Accounting for professional services
Small Business Guides
6 min read
Professional services companies have some unique challenges. With multiple clients and various different ways of billing, keeping track of income and expenses can be hard. So how do you manage your accounts?
The challenges of professional service accounting
The professional services industry is a broad one. It includes doctors, lawyers, accountants, architects, engineers and consultants. In fact this term is often used to describe any service that requires a high level of training or qualification.
So if your business sells professional services, you're in good company. Unfortunately you also face some challenges when it comes to managing your accounts.
Professional services have to be flexible, and your rates may vary from one customer to another. Depending on the type of job, you might invoice for your time by project or on a retainer. Without careful financial management, it can be hard to keep track of the numbers.
So in this guide we'll look at how you can reduce your accounting workload. This will free up time for you to concentrate on what you do best.
What does your business need?
Professional services businesses are all different, so there's no one-size-fits-all solution. Still, there are some things you will have in common with others. Look at your business from an accounting perspective. You'll find you need some or all of the following:
- Billing based on time, project, retainer, work completed or any other method you choose.
- Ability to assign costs to clients. Travel, expenses and other costs need to be accurately categorised. You don't want to bill the wrong client – or forget to bill at all.
- Cash flow reports, so you know what's coming in and going out. Without this you might find yourself in financial difficulties.
- Integration with PayPal and other online payment systems, for quick and easy payment. This will help you receive money quickly, and also pay subcontractors and suppliers.
- Triggers to remind you when to create and send invoices. It's all too easy to miss one when you have many clients.
- Ability to scale up to handle as many clients as you will ever have.
- Options for managing retainers and offsetting funds against them.
Perhaps most important of all, you need to track the value of each piece of work you do. Without this knowledge, you won't know which clients are the most profitable for you. And if you want your business to grow, profitable clients are what you need.
Making growth forecasts
Some of your clients will be with you for the long term, perhaps many years. Some may use your professional services on a one-off basis. Others will come and go, as and when they need you.
This makes it hard to predict how your business will grow. Luckily, you have plenty of data to help you. Every invoice, every client, every piece of work completed – it's all in your accounts.
Good accounting software can use this data to draw up reports and graphs. Tools like accounting software give you insight into your business. The best software can tell you where you are now – and where you're likely to be in the future.
Like any financial forecast, past performance isn't a guaranteed guide to the future. But growth predictions based on hard data are more likely to be accurate than numbers plucked out of thin air.
Stay on your toes
Business growth is important. But so is the flexibility to cope with changing economic conditions. Agile professional services companies can respond quickly to new opportunities. If you want to stay nimble as you grow, here are some useful guidelines:
- Employ people with complementary skills to yours. Think about what you're not good at – then hire someone who is.
- Hire part-time staff or contractors to start with. If they turn out to be a good fit, you can offer them a full-time position. Flexible payroll accounting software will handle the numbers for you.
- Whoever you hire, make sure they're the right person for the job. Don't make mistakes here – they could cost you your business.
- Don't forget to protect your intellectual property (IP) and accumulated knowledge. This represents a big chunk of your business value. Get a lawyer to check all your employment contracts. Make sure they're watertight, to avoid costly losses.
Accounting on the move
Working in professional services often means working on clients' sites. You and your staff may travel a lot between different places of work.
That dead time can be put to good use. Instead of staring out of the window during train journeys or while waiting for flights, you can catch up with your accounts.
Cloud-based accounting software lets you manage your accounts from any internet-enabled device. That could be a smartphone, a tablet or a laptop. It doesn't matter where you are, as long as you have an internet connection.
When you arrive back in the office, everything's already done. You can even send your invoices while on the way home from a client meeting.
By giving you the ability to act quickly, cloud-based accounting software saves you time – and reduces stress.
Impress your clients
Your clients have choices. You're not the only professional services provider in the world. It's likely that your clients chose you partly because of your professionalism. So keep that up:
- Maintain high standards
You won the bid, you gained a new client. Now is not the time to relax or lower your standards. It's much more expensive to win new clients than to keep existing ones. So stay professional.
- Keep your billing transparent
Clients don't like to feel they're being ripped off. Itemize your bills wherever practical, and explain your costs in detail if the client asks. Be honest and upfront at all times, and send accurate invoices. Your clients will respect you for it.
- Understand your clients' needs
No doubt you understand your own business very well. But to succeed, you must also understand your clients' businesses. Find out what they are trying to achieve, then help them achieve it. If you do this well, you'll get more work from them – and they'll thank you for it.
- Promote your brand
Every document your clients receive from you should be branded with your company logo. From quotes to invoices, consistency is what will help your clients remember you. And they'll want to use your professional services again.
Adding intelligence to your business
Accounting data can give you an extra weapon in your professional services armoury. Ideally you'll want to spend the minimum amount of time actually doing the accounts. But you want that data to be ready, to generate reports and provide useful business intelligence.
So choose the right tool for the job, keep your accounts up to date, and make use of the latest software to simplify the work. It'll make your life easier – and your clients will be impressed too.