Tracking profitability in service-based organisations can often be a difficult task.  While service-based businesses often understand how profits and losses total out, gathering a broad view, understanding what led to those outcomes is where the real challenge lies.

As a result, it’s challenging to uncover the strategic change that affects actual profitability.  To capture the real costs in a service business, project activities need to be connected with company financials to ensure accurate accounting and billing throughout a project.

Retaining a grip on your finances overall projects can often become time-consuming and challenging when the right tools and processes aren’t in place.  Here are some of the challenges that can arise when your project data isn’t integrated with your financial systems and how to address them.

 

Challenges When Managing Project Financials Manually

 

1. Process Controls
   When businesses keep project financials and company financials separate, project revenue will not be accurately represented, impacting growth – for example, assembling timely and accurate reports requires significant manual effort.  That is also the case for both entering and managing your timesheets and cash flow.

   When timesheet data is manually added, it often has to go through a lengthy approval process, affecting cash flow if the projects are not tied into core financial systems.

   Taking a siloed approach makes it harder to accurately forecast throughout the project cycle and connect essential costs to revenue and the general ledger, making something as crucial as determining the profitability of a project difficult at best.

2. Manual Billing and Invoicing
   Most of the time, companies rely on disorganised processes such as email or phone to communicate between various teams and finance about when billing and invoicing needs to occur.  If billing rules aren’t in place or done manually using spreadsheets, the system can’t trigger invoices to be generated based on specified actions.  As a result, more issues can occur when tracking project and company financial data performance.  With the drag on time, you create a more inefficient approval process, slow down cash flow and increase the number of days your invoices are outstanding.
3. Recognising Revenue
   Additionally, when the proper processes aren’t set up, recognising revenue can also become a manual process, just as billing and invoicing is.  This manual effort can lead to under-reported financials and compliance issues.  Companies that defer their revenue and then recognise it later on after a project is complete need clear rules set up in the project and core financial systems to automate when data can be reported.

   Without automation set from the start, companies risk spending time and resource going back and manually processing and reconciling the project financials.  This, in turn, creates risks such as audit discrepancies, manual input error or even spreadsheet error.  Failure in tracking your revenue appropriately can result in compliance issues depending on your industry, but more importantly, it can result in tax fines if incorrect information is provided.

4. Monitoring and Reporting
   Projects demand regular reporting to keep them on track financially and to meet the project deliverables.  For example, when projects are wrapping up, accountants and project managers may want to pull more project report summaries or project profitability reports to ensure they are meeting their KPIs.

   That isn’t easy to do when using spreadsheets or when project management and financial systems are not correctly set up and communicating.  For example, you may want to compare budgets to the actuals and view updated metrics along the way.  However, it can be a challenge to track and report on what is happening with project financials with just spreadsheets by themselves.  By not utilising the right tools to help show KPIs or project budget variances through a project summary or profitability report, invoicing can quickly escalate into more significant problems.
   

 

NetSuite Automates Project Accounting and Invoicing

NetSuite connects your projects or ongoing jobs to company finances; this helps ensure accurate accounting and billing throughout the process of your project.

NetSuite’s project accounting is integrated with the general ledger, account payables, account receivables, purchase orders and inventory management to empower visibility, productivity, and efficiency throughout.

By harnessing NetSuite, you can automate billing procedures and understand where the value lies in your projects.  You can also give time back to your finance teams to work on making the business more efficient and profitable elsewhere.

To discover the power of NetSuite you can request a free consultation.