Accounting Strategies for a Profitable Consulting Business

When it comes to running a profitable consulting business, it makes no difference whether you head a marketing agency, management consultancy, or architectural firm. Providing your consulting services is only half the job done. It is equally important for your business to send out accurate client invoices and collect payment promptly.

Proper time tracking and diligent invoicing are essential bookkeeping tasks for understanding the true profitability of your service-based business. Not only does tracking work hours let you bill clients correctly, but it can also mitigate revenue loss, accelerate cash collection, and help you make important decisions for growth.

Here are four accounting tips to improve the profitability of your consulting business.

Use a Proper Time Tracking System

Tracking time properly ensures you and the other consultants or contractors on your team categorize billable and non-billable hours correctly and assign time to the right task, client, and project - all of which are important for a number of reasons.

Precise project estimates: Proper time tracking lets you use historical data to reliably estimate the cost of a new project.

Profitability at-a-glance: When you track both billable and non-billable project hours against the time budgeted, you can easily see:

The real cost of your project
Whether it’s profitable
Whether you should be increasing your billing

Although research, client communications, and brainstorming, for example, take time and often incur expenses, they’re still considered non-billable. Tracking billable and non-billable hours together lets you develop a more realistic view of your profitability.

Labour cost control: You can’t truly understand how profitable your business is if you don’t know how you’re spending your time. Accurate tracking helps you:

See how many hours of labour go into specific tasks
Make optimal use of your time and human resources
Avoid cost overruns

Tracking time against project estimates and deadlines will help you control labour costs, as well as gauge employee and process efficiency so you can make adjustments where necessary.

Accurate invoicing: Whether you charge a flat fee or an hourly rate, without a proper time tracking system, you risk inaccurate, unprofitable billing. Remember: if you simply estimate your time without correctly capturing your hours, you could be leaving money on the table.

Streamline your Billing Process

To streamline your billing, you should consider integrating your project management tool with your accounting software. Project management tools allow integrations with accounting software through third-party connectors.

You may be able to get away with physically entering project details in your accounting software and creating invoices if you’re the sole employee of a consulting agency. But if yours is a growing team of 50 consultants, for example, manual data entry is not a scalable solution in the long term.

Integrating your project management software with your accounting system lets you:

Easily create accurate invoices
Bill clients quickly and accordingly
Collect payments faster

With consulting projects that may last weeks or months, it is crucial to ensure your business has the cash flow to pay your team and successfully complete your engagements.

Automate your Payroll

To keep your business running smoothly, staff and contractors must be paid correctly and on time. Rather than relying on laborious, physical time cards to make sure that happens, consider using time-tracking technology to save hours and boost profitability.

Automating your payroll process is as easy as integrating your time tracking tool with your payroll software, so you can:

Track contractor hours
Run payroll based on approved timesheets
Reduce errors like duplicated hours and double timesheet entries

When it comes to building and running a profitable consulting business, employing a proper time-tracking system across your organization will ensure existing and potential clients are billed quickly and correctly.

Hire a bookkeeper

Bookkeeping is an important task for every business. When done properly, it will tell you whether your business is making a profit or whether it has sufficient cash to pay its employees.

However, bookkeeping can be a time-consuming activity. We often see business owners try to reduce their costs by doing their own bookkeeping – only to neglect it when other competing priorities arise.

Outsourcing your bookkeeping is a great way to ensure your books are well-managed while you focus on other revenue-generating activities. Outsourced bookkeepers can handle your company’s day-to-day record-keeping duties, reconcile your bank and credit card accounts, and provide you with accurate financial reports after month-end.

That way, you’ll have visibility on your company’s financials and be able to track your net profit closely.

Accept Change

Consulting firms need to shift their thinking to stay competitive today and into the future. The “old-school” mindset and way of operating a consulting firm are quickly becoming passé and, in some cases, bordering on offensive to the younger generation of buyers. While some trends are not surprising, others are new for firm owners.

