The true cost of staying on legacy ERP: a framework for construction CFOs

A legacy accounting system might get the job done, and it might be a relatively inexpensive monthly subscription fee. The real cost though is all the extra work your team does to get around what the system cannot do.

Our team works inside these systems every day. Audra Speth, Troy Guevara, and Mohammed Ali explain where those costs hide, and how to tell whether staying is still the cheaper option.

Why this cost is hard to see

Construction companies are good at working around problems. Plans change, information arrives late, and field conditions rarely match the original assumptions. The team adapts and keeps the job moving.

Finance teams often take the same approach to software.

A spreadsheet fills one gap. A manual approval process fills another. Someone exports three reports and combines them for the owner. Over time, these extra steps no longer look like system limitations. They simply become part of the job.

That is why you can honestly say your current system works. It works because your team has learned how to compensate for its limitations. A better question is: What does it take to close the books and produce a report? How many hours does it require? How much work must be repeated? How much of the process depends on one person?

There is a second reason the cost stays invisible. If you have never run a system that does this work on its own, you have nothing to measure the current one against.

Consider a contractor with more than 100 project managers and billions of dollars in revenue. Every invoice arrived by mail, with hundreds or even thousands coming in each day. One employee sorted and entered the invoices, placed them in envelopes, routed them to the offices or job sites where project managers were working, and tracked the entire process. Some invoices traveled to another state. Each project manager then reviewed a stack that could contain 10 to 50 invoices.

The process worked, but only because employees supported it with an enormous amount of manual effort.

“We can get it done” does not tell you what staying costs. It only tells you the cost has been absorbed into everyone’s job.

The cost of late job costing

The numbers in a legacy system may be accurate, but they are less useful if they arrive too late.

If project teams do not see job-cost information until a job is complete, they find out what happened after they have lost the opportunity to change it.

Late information is most dangerous with labor. Materials can be counted, and when scope changes the cost can usually be recovered through a change order. Labor cannot. As Troy Guevara puts it, it is the single largest variable on any project, and the only big one with no change order behind it — an educated guess that decides whether the job makes money or loses it.

Labor cannot be predicted with complete certainty. If the financial effect of a labor issue appears too late, the team has already lost the chance to adjust the crew, change the work sequence, or revise the forecast.

Contractors should update job forecasts every week. If a million-dollar job is one month in, finance and operations should be able to answer a few basic questions: How much work remains? How much cost remains? What is the projected profit? Is the job likely to perform better or worse than expected?

Modern construction accounting software gives you job-cost status and project profitability daily. Getting the same report a day earlier is not the point. The value is in the repetition: you see what changed, revise the forecast, and act while the job is still underway.

The cost of rebuilding reports in Excel

Owners, banks, and bonding companies want a complete and consistent financial picture.

When the accounting system cannot produce that picture directly, the finance team has to build it. One report provides part of the answer, another provides the rest, and Excel becomes the place where the company’s real reporting model lives.

The cost includes more than the time required to build each report. Employees also have to check formulas, reconcile inconsistencies, repair broken links, and repeat the process every week or month. A report can be familiar and still be expensive to produce.

The problem becomes more difficult for companies with multiple entities. QuickBooks uses separate files for separate entities, so users must move between them. Consolidated reporting then depends on exports and complex spreadsheets instead of one consistent reporting structure.

An acquisition adds another entity, another set of books, and often another chart of accounts. Finance then has to build a unified view from systems that treat each business as a separate piece.

Sage Intacct Construction allows the finance team to establish a reporting structure once and reuse it for owners, banks, bonding companies, and consolidated reporting. Finance no longer has to rebuild information that the accounting system should be able to produce directly.

The cost of maintaining on-premises systems

An annual software license is easy to identify because it appears on an invoice. The technology required to support that software is harder to measure because its costs are spread across internal IT, outside services, infrastructure, and employees.

On-premises products require servers, maintenance, updates, license administration, and access management. Older systems may also need middleware to exchange information with newer applications. An entire industry exists to keep data moving between older and newer technology.

Then there is key-person risk: the employee who understands the system structure, remembers every workaround, and knows what to do when something breaks.

The software in that example was Sage 300 CRE, but the same risk applies to any system that depends heavily on knowledge held by one person. When that employee leaves, the company loses an employee and may also lose the practical instructions for operating its accounting system.

Staffing, middleware, infrastructure, and key-person risk can cost more than the visible software license. However, that does not always mean the company needs a new ERP.

