Project Accounting Strategy for Professional Services Firms

Professional services firms often struggle to deliver projects on-time and on-budget for several reasons. Complex projects have lots of moving parts – making it difficult to generate accurate estimates, timelines, and budgets. Communication issues can lead to delays or expensive rework. Firms might offer discounts to keep clients happy when projects hit a snag. The list goes on.

Long-term, these issues prevent firms from reaching both short- and long-term goals, predict cash flow, or even make plans for the future. It’s a disaster for the business, its reputation, and the bottom line.

Accurate project accounting, unified financials, and end-to-end visibility are urgent priorities for project-based firms – your profitability literally depends on it. Read on and we’ll explain how implementing an effective project accounting strategy can streamline project management tasks, support greater forecasting accuracy, and boost profits.

Unity and Visibility Pave the Way for Profitability

Project accounting differs from traditional accounting, in that it focuses on the activities and transactions that take place within the lifecycle of a given project. Whereas, traditional accounting focuses on the financial performance of the business as a whole.

In project-based organizations, projects drive financial performance and functions like sales, marketing, and customer service support project-based work. As such, a unified system with integrated project accounting helps firms document all billable hours, project activities, and expenses, and ensures that everyone is on the same page.

The finance team needs real-time information about where projects stand, incoming deals, and which customers have engagements on the books in the coming months to manage the business and make decisions about its future direction. For example, finance needs to know if project milestones are slipping, because those delays make it nearly impossible to predict cash flow or plan for incoming receivables.

When sales doesn’t have access to accurate information about available resources, timelines, or project costs, it’s a lot harder to close deals. Estimates may or may not be accurate and it’s impossible to know if the firm can keep promises made during the sales process – or worse, meet the requirements documented in the contract.

With connected data across accounting, sales, purchasing, inventory, and customer transactions, you have a better view into operations. Firms can then optimize portfolios, manage projects more efficiently, and gain control over all variables that influence profitability. They can also act on emerging opportunities in real-time, and spot risks and take proactive action to avoid them.

According to a 2021 Diginomica piece, your financial data contains valuable insights for understanding your clients and developing strategies and business models that can help your firm differentiate itself moving forward.

The article highlights the example of Halloran Consulting Group — a small life sciences firm that overhauled its financial infrastructure to gain deeper visibility into everything from time-tracking, billing, and invoicing to project analytics and critical profitability metrics.

In turn, Halloran was able to improve cash flow by $1M per month, increase project profitability by 12%, and boost utilization by 18%. Additionally, they were able to virtually eliminate project write-offs. Beyond that, the firm was able to explore new strategic opportunities – including a billing model with blended rates (with higher rates for seasoned experts than more junior consultants). According to an internal analysis, switching to that model could generate an extra $4M in annual profits.

Achieving these kinds of gains starts with unity. Fragmented systems block visibility and real-time decision-making. Getting all of these moving parts to come together and ensure project profitability requires insights from the entire business – which, less face it, is incredibly challenging if you’re relying on legacy tech or fragmented solutions.

When users don’t have access to the entire picture, so decisions are based in a false reality, while factors like silos and compatibility issues slow down the transmission of information– preventing firms from taking immediate action.

For example, a Velosio Advisory and Accounting Firm Client swapped out their QuickBooks account for Dynamics 365 Finance during a period of rapid growth. Initially, our focus was on helping BPB unify all departments and functions in a single source of truth – using our AXIO solution, along with agile-like processes to rapidly tailor a solution to fit their needs.

Once that foundation was in place, BPB began adding more capabilities to the stack – payroll, time-tracking, billing, HR, and CRM – to further integrate accounting data with the rest of the business. This would allow them to manage relationships from the initial prospecting stage through payment and beyond, address time and billing issues immediately, track profit and loss down to individual variables, and enable data-driven forecasting.

The case study ended as the firm was beginning its second phase of implementations.
But – a hypothetical phase three would likely focus on layering in automations to generate even more value. Think – automating accounts payable to improve cash flow or embracing predictive modeling to improve cash flow forecasting, estimation, and budgeting.

Final Thoughts

Project-based work is inherently unpredictable – but unifying financials with the entire business and embracing a strong project accounting strategy is a critical first step toward gaining control of the bottom line. Long-term, effective project accounting and org-wide visibility supports growth, flexibility, and resilience.

Velosio experts understand the financial challenges professional services firms are up against. Learn how Velosio can help Professional Service and Project Driven Firms reach their organizations goals.