Take the Time to Examine Project Financials—You Won’t Regret It
Your projects have many moving parts, and sometimes tracking their financials might seem overwhelming. You might not get all the information you want or maybe, you don’t even bother to determine the profitability of each project because it would involve too much time. It’s completely understandable, but if you want to get serious about boosting your firm’s efficiency and profitability, you need to start monitoring your project financials in a routine way.
You can do this through what we call project accounting. It sounds simple enough, as it is essentially the practice of accounting on the basis of individual projects. In reality, though, it’s so much more. If you do it correctly—and have the right tools—project accounting will transform your firm. You’ll keep projects on schedule and within budget, you’ll have more time for new ideas, and you’ll experience the financial success it takes to win big clients and make your dreams a reality.
What’s the difference between project accounting and standard accounting?
Project accounting is all about the details. While standard financial accounting is essential for the health of your business, project accounting helps drive the success of individual projects.
…project accounting helps drive the success of individual projects.
Timeframes are a large difference between the two practices. Your firm may review your financials on a monthly or quarterly basis, but your projects may be over in less time than that. Consequently, you need to measure profits and losses, utilization, margins, earned value, and more on a much more frequent basis.
In this way, project accounting allows you to monitor everything in real-time, instead of after the fact. This shorter timeframe allows you to have much more control over smaller decisions—which are often the ones with the biggest outcomes.
Moreover, when your firm starts practicing project accounting, employees that are lower down on the organization chart will need to get involved in the decision-making process. Your project managers have to monitor everything since they’re the ones on the ground. Even if your firm is too small to have a real hierarchical organization, everyone must be in the loop.
Benefits of Project Accounting
There is so much to say about the benefits of project accounting. Here is a short overview of the main reasons why you should think about adopting it in addition to your standard accounting procedures.
1 – You will get the insights you need to increase efficiency and profits. This is the guiding rationale behind project accounting, after all, and it’s applicable to everyone from solo practitioners to large firms. Tracking data on the project level gives you the ability to pinpoint—and make the most of—sources of profit, while actively identifying problems before they ruin everything.
For example, if you know you are eroding your margins when you’re only 30 percent done with a project, you can immediately make changes to the way things are being done. There are so many more insights you can get, from who your highest-performing employees are to which types of projects your firm should focus on. In short, you’ll finally have the data you need to both take note of minute changes and understand large trends.
2 – You will empower your staff. When your staff manages the day-to-day financials and key performance indicators for their projects, they become responsible for profitability. In essence, each project manager becomes the CEO of his or her project.
Most employees are thrilled to have these reins in their hands and consider it a sign of trust. Moreover, with their performance (and incentives) more closely tied to project profits, you’ll likely see an uptick in both.
3 – You will cultivate collaboration. Sometimes it’s beneficial for one part of your team to just focus on the tasks at hand while letting managers worry about the bigger picture. However, it’s also possible that you are siloing your information and the people stuck in those silos are held back. If there’s greater visibility and information moves more freely, you can increase performance on individual projects and get everyone to contribute to the larger strategy of your firm.
More visibility doesn’t have to entail chaos. Rather, everyone becomes invested. Lower level employees will understand why certain decisions are being made and what they can do to help.
If, for example, everyone knows that a project will be a net loss but an important stepping stone for your firm’s reputation and relationships, it’s straightforward to get the whole team on board.
Project accounting has amazing benefits, but it may also seem overwhelming. Involving more stakeholders and more data analysis doesn’t sound simple, and as a member of a small firm, you might not think you have the bandwidth to undertake this. However, we are building businesses in a time where cloud-based tools can make complicated tasks and procedures simple. With the right software, project accounting can be surprisingly straightforward.
Core by BQE Software, a dedicated Platform Sponsor here at EntreArchitect, unifies all the disparate data you need like invoicing, time and expense entries, accounting, project management, and business intelligence. Your goal should be to equip yourself with the right tools, so you can spend your time growing your business and doing the things you love most.
Steven Burns, FAIA, sold his architectural firm in 2007 to work full-time on the startup he launched to create ArchiOffice. As the Chief Creative Officer of BQE Software, Steve now guides the development of BQE Core, the cutting-edge cloud project accounting platform. He earned his Master of Architecture degree from the Harvard University Graduate School of Design and his Bachelor of Fine Arts from Syracuse University. His passions include ultra-endurance cycling (he’s ridden as far as 522 miles without stopping) and working with Los Angeles Social Venture Partners to help innovative non-profits change the landscape for social justice. To learn more about BQE Software, visit www.BQE.com.