Accounting for the Unique Needs of Professional Services
Written by Amanda Bower | Published: May 8, 2023
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If you’re at the helm of a business offering professional services, then you know just how complex, nuanced and specialized your accounting needs can be…From tracking billable hours to properly accounting for expenses, your business needs precise financial management to ensure it’s not only profitable, but that it’s also compliant with all laws and regulations.
This means it’s not enough to cash your checks and keep the lights on. You need to understand the ins and outs of accounting for professional services and how they apply to your specific business.
Let’s face it: accounting can be incredibly time-consuming and often one of the most error-prone functions within any business. And don’t forget: one of the top reasons startups fail is because they run out of cash.
Whether you’re leading a fast-growing startup, an entrepreneur, or a more seasoned CEO, the last thing you need is for your accounting needs to trip you up or hold you back. Even worse, mistakes can lead to tax audits, extra spending, and a significant impact on your company’s bottom line.
Here’s everything you need to know about accounting for professional services.
What Makes Accounting for Professional Services So Tricky?
When you’re offering professional services, your accounting needs aren’t going to be the same as they are for other types of business. But before we talk about why, it’s important to know if your business falls under the category of professional services in the first place. While it’s a very general term, you likely offer professional services if what you sell is a non-physical product. Marketing, legal, financial, and IT businesses can often fall under this category, but so can things like acting lessons.
Because the nature of your business is very specific, your accounting needs will also be very specific. You might work with independent contractors, may need to understand what tax deductions you can take, or want to financially prepare for your next big idea. And unfortunately, the downside of poor accounting can be extremely costly.
For example, delays in an in-house accounting process can result in significant financial losses, including poor investments, excess material costs, and underpriced services. And, of course, there’s a laundry list of components to HR compliance that you need to be well-versed in.
Not to mention, expenses such as employee salaries, project costs, and overhead expenses must be allocated appropriately to ensure your business is profitable for the long haul.
While your accounting needs can seem monumental, they don’t have to be. When you know the basics of accounting for professional services, you can decide what next steps to meet your needs (like turning to outsourced accounting services).
The Nuts and Bolts of Accounting for Professional Services
We firmly believe that your accounting should empower your business, not put it at risk or hold it back. With that in mind, here are the basic aspects of accounting for professional services that you might need to be aware of (and how we approach them here at hiline).
Maintaining good vendor relationships is essential to keeping your business on track. We track what’s owed to suppliers, ensure payments are properly approved, and make sure you get those payments out on time. Our teams follow up with meticulous reporting to maintain accurate, dependable balance sheets.
It’s common for professional services to be billed monthly. Accounts receivable play an important role in cash flow management. Without accurate records, you risk making poor financial decisions or even spending money you don’t have.
We ensure you avoid these scenarios by helping you establish dependable credit practices, invoicing customers, tracking payments, and identifying customer payment trends. Each task is recorded, so you know exactly where your assets stand.
Time Tracking and Job Cost Reporting
Time is money, especially when you’re offering professional services. For example, you may be underpricing your services if you’re not accurately tracking your time. We track labor costs, material costs, and time required to provide accurate job cost reports.
Daily General Ledger Maintenance
Tracking daily spending and earning can be time-consuming, and when not handled correctly, it can be prone to errors. We take on the task with effective financial planning and strategy, giving you more than just a balanced ledger.
Processing payroll takes significant time and resources, and it’s critical to get it right. We take on your entire payroll process from calculation to printing, signing, and distribution. At the end of each payroll period, you get accurate reports of amounts earned, benefits, deductions, and payroll tax amounts.
To understand whether you’re making good investments, you need to track spending in every department. We handle expense classification by gathering and categorizing all your expense accounts for easy review. With easily digestible reports, you can see how your spending in each department and category impacts your business.
Bank Account Reconciliation
Matching your business accounts with bank statements is essential to avoid bookkeeping errors and wrongful payments. It can also help you identify fraud. Matching ledgers with accounts can be frustrating because transactions only sometimes show up in real-time or may be spread across different accounts.
We ensure accurate results by analyzing each account and matching spending to your ledgers. If discrepancies occur, we track the cause and record every transaction clearly.
Credit Card Reconciliation
Business credit cards can be a great financial tool, when leveraged properly.However, challenges like varied statement timelines, unexpected fees, and changing terms and conditions can make dealing with credit cards a pain.
We compare the transactions on credit card statements to your ledger to ensure accurate bookkeeping before each monthly close. You get streamlined monthly financial reporting with none of the hassle.
Budgeting and Forecasting
Budgeting and forecasting help your firm set short and long-term goals and make informed spending decisions. We begin by learning about your company goals. Then, we analyze historical data to forecast your business and help you develop a budget plan to reach your goals.
Fixed Asset Management
Long-term assets are an essential part of keeping your business on track. Yet, continually calculating their value can be a challenge.
We track and maintain your organization’s physical assets and equipment like vehicles, computers, furniture, machinery, etc. As a result, you minimize lost inventory, equipment failures, and downtime.
Tax and Audit Support
Tax time can be stressful for any business. We handle business tax prep by ensuring your company’s compliance with all applicable tax regulations and by helping you minimize tax burdens to maximize net profits.
There are many reasons 1099 forms are used in professional services. We gather end-of-the-year data and documents needed to file your business tax returns. Our team sends 1099s to your vendors, independent contractors, and other non-employee individuals.
We make sure to send out the right forms and provide accurate reporting. As a result, you can remain in compliance and avoid penalties related to errors.
Your company’s profit and loss (P&L) statements help you analyze the financial health of your business. P&L statements are issued quarterly and annually to reflect how much profit or loss was generated by your business. We track accounts payable and accounts receivable and analyze cash flow statements and balance sheets to produce accurate P&L statements that meet your business needs.
Financial Statements and Custom Reporting
Financial statements and reports give you more insight into your business’s financial status. We can provide customized reports on a routine basis that accompany standard reports. Specialized accounting reports may include accounts receivable aging, consolidated earnings statements, etc.
Your balance sheet allows you to make critical financial decisions. We make sure you get accurate balance sheets when you need them by consistently tracking all the details of your assets and liabilities.
How hiline Streamlines Accounting Functions for Professional Services
When you’re providing custom professional services, the distinct nuances of your business can make accounting complex, time-consuming, and prone to errors.
If your accounting checklist takes up the bulk of your time, or you simply want to trust your accounting needs to world-class experts, we can help. Outsourced accounting and payroll services are our bread and butter.
Here at hiline, we work with professionals, including lawyers, marketers, architects, financial advisors, engineers, and consultants, to ensure their accounting is always up to par. Our comprehensive accounting, bookkeeping, and payroll services provide the tools and expertise you need to manage your finances and make the best decisions for your future.
Are you interested in partnering with a premium tech-enabled accounting firm for your accounting needs? Contact us today to learn more about what we offer.
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