Welcome to our series on project-based accounting! Over the next few weeks, we’ll be diving into what project-based accounting is, how to get started, the best systems and processes to use, and why insourcing might just be the game-changer your business needs.
To start, let’s break down what project-based accounting actually is. Imagine you’re running a construction company, juggling multiple clients and projects at once. Instead of lumping all your income and expenses together (like traditional accounting), project-based accounting allows you to track the financial information separately for each project.
In simple terms, it’s like giving each project its own mini accounting book! You’ll track all the costs (such as your salaries, materials and overheads) and revenues (like client payments and service fees) associated with a specific project. This means you’ll get a clear picture of how much each project is costing and how much profit it’s generating!
Traditional accounting vs project-based accounting.
Traditional account is where all financial data is pooled together. This works well for businesses who work on a continuous operational basis.
But for business who work on a project-focused basis, traditional accounting makes it hard to see the performance of each individual project. With project-based accounting, each project’s financial data is tracked separately, providing detailed insights into profitability and cost management.
Why it matters.
Now, you might be wondering why you can’t just stick to the traditional way of accounting for your project-based work. But here’s why project-based account is an absolute game-changer for businesses who work with different clients and projects:
- Clearer financial insights – By tracking each project separately, you get a crystal-clear view of which projects are profitable and which ones are not. This helps you make informed decisions about where to allocate your resources.
- Better cost management – Knowing the exact costs associated with each project allows you to manage budgets more effectively. You can spot things early and take corrective action before it turns into a bigger problem!
- Enhanced client billing – With detailed tracking, you can bill clients more accurately. You can provide breakdowns of costs, justifying your invoices and building trust with your clients.
- Improved cash flow optimisation – Project-based account helps you predict cash flow more accurately. You’ll know when to expect income from each project and plan your expenses accordingly.
- Streamlined project management – Integrating financial tracking with project management ensures your financial goals align with your project’s milestones. This keeps everyone on the same page and drives success!
Solving problems with project-based accounting.
Let’s say you run a construction company and have multiple building projects going on simultaneously. Using traditional accounting, you might struggle to see which projects are eating up your budget, and which ones are profitable. But with project-based accounting, you can track every nail and plank of wood!
It’ll show you if one project is under-budget, while another is constantly overspending on materials. With this insight, you can investigate why it’s costing more, and take steps to bring it back on track. You might find it’s down to a supplier issue or process inefficiency that needs addressing. Problem solved!
How can we help?
Since 2007, we’ve helped thousands of businesses with their finance function. Our team of over 100 finance professionals have tonnes of experience in both traditional and project-based accounting.
If you’d like to find out more about what we do and how we can help you, then please feel free to book a call – we’d love to speak with you!
In the next part of our series, we’ll guide you through the steps to get started with project-based accounting in your business. We’ll cover everything from choosing the right tools, to setting up your first project and managing it effectively.