Embracing technology: Consulting firms need to invest in technology to stay competitive. From implementing automation tools (Customer Relationship Management solutions, Marketing Automation tools, Accounting software, and Communication platforms) to artificial intelligence and machine learning - the goal is to streamline processes and increase efficiencies in the firm. The name of the game is automate, simplify, and adjust (when the data supports it).
Focusing on client experience: With increasing competition, consulting firms must differentiate themselves by providing exceptional client experience—particularly when up against large, established firms that have optimized client engagement channels. This can include everything from offering personalized service and responding quickly to client inquiries to using data to better understand client needs and preferences. In a world where reviews are king, client experience can be the difference between strong and mediocre sales.
Adopting sustainable practices: As consumers become more environmentally conscious, consulting firms need to adopt sustainable practices to stay relevant. This can include reducing waste, using eco-friendly products and packaging, and implementing sustainable supply chain practices. The upside is a more favourable reputation in the marketplace, cost savings from reducing waste, and regulatory compliance as more and more laws are introduced around environmental and social issues.
Attracting and retaining talent: With a tight labour market, consulting firms need to focus on attracting and retaining top talent. Employees are shifting their professional values and must adjust accordingly. Whether that means offering remote work options, more competitive compensation, or better work-life balance alternatives - what used to appeal to potential employees has and will continue to shift. And don’t forget about culture! Now more than ever, people want to have a “connection” with their employers and teammates.
Diversifying revenue streams: Consulting firms may need to diversify their revenue streams to reduce their reliance on a single source of revenue. This can include expanding into new markets, developing products that complement your service, or venturing into new service lines altogether.

Overall, consulting firms need stay agile and adaptable to weather the uncertainties ahead. They’ll need to keep up with changing client expectations, embrace new technologies, and focus on sustainability and talent management.

Future-Proof Your Consulting Firm

How do you future-proof when you don’t know what the future holds? There are a number of ways that consulting firms can operate more efficiently to not only navigate whatever curve balls are coming, but to rise above the noise and position for growth. Here are some key areas that consulting firms should be thinking about today:

Streamlining processes: Consulting firms can streamline their operations by identifying and eliminating inefficiencies in their processes. This can include everything from automating routine tasks and simplifying workflows to reducing administration and using data to make decisions. You can free up employees to perform higher-value work and improve quality and reduce errors associated with human intervention.
Adopting technology: By adopting technology like cloud-based solutions, automation tools, and digital communication platforms, consulting firms can increase efficiency, productivity, and collaboration. For example, they can implement accounting software to track finances and cashflow, use project management software to track progress, automate client service with chatbots, and use analytics tools to optimize their operations.
Outsourcing functional expertise: Consulting firms should focus on their core competencies and outsource non-core functions, like accounting, IT support, and HR administration. Specialized expertise can be very expensive - especially when you don’t need it on a full-time basis which is common for consulting firms. Not only can you get the expertise you need by outsourcing, but you can reduce overhead costs and free up core resources and personnel to focus on growing the firm.
Improving forecasting activities: Good bookkeeping, accounting, and reporting practices help firms more easily plan for future events and understand how current performance may help to predict future results.
Emphasizing employee engagement: Whether it's a carryover from the pandemic or just changing demographics, today’s workforce is changing. Baby boomers are retiring and being replaced with a labour force that values things differently. Top trends include a focus on well-being, remote work options, diversity and inclusion, and a stronger employee voice in large-scale decision-making. By fostering a positive, more relevant work environment, firms will increase employee engagement and productivity. Always communicate clearly, provide timely performance feedback, and implement meaningful recognition programs.

Today’s consulting firms are grappling with a plethora of moving parts. So much has, and is still changing with the way we do business, connect with clients, and keep employees engaged that operators everywhere are scratching their heads. Add to that a shifting and uncertain economy, and many firm owners are experiencing more and more sleepless nights. With a focus on process improvement, technology adoption, non-core function outsourcing, and employee engagement - all is not stormy.

At Enkel, we know it’s not always easy to manage your bookkeeping while having to work on your client projects. We work closely with many consulting agencies and professional services to implement the right time-tracking tools and accelerate their billing and cash collection for all projects and ongoing retainers.