Bookkeeping Tips For Architecture Firms
Running your own architectural firm can be challenging. Dealing with multiple projects, job sites, and contractors can mean that you are always on the go. Trying to keep all of this organized, plus having good visibility of your finances and the health of your business, can be difficult.
Fortunately, we have some essential tips that can help keep your books in order and allow you to not only build buildings but build your business as well.
1. Move to the cloud
Using a program you are already familiar with may be tempting to manage your books. Many small business owners immediately turn to Excel to track their finances; however, this can be a mistake. It lacks the functionality your architecture firm requires, and working in Excel is also prone to errors.
One of the best things you can do to optimize your bookkeeping process is to move to cloud-based accounting software. A cloud-based system will allow you to:
- Access all of your financial data remotely. This means you can quickly access information while on the road or at a job site from the convenience of your laptop or smartphone.
- Integrate with other cloud-based tools, making it easy to track and manage all of your finances, employees, and different job sites all in one place.
- Back up your files automatically so you never have to worry about losing any crucial data.
- Collaborate with external bookkeepers and accountants and give them instant access to all the required information without the hassle of sorting through stacks of reports.
An excellent cloud-based accounting software program should be able to easily integrate with your project management software, be easy to use, and assist you with project tracking and job costing. An excellent example of such a program is QuickBooks Online. With a bit of practice, you will quickly become comfortable with using this program and will be able to generate reports that will allow you to understand your business better.
2. Go paperless
Going paperless is not only good for the environment but also good for your business. Holding on to the endless paper copies of invoices, receipts, and other records can be cumbersome, taking up a lot of storage space. They can be challenging to track and can easily get lost. By going paperless, you can eliminate this hassle.
Accounting software programs allow you to send digital invoices via email to your clients, eliminating the need for hard copies and assisting with faster payment. Programs like Dext Prepare or HubDoc can assist with expense management tasks by allowing you to scan invoices and expense receipts to the cloud. This reduces the need for manual data entry. All you need to do is take a photo of the receipt and toss the physical copy away.
3. Keep your books current
It is so easy to let your bookkeeping practices fall behind. The day-to-day demands of managing multiple projects can make it challenging to find the time to address your books. By keeping your books current, you can always have visibility on your projects and your profitability. While you may not enjoy the financial aspect of running your firm, it is vital to address your books on a timely basis.
4. Hire a professional bookkeeper to manage your day-to-day bookkeeping
If you find it challenging to keep your books current, you may want to consider hiring a professional bookkeeper to manage your day-to-day bookkeeping. Outsourcing this task lets you keep your books up-to-date and minimize errors. Some bookkeepers can even help with your payroll needs, giving you more time to focus on more critical aspects of your business.
5. Simplify your billing
By simplifying your billing process, you can ensure that your clients fully understand their charges, speeding up the payment process. Your invoices should include clear descriptions for each line item and break down costs for all services.
Your bills should clearly state the payment method, relevant banking info, and currency; they should be sent at regular intervals so your clients know when to expect them so they can budget properly. All of this will eliminate any confusion that may slow down your accounts receivable process and, therefore, affect your cash flow.
6. Keep a close eye on your receivables
One of the most critical aspects of managing your cash flow is staying up-to-date on your receivables. Software like QuickBooks Online can assist you in generating digital invoices and sending them to clients. It can also send out automatic email reminders when an invoice is coming close to its due date. Then, you can use Rotessa to set up pre-authorized debits and automatically withdraw payments directly from a client's bank account.
By keeping a close eye on your receivables, you will be able to see if any clients are late on making a payment, allowing you to send multiple reminders. If they are still dragging their feet and money is slow to come to you, don't hesitate to stop working on their project. Stipulate these payment terms clearly on your contract.
When your books are in order, you always have clear visibility of your financial situation. You can quickly identify cash flow issues as they arise and implement strategies to correct them before they get out of hand. By carefully managing your books, you will be able to manage your projects better, provide better service to your clients, create clear and accurate budgets and timelines and set yourself up for maximum growth in the future.
KPIs Every Architecture Firm Should Track
Key performance indicators are essential metrics that, when appropriately tracked, can provide valuable insight into the health of your architecture firm's business. These top KPIs can show you how your firm is performing and where it is headed in the future; they can also determine how your resources are being utilized and ensure that nothing is wasted.
The performance indicators that provide the most value to an architecture firm can be broken down to look specifically at project performance, cash flow, and overall profit.
Project Performance KPIs
1. Utilization Rate
Also known as the operating rate, this KPI can provide valuable information on how well an architectural firm uses its resources. It is a critical metric for architectural firms, reflecting the efficiency and productivity of their workforce. It is calculated by dividing the number of billable hours (time spent on projects that can be charged to clients) by the total number of hours worked (both billable and non-billable). It is usually expressed as a percentage.