If the main problem is maintaining servers or providing remote access, hosting is the right solution. The company can run its existing software on an offsite server and give employees a cloud-like working environment without replacing the ERP. Hosting can also help a company become comfortable with remote access before it moves to cloud-based software.

Moving to the cloud does not automatically mean moving to Sage Intacct Construction. The solution should match the problem.

Four questions to determine whether staying is still cheaper

There is no single revenue threshold that tells every contractor when it has outgrown its accounting system. These four questions provide a more useful test.

1. How do you process AP, field labor, AR, and compliance today?

Start by asking how the work actually gets done. A question like "does the system still fit?" gets a yes, because the team has already made it fit.

Review each of these four workflows from beginning to end. Count the steps, the handoffs, and every place where someone re-enters information that already exists in another system. Then estimate the cost of the delays:

• What does it cost when invoices are not approved in time to earn an early-payment discount?
• What does it cost when no one sees a labor overrun early enough to adjust the crew?
• What does it cost when a material shortage remains hidden until it stops the job?
• What does it cost each month to maintain workarounds for reports that better software could produce in a few clicks?

These are real costs, even if the contractor cannot calculate the final amount until a problem has already caused a loss.

Next, review what the business now requires from its accounting system. Do you need work-in-progress reporting? Are you tracking retainage and change orders? Does the system provide true job costing? Can you see labor costs while the job is still underway?

QuickBooks is effective at categorizing checks and invoices, but it is not construction accounting software and does not provide true job-cost information. You have outgrown it once you need WIP reporting, retainage, change-order accounting, and labor costs while the job is still underway.

Finally, estimate the employee time required to fill those gaps:

• How many hours do employees spend compensating for late job-cost information?
• How many hours do they spend rebuilding reports?
• Which system connections depend on middleware?
• Which critical processes depend on one knowledgeable employee?

This changes the question from, “Does the system work?” to, “What does it take to make the system work?”

2. If the work is still simple, is the current system still the right fit?

Not every contractor needs to replace its current system.

Sage 100 Contractor can be a strong fit for smaller and early-stage construction firms. Sage 100 Contractor or Sage 300 CRE may continue to serve a contractor with limited growth plans, even as revenue approaches roughly $20 million, as long as the work and reporting requirements still fit the system.

Staying can be the right decision. A more sophisticated system creates new responsibilities, and buying capabilities the business is not ready to use does not automatically create value.

However, a Sage 100 Contractor customer that has outgrown the system should not move to Sage 300 CRE simply as an intermediate step. If the company’s work, growth plans, and organizational structure require a modern ERP, Sage Intacct Construction is the next system to evaluate.

3. How many entities must finance bring together?

A process that works for one entity can become fragile when the company has three.

By the third entity, intercompany transactions create more opportunities for errors. Leadership is also more likely to need a consolidated view of the organization. If the owner depends on finance to combine reports manually, the company is already paying for consolidation through employee time.

Ask whether each new entity adds strategic value without creating a similar increase in reporting work. If every acquisition also requires another spreadsheet process, the accounting system is making the growth strategy harder to manage.

Three entities is the trigger, regardless of revenue. At that point, consolidated dashboards and a consistent intercompany process start paying back the cost of a more capable system.

4. Are you staffed for the next system?

Choosing the right system and being ready to implement it are two separate issues.

Work complexity, growth plans, and entity count can help determine whether Sage Intacct Construction is the right next system. Staffing determines whether the company can implement it successfully and when the move should happen.

A larger ERP needs clear ownership. The company needs people who can make decisions, document processes, participate in the implementation, and change the way they work. Revenue alone does not prove that the organization is ready.

A contractor may be large enough to benefit from a new system but too constrained to implement it successfully today. On the other hand, a smaller contractor that is growing quickly or adding entities may need to prepare sooner because its current processes will not support the company it plans to become.

The decision comes down to two questions: Is the current system still right for the work? If not, is the organization ready to move successfully?

Evaluate the system against your growth plans

You plan around risk. That is the job. But if all the attention goes to the worst case, it is easy to miss what success will require.

Consider the best-case scenario. The business reaches $20 million or $30 million in revenue and then aims for $40 million or $50 million. It adds entities, employees, projects, and reporting requirements. Can the current system support that company without multiplying delays, spreadsheets, integrations, and dependence on key employees?

You do not have to move tomorrow, and there is no value in regretting that you did not move yesterday. Make the change when both the work and the organization are ready.

Stay with the current system if it still fits. But if job-cost information arrives too late to act, reports must be rebuilt by hand, middleware is required to keep systems connected, and one person knows how the box works, those are the back-end costs you are already paying.