Tracking profitability in a services organization can be tricky. While these businesses often understand how profits and losses total out, gathering a broad view, understanding what led to those outcomes is where the real challenge lies. As a result, it is difficult to make the needed strategic changes that drive real profitability. To capture the real costs in a services business, project activities need to be connected with company financials to ensure accurate accounting and billing throughout a project.
Yet, retaining tight financial control across all projects can be time-consuming and challenging when the right tools and processes aren’t in place. Here are some of the challenges that can arise when your project data isn’t integrated with your financial systems and how to address it.
Challenges When Managing Project Financials Manually
When organizations keep project financials and company financials separate, project revenue will not be accurately represented, which can hinder growth. For example, assembling timely and accurate reports requires significant manual effort. That is also true for timesheet entries and managing cashflow. When project managers and consultants input timesheets data, it goes through a lengthy approvals process, which can affect cashflow if the projects are not tied into core financial systems.
Taking a siloed approach makes it harder to accurately forecast throughout the project cycle and connect key costs to revenue and the general ledger, making something as important as determining the profitability of a project difficult at best.
Manual Billing and Invoicing
Often, companies rely on disorganized processes such as email or phone to communicate between project teams and finance about when billing needs to occur. This can create a larger issue when tracking project and company financial data and performance. For example, if billing rules are not set up, or if they’re performed manually in spreadsheets, the systems can’t trigger invoices to be created based on specified actions. This can be a drag on time, creating inefficiencies like long approval processes, slower cashflow and greater days sales outstanding.
Additionally, when the proper processes aren’t set up recognizing revenue can become a manual process just as billing and invoicing is. This manual effort can lead to under reported financials and compliance issues. For example, companies that want to defer their revenue and then recognize it later on after the project is complete, need clear rules set up in the project and core financial systems to automate when data can be reported. Without automation set from the beginning, companies risk spending time and resources going back and manually processing and reconciling the project financials. This can create risks like audit discrepancies, spreadsheet errors and even a need to restate earnings. When revenue isn’t accurately tracked or out of compliance, it can result in fines.
Monitoring and Reporting
Projects demand frequent reporting to ensure that they are on track financially and meeting deliverables. For example, when projects are wrapping up, accountants and project managers may want to pull more project report summaries or project profitability reports to ensure they are meeting their KPIs.
That is tough to do when using spreadsheets or when project management and financial systems are not properly set up and communicating. For example, you may want to compare budgets to actuals and view updated metrics along the way. However, it can be hard to track and report on what is happening with project financials with just those spreadsheets alone. Without the right tools to help project budget variances or show KPIs through a project summary or profitability report project invoicing can quickly escalate into larger issues.
Connecting Project Activity with Company Financials
The concepts and methodologies of project accounting help organizations control revenue leakage and achieve higher profitability by automating key components of projects, connecting them to financials. When services organizations use project accounting to determine the status of direct costs, overhead costs and any revenues that their specific projects are generating, they can:
- Gain a complete views of a project’s financial health by capturing all project costs, such as team wages and labor, costs of resources, billing rate, time and revenue.
- Monitor project profitability with reports on project budgets versus actuals so that organizations can make adjustments to forecasts and budgets when strategies shift.
- Benefit from flexible and automated billing and invoicing with billing rules and practices to help provide better control of the process and when invoices need to be generated.
- Easily manage revenue recognition, so that project communication is simplified and to automate the creation of journal entries in compliance with ASC 606.
NetSuite Automates Project Accounting and Invoicing
NetSuite connects project activates with company financials, helping to ensure accurate accounting and billing throughout the project lifecycle. NetSuite’s project accounting is integrated with the general ledger, accounts payables, accounts receivables, purchase orders, and inventory management to empower visibility, productivity, and efficiency throughout.
To learn more how to automate project billing and invoicing, watch this SuiteFundamentals Project Accounting Product demo webinar.