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 4 accounting tips to improve the profitability of your consulting business.
1. 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 how much a new project will cost.
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 labor go into specific tasks
- Make optimal use of your time and human resources
- Avoid cost overruns
Tracking time against project estimates and deadlines won’t just help you control labor costs - it will help you 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.
QuickBooks Time for time tracking
At Enkel, we often recommend QuickBooks Time as a great time tracking tool for running a more profitable consulting business. Not only does QuickBooks Time offer both a desktop and a mobile timesheet app, its smart GPS tracker means you can record your team’s time (to the minute) when they’re working at off-site locations.
QuickBooks Time lets you:
- Customize job codes and pre-set billable rates
- Track time by customer, service item, or class
- Set notifications that prompt team members to submit their timesheets through the app (where managers can review and approve them directly)
- Generate reports comparing budgeted hours to actual hours at the end of each project
Because it tracks new time entries, corrections, and approvals, QuickBooks Time will also leave your consulting business with a clear timesheet audit trail.
2. Streamline your Billing Process
To streamline your billing, you should consider integrating your project management tool with your accounting software. Project management tools like Asana, Monday.com, and Smartsheet allow integrations with your accounting software through 3rd party connectors like Automate.io and Zapier.
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, making sure your business has the cash flow to pay your team and successfully complete your engagements is crucial.
3. Automate your Payroll
To keep your business running smoothly, staff and contractors need to 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.
4. Hire a bookkeeper
Bookkeeping is an important task for every business. When done properly, it’ll tell you whether your business is making a profit or whether your business 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.
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.
Contact us today to learn how we can help you run a more profitable consulting business.
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.