Adam Prince is Vice President of Product Management for Compliance, Brexit, Identity and Consent, Sage in this latest feature he writes about the benefits of using digital tools can help the construction industry.
There is no denying that small construction and trade businesses have been amongst the hardest hit by the pandemic. Investment for building projects came to a halt following the first lockdown; non-residential construction was hit in part due to a slowdown in renovations of office buildings – this trend continued as more companies shifted to remote work. Business was further complicated by social distancing rules, which created their own set of logistical challenges for construction work.
The impact of COVID-19 on construction has been deep. According to CHAS, four out of five businesses (81%) said they had to cancel or postpone construction projects following the initial impact of COVID-19. Furthermore, businesses are still very much enduring the negative effects on trade; recent ONS figures show that construction output in January 2021 was 2.6% below the February 2020 level; the level of new work was 6.4% below this level.
However, amidst industry doom and gloom, recovery is for construction firms is set to be ‘V’-shaped. Following an immense downturn in businesses, many decision makers are expressing a positive outlook about the future. To prepare for this, having the right accounting tools will be key over the coming months.
Previously regarded as a tick-box exercise, accounting-related digitalisation can now help firms streamline operational procedures and ensure financial compliance in a changing legislative landscape. Here’s three ways for construction firms to improve their accounting software toolkit to aid greater productivity.
- Audit your current office systems
Create an inventory of what you are currently using. This will help you identify areas for improvement and what can be done to improve long-term strategy. Accounting software will not only facilitate short-term cash flow management, it will also provide strategic overview of money moving in and out of your business over the coming year.
This is critical, given that many firms face an additional £173,000 debt due to COVID-19, according to our research. Understanding your real time cash position will help you manage any hurdles more effectively.
Your construction business relies on cash flow – you need to ensure you have more money flowing in than you have flowing out of your business to survive. Sounds obvious I know but it’s something not all businesses do. Auditing your current systems and finding areas for improvement with new, useful types of software can help protect your cash in the long-run and potentially soften the impact of business disruption. For example, reviewing the financial planning tools you use will allow you to see if you are leveraging them to their full capabilities and whether they are cost efficient or not.
Forecasting and invoicing tools can prove to be the most valuable. The right forecasting plan can help save significant amounts of time by removing the need for manual data entry while providing pre-built queries. You can skip the time-consuming edits and easily create new forecasts in real-time that reflect what is going on in your business. In addition, timely invoicing provides streamlined payment for goods and services and can reduce the likelihood of cash flow voids.
- Learn about how HMRC legislation affects you
Keeping ahead of the regular government changes, such as VAT reverse charge changes for the construction industry, IR35, VAT cuts for businesses and the availability of grants, is critical.
IR35, as tax anti-avoidance legislation, is something construction firms with off-payroll workers should take notice of. Sub-contractors who operate as an incorporated business will likely be impacted by IR35. This legislation takes precedence over the Construction Industry Scheme (CIS) requirements, although both seek to withhold tax and National Insurance at source. The legislation is designed to define contractor status and with the new IR35 requirements, contracting firms will need to ensure that adding ‘disguised’ workers to payroll is completed smoothly and in line with government rules.
In addition, domestic VAT reverse charges came into effect on 1 March 2021, which means those supplying construction services to a VAT-registered customer no longer have to account for the VAT. As a result invoicing processes would have changed for many firms. Using software that ensures compliance to such regulations and staying on top of legislative updates is essential, especially in the changing climate.
Checking the HMRC website will be key in the coming months – it details financial support available in the form of loans and grants, as well as legislative changes building and construction businesses need to be aware of. The HMRC website also has information of future changes such as Making Tax Digital for Income Tax Self Employment (MTD for ITSA) and other big impact challenges for dated back-office systems.
- Explore the digital marketplace
Following a comprehensive audit and review of legislative changes, you can start to explore the means to effectively digitise your business. When moving from auditing current assets to implementing new ones, think about time inefficiencies – “am I losing productivity to back-office processes?”. This is where solutions like cloud accounting software for construction can help you. It keeps on top of customer invoices, allows you to engage in real-time reporting and track all of your payments, which are all key for staying ahead of tax reviews. You can automate mundane, manual data entry, reconcile bank transactions, and give bookkeepers and accountants a single place to access real-time transactional data.
There is a spectrum of tools on the market to help construction firms specifically. Our research highlighted that 80% of SMEs think digital adoption will be critical for an enterprise-led recovery and job creation; having the right digital strategy will help fuel and protect business in the long-term.
When looking at your digital toolkit, there are some applications specifically geared towards accounting that can streamline processes. For instance, smart schedulers with real-time tracking through GPS and quick quoting can speed up procurement. There are also solutions that allow businesses to create, send and track detailed and professional proposals that are automatically converted to invoices. Other solutions help automate key processes, saving valuable time. In addition, solutions for invoicing can let you manage, create, and send out bespoke and branded quotes to your customers with a few clicks of a button.
Following an assessment of the unique challenges your business faces, you can select the right digital solutions for you, in order to deliver a better service for customers and ensure back-office systems run as smoothly as possible. Ensuring compliance in 2021 will safeguard construction firms against investigatory visits from HMRC, who will be keen to check that accounting and payroll is being done by the book.
What’s on the horizon for construction?
Knowing what support is available for your business from the Government and which digital tools can help boost efficiency will be key for construction firms. Reinvesting the Government’s financial support in technology adoption will be a great boost for long-term resilience and health of any firm.
The future for the construction industry is unknown but taking the necessary steps to safeguard your business and your finances will be key to survive and thrive. Having the right finance and technology tools will be crucial for construction firms to prepare to bounce back and build a better future.
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