly, rather than monthly. This means that they are more than normally reliant on being able to balance budgets and cashflows.

Who would have thought at the beginning of the year that we would end up where we are now? This is where the systems that we have in place get put to the ultimate test, and where you have to rely on software suppliers, like ourselves, who are wholly committed to the industry. We can offer advice, support, make the software tweaks necessary to handle the unexpected, and help your company overcome the challenges that we still face.

2021 will soon be upon us, but rest assured that EasyBuild are providing more solutions that free their customers to do more of what is important to their business.