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Small Firm Accounting - Part 1 - Invoicing

3/15/2013

 
Finances
Accounting is a necessary evil in an architectural office, any office really. Necessary because you need to know what's going on financially. Evil because you really can't find much enjoyable about the task. 

The critical task is getting paid. To get paid you need to send out invoices. To send out invoices you need to track everyone's time and percent completion of each project. Tracking time means turning in time cards daily. Yep, daily. 
Daily time cards are fundamental to knowing what's going on. Even on daily time cards there will be guessing. If you do time cards weekly, they represent even more and bigger guesses. If you do time cards less frequently, they represent only a vague similarity to reality. 

Inaccurate time cards is a problem because time gets assigned to projects that was actually spent somewhere else. You may think productivity is high when the reality is the opposite. Clients won't be happy paying lots more than is normal because time cards are padded by the individual who is trying to make himself look productive. You won't be happy to have the design budget on a project eaten up by all the hours 'worked' when there aren't deliverables to show for all that time. 

We went from twice monthly time cards, which was in synch with our twice monthly pay periods, to daily time cards on some guru's advice that we came across. The bitching was impressive. It lasted about a month. By then the realization sunk in that everyone was supposed to be logging their time every day anyway and that actually doing that logging daily eliminated the hour of panic twice a month when the payroll was being held up by late time cards being frantically fabricated. 

There are many internet based systems you can use so that time cards can be done almost anywhere. Someone needs to check a couple of times a week that the data is showing up. Some systems even alert you to late time cards. 

The next step is to put the process in place so that on the first day of each month preparing invoices starts, followed by reviewing of drafts, followed by printing/sending invoices by the third business day of the month - or sooner. 

This can be disruptive, but it has to be done to put your firm on a professional basis and to eliminate cash flow problems. When the money isn't coming in promptly after you earned it, you will find yourself talking to banks about a 'working capital' loan. Many people will tell you that this is normal. It is normal because so many businesses do a crappy job of getting paid. Bankers love when you share your profits with them. 
If at all possible, avoid borrowing money. When the economy tanks or your client cancels a project you will appreciate not having a banker to pay every month whether you have money coming in or not. Ironically, prompt invoicing is often hardest to do when you are the busiest and have the most to lose by not getting the invoices out. 

In a future post, we will cover selecting bookkeeping software.


Here are links to the other Parts:
Part 1 - Invoicing
Part 2 - Paying Bills
Part 3 - A Simple System
Part 4 - Other Accounting Issues
Part 5 - Software Criteria
Part 6 - Software Comparison

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