Why every AEC firm needs project accounting

While standard financial accounting is essential for the health of your business, project accounting helps drive the success of individual projects.

Sponsored content
December 28, 2017 |
Steven Burns

The term “project accounting” sounds simple enough. It’s essentially the practice of accounting on the basis of individual projects. In practice, though, it’s so much more. If you do it correctly—and have the right tools—project accounting will transform your firm.  

Almost all AEC businesses work on a project basis, so project accounting is both viable and profitable for all sorts of firms. We’ll see why, but first we should expand on our definition.

Differences 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.

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 get involved in the decision-making process. Your senior associates and 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’s so much to say about the benefits of project accounting, and expect to hear more from us on this topic. For now, here’s a short overview of the main reasons why you should think about adopting it in addition to your standard accounting procedures.

1. You’ll 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’re 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’ll 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’ll 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 siloing your information and people stay stuck in silos can be holding them back. If there’s greater visibility and information moves 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.

In Short

Project accounting has amazing benefits, but it may also seem overwhelming. Involving more stakeholders and more data analysis doesn’t sound simple, and if you’re a solo practitioner or a member of a small firm, you might not think you have the bandwidth to undertake this.

However, with the right project accounting software, it’s surprisingly straightforward. BQE Core, for example, 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. 

Steven Burns | The Business Behind Design

Steven Burns, FAIA spent 14 years managing the firm Burns + Beyerl Architects, and during that time the firm’s earnings grew at an average rate of 24% per year. After founding his own software company, Steve took his management expertise to BQE Software, where he is refining their business strategy and product development for the company’s groundbreaking project accounting solution, BQE Core.

Related Blogs

January 03, 2018 | The Business Behind Design

Follow these networking strategies to grow your architectural business with the work that you want.

December 12, 2017 | Building Team | The Business Behind Design

The most cited issues are communication breakdowns, inadequate fees for the work provided, and unrealistic...

November 30, 2017 | The Business Behind Design

There are techniques you can use with your invoices that both highlight your firm’s value and make the proc...

November 16, 2017 | Architects | The Business Behind Design

Many small AEC firms don’t feel they have the time to focus and create clear marketing messages.

November 08, 2017 | BIM and Information Technology | The Business Behind Design

While AEC firms may not have the vast quantity of financial information that certain other types of busines...

November 03, 2017 | Building Team | The Business Behind Design

Having a clearly defined competitive brand and a fine-tuned marketing approach can give your firm a signifi...

October 26, 2017 | Industry Research | The Business Behind Design

Here are 5 ways to avoid a cash crunch by doing your part to help clients make their payments on time.

October 19, 2017 | AEC Tech | The Business Behind Design

For firms looking to propel their architectural design services to new heights and levels of sophistication...

October 03, 2017 | Designers | The Business Behind Design

Generally speaking, millennials want to be where the action is.

September 21, 2017 | Building Team | The Business Behind Design

Projects are the backbone of the way you do business. Isn’t it time that you step up their analysis?

Overlay Init