Utilization Rate is important because it directly impacts profitability. A higher Utilization Rate indicates that more of the staff's time is spent on revenue-generating activities rather than on non-billable tasks such as administrative work, training, or downtime. A low utilization rate may indicate that better measures need to be implemented to ensure efficiency, such as making decisions about staffing, workload distribution, and the scaling of operations. It also aids in forecasting revenue and planning for growth.
2. Net Revenue per Employee
Your Revenue per Employee takes a detailed look at how efficiently your employees perform on average. Net Revenue per Employee indicates the average net revenue generated by each employee within the firm. This metric is calculated by dividing the total net revenue of the firm by the total number of employees. Net revenue typically refers to the firm's total revenue minus the direct costs of generating that revenue (such as subcontractor fees, cost of materials, etc.).
It gives a good indication of your business's overall performance. A low net revenue per employee figure may mean that your business might be overstaffed, or there may be ways to improve individual performance. A high figure could indicate that it's time to hire more employees to take on the extra work.
For architectural firms, Net Revenue per Employee provides insights into several key aspects:
- Productivity: This metric helps gauge the productivity and efficiency of employees by showing how much revenue each contributes to the firm. A higher value typically indicates more efficient or productive employees.
- Operational Efficiency: How well the firm manages its resources, including human capital.
- Financial Health: By understanding revenue contributions on a per-employee basis, firms can assess their financial health and stability. This is particularly useful for planning purposes, such as expansions, hiring, or investments in new technologies.
Overall, this metric helps architectural firms make informed decisions about managing their workforce, optimizing operations, and achieving sustainable growth.
3. Effective Labour Multiplier
The Effective Labour Multiplier KPI measures the revenue earned by the firm for every dollar spent on employees. It is calculated by dividing the total revenue generated from architectural services by their direct labour costs. Direct labour costs include the salaries and benefits of the employees who directly contribute to billable work. This multiplier provides an indication of how much revenue each dollar of labour cost generates.
For architectural firms, the Effective Labor Multiplier is significant for several reasons:
- Profitability: Provides a clear view of how effectively a firm is converting labour into revenue. A higher multiplier indicates that the firm earns more revenue per dollar of labour cost, which indicates good financial health and efficient management.
- Pricing Strategy: Helps firms adjust their service pricing to cover costs while remaining competitive. It also aids in deciding whether to take on a project based on the expected labour costs and potential revenue.
- Resource Allocation: By analyzing the effective labour multiplier across different projects or departments, firms can identify areas where labour is not used efficiently. This helps reallocate resources to maximize profitability.
- Budgeting and Forecasting: Firms can use historical Effective Labor Multiplier data to forecast future revenue and make informed budgeting decisions regarding hiring, expansions, and other investments.
Overall, the Effective Labor Multiplier is a crucial metric for architectural firms to monitor and optimize to ensure they not only cover their labour costs but also maximize their profitability from the labour employed.
This indicator is important to track because it will show exactly how much the return on your labour investment is. A high effective multiplier may indicate low absenteeism among employees or that your employees work efficiently. A low result could point to high levels of sick time, inefficient processes, or overstaffing. To improve the effective multiplier KPI, identify absenteeism issues early on, give realistic project schedules and deadlines to avoid overtime, and invest in employee training to increase productivity.
4. Effective Cost Rate
The effective cost rate looks at the actual cost of each employee.
It gives a true and accurate picture of how much it costs to employ one person on an hourly basis. This KPI is important because it shows how much each employee should be paid to remain profitable. A high effective cost rate may mean you are overpaying for an employee's services, while a low cost rate may mean that you are underpaying and, therefore, may not hire the most well-trained or skilled employees.
Cash Flow KPIs
5. Aged Accounts Receivable
In the architecture industry, payment periods are often several months or more. Reviewing your aged accounts receivable regularly will allow your firm to collect your payments on time, significantly improving your cash flow.
A high aged accounts receivable rate means that it takes your business a long time to collect money owing, and you should follow up with clients earlier. A low rate means that your payments are coming in in a timely fashion.
6. Days Sales Outstanding
Days Sales Outstanding are also referred to as Average Days in Accounts Receivable. They measure the effectiveness of the accounts receivable department in collecting payment after work has been completed.
The higher the days sales outstanding figure, the less effective your firm is at collecting payment, which can significantly affect your cash flow.
Profit KPIs
7. Overhead Rate
Overhead rate details how much money your architecture firm spends on non-project-related expenses such as indirect labour.
Knowing this KPI can give your firm a good indication of your overall profitability. The lower the overhead rate, the higher the profit margin. By managing your indirect expenses carefully, you can keep your overhead rate as low as possible.
8. Profits to Earnings Ratio
Your profits-to-earnings ratio gives a good indication of how effective your architecture firm is at completing projects and turning a profit.
The higher your profit-to-earnings ratio is, the more profitable your business is. If this indicator is low, you may need to look into ways of increasing profitability by reducing overhead, reducing overtime, and increasing employee efficiency.
9. EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization allows you to measure your firm's cash flow.
This KPI will enable you to measure the overall success of your business and give you an excellent method for comparing your success against other companies in the industry. Analyzing EBITDA is easy; the higher the rate, the more profitable your firm is.
Analyzing and improving your metrics can completely change how successful your architecture firm is. These top KPIs can give you an immediate idea of where your business stands and flag any issues pushing your firm in a negative direction. This will allow you to make the necessary changes early on to avoid any problems in the future.
Accounting Tools To Streamline Your Architecture Firm’s Bookkeeping
QuickBooks Online for Bookkeeping
If you own a smaller architecture firm, QuickBooks Online can provide you with the bookkeeping assistance you need. One of the most significant advantages of this software is its ability to be accessed on the go. QuickBooks Online is entirely cloud-based, meaning all your information is saved to the cloud. You can quickly view all your bookkeeping and financial data from anywhere, on any device, even while out on a job site.
As an architect, there is a good chance that your qualifications are in high demand, meaning that having multiple projects on the go at one time is a likely possibility. QuickBooks Online gives you the benefit of tracking all of these different projects using their class function and performing job costing to determine which potential projects will return a profit and what the expenses are for each specific job.
With this online program, you can also send out invoices to your clients and provide them with reminders when payment due dates are on the horizon.
As a bonus, QuickBooks online can easily integrate with practice management software like BQE Core, making your job much easier.
Dext Prepare for Expense Management
Architecture firms deal with many billable and non-billable expenses, which must be accurately tracked and allocated. Dext Prepare is an accounting software program that allows you to track your expenses and assign them to the correct projects. This program can help you manage your costs by utilizing OCR technology to read the information on your invoices and allocate them to specific projects.
Your business also requires different materials for each job site and fees from other professionals, such as realtors and lawyers. Dext Prepare can help you manage and streamline your accounts payable process as well, ensuring everyone gets paid on time.
Rotessa for Online Billing
Your architecture projects are usually quite large and, in many cases, can span a considerable amount of time, lasting months or even years. Managing your billing properly for these projects can mean the difference between having a healthy cash flow or not.
Splitting your bills by percentage means you must rely on receiving your clients' cheques. Most of these bills will be too large for credit card payments, which means that the health of your cash flow is at the mercy of your client and in the hands of the bank.
Fortunately, there is a solution. Rotessa is a pre-authorized debit platform that allows you to charge your client's bank account for all billings automatically. You can schedule a one-time or recurring payment to be withdrawn from your client's account and directly deposited into yours.
Plooto for Contractor Payments
You deal with multiple different vendors and contractors to get the job done. Maintaining good relationships with these contractors is vital to the success of your business, and you must be able to procure materials and work closely with these vendors to complete a project. Plooto is a payment processing tool that allows you to streamline the accounts payable process.
Plooto integrates with cloud accounting software like QuickBooks Online and pulls your latest accounts payable listing to show who requires payments, giving you the convenient option of paying your suppliers electronically on the platform.
This ensures all of your bills are paid on time, avoiding late penalties and fines. It also minimizes the cost and hassle of printing and mailing cheques. Plus, if multiple people must approve a payment, Plooto will email them for full authorization before electronically sending funds.
Plooto keeps your suppliers and contractors happy and improves your record-keeping, giving you the freedom to spend your time doing more important things than making payments.
QuickBooks Time for Time Tracking
Every architecture firm needs a time-tracking tool that will allow them to track billable hours and make sure employees are spending their time efficiently. Inefficient time tracking can result in your firm missing out on charging for billable activities.
When your firm can complete a project on time, within the targeted number of hours, then your total target billing will have been met. Staying within this target is essential for meeting deadlines and keeping your firm's projects on track. QuickBooks Time can help architecture firms with both time tracking and project tracking and has specifically designed functionality for the construction industry.
An advantage of this app is its ability to be accessed on mobile, allowing staff to clock in and out no matter their location. It also gives the firm the visibility to track different staff members who are working on various projects. QuickBooks Time also offers a project's functionality, allowing you to estimate project hours based on past projects and compare the budget to actual hours on each project.
There is no denying the fact that your architecture firm has a lot of important, minute details that must be carefully and adequately managed for success. Dealing with bookkeeping tasks shouldn't have to be one of them. Fortunately, numerous different tools and software programs can simplify the task of bookkeeping, automating some vital processes that will go a long way to saving you time and money.
Contact Enkel today for more information on bookkeeping services that can benefit your architecture firm. We can help you manage your bookkeeping, making your architecture business more profitable and efficient.
How We Select and Evaluate Our Software Recommendations
We thoroughly research and test the apps we include in our regular workflow for Client bookkeeping services. After deciding on criteria for evaluating the software and then researching the app itself, we tested the app, noting its strengths and weaknesses. We then work with the app for at least a few weeks before deciding whether to recommend it to our readers. We use the software as it was designed for its intended tasks. For a detailed walk-through of how we select and evaluate software, please see the details of our process.
