Project accounting is a key component to maintain control over your budgets and resources, provide accurate billing, and establish the profitability of all your projects. Accounting is particularly important in project-based industries like construction: it helps to give accurate estimates, manage time & resources, generate billing, and determine if the project is profitable.
Ensure profitability for your projects using the right project accounting tools. Discover 5 best practices in project accounting:
1. MANAGING SCOPE CREEP
In project accounting, there are several areas that at the same time have both pitfalls and opportunities. Construction projects often face a big number of changes and new requirements that affect project timelines and budget. The company may not find certain building materials available or a client may insist on some request which was not in the original contract.
The best way to mitigate scope creep is to discuss the project thoroughly with the client and understand their vision of what they expect the project to accomplish. The project plan and its requirements serve as your commitment to the client of the final view of a project. The key to success is tracking change requests and having total transparency with your client about the impacts this change will have on the current project.
2. REDUCING PROJECT RISK
No plan is safe from unexpected issues: unforeseen details can derail any project. It would be senseless to try to predict every possible risk in a project plan. However, you still can foresee that something will hinder the project and be prepared.
Project accountants and managers must plan on uncertainty in their projects and include contingency into the schedule to provide enough time to solve the problems. One of the features of successful project accounting is always having the ability to communicate and collaborate with the team at all levels. You need to identify problems as early as possible and collaborate to develop & implement solutions.
3. ACCURATE BUDGETING
Not knowing your true costs and having inaccurate budgeting can strongly harm your business. Master the budgeting process and deliver more profitable construction projects.
Using construction job costing can bring you many benefits. For example, you will receive detailed job information needed to identify problem areas in your current jobs and will be able to accurately budget future projects. Also, you can effectively manage every project-related activity, such as billing customers, entering A/P invoices, and charging time to jobs, so that your job cost and billing information are always up to date. It is important to make sure your cost projections are precise because it will help you track the accuracy of your project plan against the actual cost of time, equipment, and labor.
4. TIME KEEPING MANAGEMENT
To record time accurately against a project is essential for invoicing, payroll, measuring productivity, and tracking costs. It is vital to know the amount of time allocated to a project to determine its profitability.
Very often people do not keep reliable records of their time spent on a project. Labor is often the highest cost on most projects, so it is crucial to track time spent on projects with accuracy. Keeping track of time lets you know your position according to the budget and where you relatively project burn rate.
5. MANAGING THE PROJECT CLOSURE
It is critical to close a project efficiently due to several reasons. Firstly, it releases resources for use by other projects. Secondly, it establishes the formal completion of the project and the final acceptance by the client. Finally, it allows the project accountant to tally up the actual revenue, costs, profit, and margin.
In order to make the process of closing the project easier, you can establish a process initially to track all approvals, emails, paperwork, and any other documentation related to the project. Also, you can make sure you have the formal delivery acceptance of the finished project by the customer. Additionally, it will be helpful to ensure you update all costs related to the project.
Project accounting is responsible for managing the budgets, billing, and profitability of projects that involve a combination of employees, contractors, materials, and tasks. Ujimatec software integrates with core financials: accounts payable, accounts receivable, sales orders, purchase orders, inventory management, and CRM. It empowers project accountants with ability to create budget forecasts and track actuals against estimates through the lifecycle of the project.
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