Project-based companies know a thing or two about controlling budgets, managing resources, providing accurate billing and ensuring project profitability. Or they should. The fact is, their success rests on bringing every project in on time and under budget while servicing their clients efficiently and professionally.
Unfortunately, too many project-based companies have been relying on manual processes, aging technology or a combination of both for too long. The result? Poorly managed projects that fail to live up to their clients’ expectations.
But there’s good news: Professional services companies have their pick of modern software specifically created for their project-based accounting needs. This means that even as project accountants face inevitable challenges, they have a well-designed, industry-specific tool that can help them overcome each one.
Below, we’ll look at some of the most common project accounting challenges and explore why project accounting software is the answer.
Digitally Transforming Project Accounting
According to the Project Management Institute in their 2020 Pulse of the Profession® survey, 32% of the executive leader respondents cited “choosing the right technologies to invest in” as one of their top three factors for achieving success. And Capterra reported in late 2022 that “nearly 3 in 4 financial service firms are spending at least 10% more on software next year.”
“Next year” is here, and project service professionals are beginning to digitally transform their processes as a way to overcome their project accounting challenges.
4 Common Project Accounting Challenges
Here’s a look at four of the most common challenges faced by professional services leaders:
1. Scope Creep
At the start of any project, service providers and clients sign a Statement of Work (SOW), which lays out the agreed-upon terms for budget, timelines, deliverables and more. But—as with most things in life—changes arise, and in terms of projects, this is known as “scope creep.” Scope creep can happen at the hands of the service provider (e.g., unavailable resources) or the client (e.g., design alterations), and a change order request (COR) must be generated and agreed upon before changes can be made.
2. Inaccurate Estimating
The total cost of a project is often unknown, which is why project accountants provide financial estimates based on materials, equipment, labor, time and overhead. When estimations are consistently inaccurate, operational overages and customer unhappiness occurs without fail.
3. Inefficient Project Billing
Every project requires project billing. If billable expenses are not tracked accurately or in a timely manner, then the cash flow for an organization is affected. And a choked cash flow affects the organization’s ability to purchase supplies, distribute payroll and more.
4. Revenue Recognition Complexities
Simply put, revenue recognition is the tracking and accounting of revenue, and it’s required by ASC 606 and IFRS 15. Complexities occur when project accounting professionals attempt to comply using manual and paper-based processes or utilize legacy software not rated for today’s revenue recognition standards.
What is Project Management Accounting Software and How Does It Solve Project Accounting Challenges?
So far, we’ve acknowledged the existence of project accounting software, and we’ve hinted at its ability to help service professionals overcome unavoidable challenges. But what we have yet to do is define what project accounting software is and how it solves project accounting problems.
In short, project accounting software provides specific project accounting features and functionalities. It enables service professionals to determine project costs, allocate expenses, compare budgets, assign resources, utilize multiple currencies and more.
With this in mind, there are a few ways project accounting software is the perfect problem-solving project accounting tool. For example, project accounting software gives service professionals complete visibility into their many projects. Any changes that happen are controllable from a single system, including creating the CORs and having all documentation in one location.
Having a 360-degree view of projects via project accounting software is a huge benefit, as is its ability to assist in the problem of inaccurate estimates. Project accounting software equips users with the ability to create project estimates within the software, assess profitability, create quotes, allocate expenses (including billable and nonbillable items), compare budgets and more.
Conclusion
Clearly, modern software designed for project accounting benefits service professionals, helping them remove obstacles to their success. Our complimentary guide, “Overcoming Project Accounting Challenges in Professional Services,” delves into the four challenges in more detail and also reveals what happens when project accounting software intersects with a modern ERP solution, like Acumatica Cloud ERP.
“Project accounting software within an ERP solution—such as Acumatica Cloud ERP—seamlessly connects with the ERP’s General Ledger, Accounts Payable, Accounts Receivable, Sales Order, Purchase Order, Inventory Management and Time Management applications,” the guide notes. “Users have real-time access to company-wide data from any location, at any time via a web-enabled device.”
Acumatica’s ERP and project management software provides users:
- Total visibility into costs.
- Complete control of billing.
- Streamlined and flexible accounting.
Additional information about Acumatica’s project management and accounting software is available in the guide, and the guide also explains how NexTec and Acumatica together can “help make project management a seamless, stress-free process.” NexTec customer cbdMD is a perfect example.
When cbdMD tapped NexTec as their consulting partner and Acumatica as their comprehensive ERP solution, the project went without a hitch. Says Casey Lassiter, ERP Manager for cbdMD, “It was a massive project, but we completed it on time and under budget. NexTec’s experience really came into play here. They looped in several consultants, each with specific skill sets. They kept the project on track while still being able to adapt to changes along the way.”
Download the guide today to learn more about project accounting software and reach out to us when you’re ready for a demonstration!