Since the birth of business and trade, accounting ‘systems’ used written ledgers to track debits and credits. When when IBM released its first computer in 1952, the corporate accounting system was one of the first killer-apps.
While every business still needs an accounting system, the traditional accounting system paradigm has hindered the growth of most consulting firms primarily because most people don’t know that there are more modern alternatives better-suited to the consulting industry. But before we explore an alternate model, let’s look at the reasons why accounting systems are not well suited as the primary business tool in consulting.
- Accounting systems present a dated, macroscopic snapshot of the company and nothing about project, team or individual staff performance. Owners need much more granular information to run the company like which projects are on or off budget, how busy is everyone, can the company take on more work or is additional work needed, when is it time to hire, which teams are doing well and which aren’t, which clients are problems, etc. Traditional accounting systems cannot provide answers to the more fundamental questions needed to run a consulting firm.
- Accounting systems cannot account for the profit and losses on a job-by-job basis because they are not designed to track individual project budgets or staff time. They only track things that have a direct dollar value. Accounting systems are much better suited to selling widgets than selling time. In consulting, we sell people’s time (and skill), so we need a robust tool that records the initial project budget and how much time is remaining in real-time as people work. The time dimension is simply not factored into most accounting systems.
- Since time and project budgets are not tracked in traditional systems, people can work endlessly on a project since there is no way to reconcile their time and, hence, no accountability.
- For obvious reasons, accounting systems are walled off by book-keeping and accounting gatekeepers. But staff teams need instantaneous reporting to make informed decisions about how to run a project. Teams need their own system independent from the accounting system.
- Similarly, staff must be able to create projects and budgets, create invoices, gather the expenses on the project, create purchase orders for sub-consultants and authorize the payment of bills from subs. People need to be able to work as a self-organizing collective to manage a wide variety of projects. The walled garden approach of traditional accounting needs to be supplemented in the complex world of consulting.
- The traditional accounting work-flow creates one of the most common stressors in most consulting firms; namely the relationship between the back-line staff (office managers and/or book-keepers) and the front-line staff (the people who do the billable work on the project). Each is reliant on the other to do their job and any breakdown in communication has financial, and often social, impacts on the firm.
But what if it didn’t have to be this way? What if the front-line staff had their own dedicated project accounting system, separate from the accounting system, that could communicate directly to the back-line staff and vice versa? In this work-flow, front-line staff could set up their own projects and budgets, they could set up logical phase budgets for the projects, they could do their own project invoicing and create purchase orders for subs; all in a system at ‘arms-length’ from the firm’s accounting system and without the need for direct involvement from back-line staff.
Differentiating Accounting from Project Accounting
Differentiating accounting from project accounting vastly simplifies and streamlines every consulting operation, from small freelance consultants to large multi-office operations. Back-line staff can focus on running the company’s accounting system, and front-line staff have their own project accounting tool which they can use daily and which connects intelligently with back-line staff. In this model, the traditional accounting system is still there, but a new project accounting tool is inserted in front of the accounting system. This important distinction has profound impacts on profitability, work satisfaction, operational efficiencies and the quality of work delivered to clients.
The benefits to this model include:
- Companies retain their accounting system, but back-line staff can focus on running the accounting with data easily supplied by the project accounting front end.
- Staff have their own project accounting tool which allows them greater autonomy to create, manage, and oversee their projects. The tool creates smart notifications between the front-line staff and back-line staff so any new invoice is sent directly to the book-keeper or accountant, and any new bill from a sub goes to the project manager for authorizing approval.
- Staff now have the real-time data they need to make decisions about how they spend their time. Since everyone’s time is visible, people become accountability for their time.
- All the financial aspects of projects move to the responsibility of the front-line staff, where it should be, and back-line staff can focus on running the accounting system with data supplied by the project accounting system.
- Back-line staff are not wasting time chasing people for invoices, running dated reports, gathering and assigning expenses and chasing people for their timesheets. There are tremendous inefficiencies in the traditional model. The project accounting platform does all the hard work; it shifts responsibility to those that know, it allows people to self-organize, and becomes the vessel for communicating between front-line and back-line staff.
- It reduces friction and inefficiencies between front-line staff and back-line staff
- Owners now have access to the real, granular data they need to run the firm. Project status reports are visible, the success and failures of teams are easy to see, individual productivity of staff is plain to see, the level of activity in the firm can be monitored and many more reports are available in real-time.
- Teams now have the tools they need to run projects without involving the back-line staff. They can set up new projects and budgets, phases and phase budgets, they can issue purchase orders to sub-consultants, they can do their own invoices and run their own accounts receivable reports, they can track scope changes, they can record their vacation and sick time, they can record expenses and assign them to projects and much, much more. Greater autonomy creates greater responsibility and more job satisfaction.
Project accounting is really the missing link in simplifying consulting. Adding a project accounting application in front of a traditional accounting system solves a lot of the deficiencies that make consulting less profitable.
Democratized Project Accounting in GroupThinq
GroupThinq is a simple-to-use, but powerful project accounting platform, used by everyone, every-day in the firm. It is a powerful network in the cloud, designed to bring people close to the data they need to make smart decisions about projects and their time. Because it lives in the cloud, everyone can access it from anywhere through a browser. The oh-so-elusive time variable becomes easily visible and understood, and people become empowered to run their projects, meet their budgets, and excel at their profession.
GroupThinq helps to build a vastly stronger, and more profitable consulting company through democratized project accounting.