Architectural Bookkeeping
YOU CANNOT AFFORD ACCOUNTING
Architectural Bookkeeping
Summary
Most Architectural Firms cannot afford accounting because it simply takes too much time. You hear from the experts that this is what everyone needs to do. One size does not fit all. Most firms do not need the same level of record keeping that the largest 10% of firms require.
You need to track project-related information, and you need to track your money transactions. That's it. Your accountant can use that information to create whatever is needed for tax returns and financial statements. You need something that will help you play the game. You do not need fancy 'box scores".
Once you have collected the necessary data, it can tell you everything that you need to know.
This 'paper' expands on the three main issues for handling your financial data appropriately.
- What You Need To Know
- What You Need To Record
- What You Need To Retrieve
What You Need To Know
93% of architectural firms don't need accounting - bookkeeping is plenty.
- Most architectural firms, 93% by the last census data, have less than 20 people.
- Firms of less than 20 people cannot afford the cost of maintaining their financial records using accounting.
- All of the financial management tools that you have heard of are overkill.
- Seemingly affordable, generic, accounting software and spreadsheets require excessive time to manage and to customize.
WHY Can't Small Firms Afford Accounting
This graphic represents my allocation of all the time available to an architectural firm. It is also my evaluation of how the ideal architectural firm would spend its time resources. I don't expect you to agree with me, but you will have to agree that lots of important issues are in competition for the roughly 1/3 of your firm's time not spent on design work. That 1/3 is the time required to run your firm.
This graphic represents my allocation of all the time available to an architectural firm. It is also my evaluation of how the ideal architectural firm would spend its time resources. I don't expect you to agree with me, but you will have to agree that lots of important issues are in competition for the roughly 1/3 of your firm's time not spent on design work. That 1/3 is the time required to run your firm.
In my analysis bookkeeping is 2.4% of the firm's time resources. Bookkeeping includes tracking income, expenses, mileage, reimbursable expenses, project financial records and profitability, invoicing, and payroll.
For a 20 person firm there are nearly 1,000 hours available for bookkeeping. [20 x 2080 x 2.4%] The monthly allocation would be about 85 hours.
In my firm we used Deltek Advantage for 20 years for accounting. 85 hours per month is very close to the effort we required to use and maintain an accounting system like that. However for most of my career we had just a six person firm. For a six person firm there are only 300 hours per year available for bookkeeping. [6 x 2080 x 2.4%] That is only 25 hours per month.
The conclusion I draw is that we were spending three times as much effort as we should have to maintain our financial records. Other things suffered because of that.
What must you eliminate?
None of those things are your job; but until you can afford to have a part time accountant on staff, you will have to get involved or spend as much time and money as a 20 person firm.
Income statements, balance sheets, and depreciation schedules can be done yearly by an accountant in 4-8 hours. These items are historical documents that arrive too late to help you run your firm. They are a distraction. Knowing where your time is going on a daily basis is 10 times more valuable.
Let your accountant convert your records into accounting format when they prepare your tax returns - if they need to. Save your time resources for something that will improve your firm, say - business development.
If you can bill just one more hour per pay period instead of being sucked into payroll issues, it is cheaper to use a service.
If you are part of a one or two person firm (and more than 1/3 of firms are) you really need a simplified financial records system.
For a 20 person firm there are nearly 1,000 hours available for bookkeeping. [20 x 2080 x 2.4%] The monthly allocation would be about 85 hours.
In my firm we used Deltek Advantage for 20 years for accounting. 85 hours per month is very close to the effort we required to use and maintain an accounting system like that. However for most of my career we had just a six person firm. For a six person firm there are only 300 hours per year available for bookkeeping. [6 x 2080 x 2.4%] That is only 25 hours per month.
The conclusion I draw is that we were spending three times as much effort as we should have to maintain our financial records. Other things suffered because of that.
What must you eliminate?
- Income statements accurate to the penny
- Balance sheets
- Depreciation schedules
- Double-entry accounting chores to keep the “books balanced”
- Maintenance of your financial records in the format required for preparing tax returns
- Payroll performed in-house
None of those things are your job; but until you can afford to have a part time accountant on staff, you will have to get involved or spend as much time and money as a 20 person firm.
Income statements, balance sheets, and depreciation schedules can be done yearly by an accountant in 4-8 hours. These items are historical documents that arrive too late to help you run your firm. They are a distraction. Knowing where your time is going on a daily basis is 10 times more valuable.
Let your accountant convert your records into accounting format when they prepare your tax returns - if they need to. Save your time resources for something that will improve your firm, say - business development.
If you can bill just one more hour per pay period instead of being sucked into payroll issues, it is cheaper to use a service.
If you are part of a one or two person firm (and more than 1/3 of firms are) you really need a simplified financial records system.
What You Need To Record
The data that you need to record revolves primarily around the work that you are doing, your Projects. You need to keep information about your Projects, the time that you spend on projects, the fees that you charge, invoices that you send, data on clients and other organizations that you deal with. The only additional non-project data that you need are the details of each financial transaction that you have.
The following shows you what you need in a little more detail.
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PROJECT DATA - Client, Project Name, Address, Description, Phases, Billable Or Not. TIMEKEEPING - Date, Person's Name, Project Name, Phase Name, Hours Spent, Description. FEES - Client, Project, Phase, Fee Type, Amount, Description. INVOICES - Date, Timeframe, Client, Project, Amount By Phase And Total, Reimbursable Expenses PAYOR/PAYEES - Name Of Organization, Address, Contact, Email, Type. TRANSACTIONS - Date, Amount, Project, Payor/Payee, Category, Description. |
From these six types of data everything that you need to know about your firm's finances can be determined. For the small firm, everything else is a distraction and unnecessary work.
All the other pieces of data that you are encouraged to record are only necessary to pay taxes and to keep your accounting program happy. Let your accountant or a payroll service take care of those things. You have more important and more valuable uses for your time.
Forget about these:
All the other pieces of data that you are encouraged to record are only necessary to pay taxes and to keep your accounting program happy. Let your accountant or a payroll service take care of those things. You have more important and more valuable uses for your time.
Forget about these:
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What You Need To Retrieve
From the data that you collect, you need to prepare payroll and invoices. After those two activities are taken care of it is really helpful to know where you stand financially. These are the things that you need to retrieve.
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Payroll Data -
Date, Person’s Name, Project Name, Phase Name, Hours Spent, filtered by Date, sorted by Person’s Name. Billable Time - Date, Person’s Name, Project Name, Phase Name, Hours Spent, Description, filtered by Project Name and Phase, and sorted by Date. Invoicing Data - Invoice Number, Invoice Date, Client Name, Project Name, Date Range of Invoice, Percent Complete, Amount Earned, Amount Paid, Amount Due, Date Due, Date Paid. Project Budget Status - Project Profitability - Profitability Of Firm - Who Owes You Money - Who Do You Owe Money - |
These are placeholder paragraphs. The data that you need to record revolves primarily around the work that you are doing, your Projects. You need to keep information about your Projects, the time that you spend on projects, the fees that you charge, invoices that you send, data on clients and other organizations that you deal with. The only additional non-project data that you need are the details of each financial transaction that you have.
- Payroll Data
- Billable Time
- Invoicing Data
- Project Budget Status
- Project Profitability
- Profitability Of Firm
- Who Owes You Money
- Who Do You Owe Money
