Project accounting helps Professional Services firms track finances of all projects to assess if they are generating value for the business.
One of the challenges that Professional Services firms face is budget overruns. This typically happens when you don’t have adequate oversight of different projects. The financial reports you monitor regularly should not only tell you the overall financial health of the business but also allow you to track granular details like expenses under different heads, cost of resources, and revenue generated.
Project accounting helps you get the granular details you need for each project to ensure that you can avoid resource crunch, expensive delays, and budget overruns.
What is project accounting?
Unlike traditional businesses that have unified accounting systems for the whole business, Professional Services firms need to be able to track the expenses and revenues for each project. By creating a subledger for each project, you will know what prices to quote and check the profitability of each project. These insights help leaders take better decisions to grow the business.
When you track the transactions for each project, you will be able to control budgets more efficiently, streamline operations, and address issues early to stop them from affecting the project and the overall business.
Why project accounting is important for Professional Services firms?
Professional Services firms deliver projects over a long period of time and the delivery is broken into several phases. You can’t wait for the project to be completed before you start analyzing the financial efficiency of the work. You need to be able to check project progress, expenses incurred on an ongoing basis, and know about invoices billed to clients and revenues realized at each stage.
For example, an Architecture, Engineering, and Construction (AEC) firm working on a construction project would want to have a separate ledger for labor expenses incurred for that project. You would also want separate legers for subcontractors, expenses on construction material, etc. Having this system in place through project accounting will help the project manager get snapshot details like total labor cost for each project.
There are different kinds of reports you can generate by using project accounting. Some of these are:
- Financial reports to track different project costs, revenues, and profitability of each project
- Budget reports for each project with the ability to check granular details of each transaction
- Invoices from vendors and invoices to clients with a slice and dice option to check details by project, by vendor, and by client
- Project status reports to track timelines and deviations, if any
- Billable time tracking against different projects and expense reports that include indirect expenses at the business level like rentals, etc. and expenses tagged to different projects
- Profit and loss reports for each project
- Compliance reports
What can you do with modern cloud-based project accounting software?
Many Professional Services firms have benefitted by using project accounting and the businesses that have moved their solutions to the cloud have a bigger advantage. Integrating with different systems and giving access to people across the business becomes easier in the cloud, especially when you want to enable work from home. You also eliminate the chances of human error by automating processes.
Some of the benefits of moving to the cloud are:
- Track the progress of different projects from across multiple geos from anywhere
- Automate repeated processes like invoicing and give your team more time to focus on value-add tasks
- Manage budgets and finances better by making accurate forecasts and tracking deviations in projects
Moving to the cloud also comes with the added advantage of reducing costs as you no longer need to maintain expensive IT hardware and plan for their end of lifecycle replacement. By adopting new approaches and new technologies, you will be in a better position to set your business up for future growth.
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