Project accounting is a more holistic way to manage a practice, and it is notable precisely because it unifies traditional accounting with firm management. These two areas may seem like separate silos, but project accounting is a way to tie the day-to-day happenings in a firm with the larger financial picture.
When a firm adopts project accounting—the practice of accounting on an engagement-by-engagement basis—you will gain insights that change the way your firm does business. You will understand projects, employees, clients and the firm on a deeper level and will be able to make changes that will dramatically increase efficiency and profits.
Before this happens, though, you need to lay the groundwork. Just like in standard accounting, it is nearly impossible to reach any conclusions with project accounting if data is missing. With the right tools, logging and making sense of the data you need are convenient and easy. It is important to start out by being consistent.
Make a Habit of Tracking Time and Expenses Time and expense tracking is foundational for analyzing any type of business that works on a project basis. Time is your most valuable resource, the basis of your biggest expenditures (i.e., salaries) and what your clients pay you for.
Even if your firm charges fixed fees for engagements, you could be missing out on hard-earned cash by not tracking your time. You need to make sure you charge enough to cover all the effort that goes into your engagements. And if you find out that one phase of an engagement takes more time than you previously thought it would, then your fixed fee should be adjusted for the next proposal.
It is hard to know if your engagements are even profitable without examining the resources that went into them. Plus, if you cannot measure something, any attempt at improving it will be haphazard at best.
Use Tools to Make the Process Simple Despite the importance of managing time and expenses, it is never easy to get your employees to fill out time cards. People complain, you must remind them constantly and crucial information always comes in late. To fix this messy process, you need to remove the friction.
Find software that gives you flexible tracking options, like timers and intuitive time cards. A mobile app will make the process go even more smoothly. Ideally, you should also be able to centralize all your information related to those time and expense entries by attaching notes and documents to them.
Assign Staff to Projects, Phases and Tasks It is worthwhile to see how many total hours an employee worked, but it is even better to specifically know what that person was doing. That way, you can ensure you are making the most of your resources and your staff is not wasting time. You should start with assigning your staff to the appropriate engagements and tasks.
This is one of the ultimate solutions to the questions, "What is everyone working on?" and "What am I supposed to be working on?" With a list of the right assignments in front of you (and prepopulated on your time card), focusing will be much less of an issue.
While assigning tasks, allocating hours and assigning start and end dates may seem daunting, when you have the right software to help, it can be simple.
Combine Time, Expenses and Projects with Billing and Accounting Putting your billing and accounting data on the same platform as your time, expenses and projects is a wise decision if your firm is serious about project accounting. It will make many kinds of analysis infinitely easier, like calculating your ideal and effective bill rates and pay rates. Even more important, you will be able to instantaneously learn about the profitability of your engagements, clients and employees.
What Your Firm Will Gain When you are consistent about tracking time and expenses and use software that combines that data with project management, billing and accounting, the possibilities are almost limitless. You will have the information you need for full-fledged project accounting that has the potential to boost your efficiency and profits. You will gain visibility into where your engagements are and quickly decide which actions to take to ensure the best results.