When your firm adopts project accounting—the practice of accounting on a project-by-project basis—you’ll get insights that’ll change the way you do business. You’ll understand your projects, employees, clients, and firm on a deeper level, and you’ll 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 (or any other type of quantitative work), it’s nearly impossible to reach any conclusions with project accounting if there’s data missing. There’s no need to worry, though. With the right tools, logging and making sense of the data you need is convenient and easy. You just have to be consistent.
Develop the Habit of Tracking Your Time and Expenses
Time and expense tracking is foundational for analyzing any type of business that works on a project basis. Excuse the cliché, but your time is money. It’s your most valuable resource, the basis of your biggest expenditures (i.e. salaries), and what your clients pay you for.
Even if you charge fixed fees for your projects, 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 projects. And if you find out that a project phase takes more time than you previously thought it would, then your fixed fee should be adjusted for the next proposal.
It’s hard to know if your projects are even profitable without examining the resources that went into them. Plus, if you can’t measure something, any attempt at improving it will be haphazard at best.
Find the Tools to Make It Simple
Despite the importance of managing time and expenses, it’s never easy to get your employees (and, let’s face it, yourself) to fill out their time cards. People complain, you have to remind them constantly, and crucial information always comes in late. In order 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 things go even more smoothly. Ideally, you should also be able to centralize all of your information that’s related to those time and expense entries by attaching notes and documents to them.
Assign Staff to Projects, Phases, and Tasks
It’s worthwhile to see how many total hours an employee worked, but it’s even better to specifically know what they were doing. That way, you can ensure that you’re making the most out of your resources and your staff isn’t wasting their time. You should start with assigning your staff to the appropriate projects, phases, 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 pre-populated 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 you, it’s actually pretty simple.
Combine Time, Expenses, and Projects With Billing and Accounting
Depending on how you work, the above types of data might be considered optional when it comes to keeping your business healthy (even though we disagree). However, everyone has to do billing and accounting.
Putting your billing and accounting data on the same platform as your time, expenses, and projects is a wise decision if you’re 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 importantly, you’ll be able to instantaneously learn about the profitability of your projects, clients, and employees.
What You’ll Gain…
When you’re 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’ll have the information you need for full-fledged project accounting that’ll boost your efficiency and profits.
You’ll get visibility into where your projects are, and quickly decide which actions to take to ensure the best results. You’ll make billing decisions in real time, prevent budget overruns, understand your staff’s workload, and properly manage your cash flow. Forecasting, budgeting, and even hiring will be more straightforward when you can properly predict—and optimize—the amount of cash flowing into your firm. Moreover, your clients will appreciate your accurate estimates, realistic timelines, and improved efficiency.
All of these benefits come from a basic yet essential foundation. And with the right software, it’s easier than ever to lay it.