Small firms don’t need accounting.
Your accountant doesn’t agree with me.
He’s wrong unless your firm has over 20 members.
The problem with accounting is that it requires brain-surgery-precision for a task that doesn’t much matter. When you stop to think about the time, effort, and aggravation that accounting requires; and what benefit you receive in return; something is fundamentally wrong. Basically you can’t afford to do accounting until you are large enough and complex enough to afford a bookkeeping employee.
I know this because my six-person firm used accounting for most of our existence and got almost no benefit from the tens of thousands of dollars per year that we spent on accounting. Why did we do it?
Ignorance. I thought I had to. I mistook AIA publications as applying to me. They don't. They apply to much larger firms than I ever had.
About 93% of architectural firms are smaller than 20 people. They can't afford accounting. They can only afford bookkeeping.
So what is the difference?
Here are my definitions.
Accounting is a method of capturing all the financial transactions of a business with an accuracy of one cent.
Bookkeeping is a method of capturing all the financial transactions of a business. Period.
I don’t think very many firms need to know ’to the penny’ how every transaction adds up. Personally I think that knowing your profitability to within $100 is just fine. Why? Because it all depends on time sheets for accuracy and NOBOBY has perfectly accurate time sheets. Even if you are really trying.
I am not going to belabor this point. I know I am oversimplifying things. Either I am striking a chord with you or I’m not. You are only keeping track of your money because of the requirement to pay taxes. Without that requirement, you would only be watching the balance in your bank account, plus just enough record-keeping to know what projects and people are responsible for the size of that bank account. Anything more than that is not justifiable - except for the need to pay taxes.
It’s an 80/20 proposition. Bookkeeping is the 80% that you want. Accounting is the 20% that you need. Perversely, the accounting will take 80% of your time. Let an accountant do the accounting.
Indirect Expenses, all the non-project-specific expenses that you incur to run your business require a little workaround for proper tracking. So for Rent, Phones, Insurance, etc. here’s what to do.
My list of Expense Categories is above. You probably have a list already. Use that.
As you capture an indirect expense, the process is the same as other expenses, you simply pick your ’Firm’ client and ’General Office’ project. That’s all it takes to capture your expenses with Harvest.
An Accounts Payable workaround you might try requires an expense category: ’Unpaid’. The PROs of this tactic are being able to log in every expense as it is incurred and being able to get a listing of all of your unpaid expenses. These two advantages make the expense tracking process easier. The CON is that you have to edit these expenses by changing the category when you pay them. I think this is a really good tradeoff. Developing a list of payables with 5 or 6 clicks, anytime you want, is a really handy tool.
By logging in your expenses along with your time you capture a major part of your firm’s financial information. Harvest’s reporting features can tell you where you stand whenever you want to know. Easily.
And at tax time just export your data for your accountant.
See these links for More on Harvest
Cheaper. Faster. Better. TIMEKEEPING for Architects
Customized Project Management
BUDGETS IN HARVEST
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