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Creating a clear, consistent and auditable trail for your services organization

One of the most famous fairy tales from the Brothers Grimm is the story of Hansel and Gretel, which includes a memorable lesson about the importance of planning ahead. As the boy Hansel ventures deep into the nearby woods with his sister Gretel, he leaves behind them a trail of white stones, so that they can safely find their way home after dark. The first time he does this, it works like a charm: Moonlight reflects off the shiny rocks and creates an illuminated trail back to the family house. But the second time he tries it, he makes a critical mistake: Instead of pebbles, he uses breadcrumbs, which are promptly eaten by birds, erasing the trail.

Without a clear return path to follow, Hansel and Gretel keep retracing their steps to no avail, and eventually they are led astray by a bird heading toward a witch's hut. The thoughts of "is this right?" and "haven't we been here before?" that must have been racing through their heads as they wandered the forest are similar to what accountants at services organizations sometimes endure, especially when following the processes of legacy project accounting. With multiple versions of the truth, numerous siloed data sources (often with many duplicate entries between them) and manual tracking of revenue recognition, it is all too easy for teams to exhaust themselves trying to ensure that everything is lined up.

Imagine if Hansel's situation actually involved multiple similar-looking trails, some made with stones and others with breadcrumbs, that did not lead back home but into various clearings and way stations that would have to be passed through before eventually returning to his main journey. It might make for a less interesting story, but it is a fairly accurate approximation of what project accounting is like for many professional services organizations today.

What is wrong with the project accounting status quo?

When we look at how common accounting practices come up short, it is tempting to just reduce all problems to a single unreliable on-premises application or maybe a massive old spreadsheet chock-full of formulas that are ready to go astray at any moment (on that note, Microsoft Excel was once called "the world's most dangerous software" in a Forbes article). But the actual problems run deeper and can be best understood by looking at what goes into a typical revenue recognition workflow:

  • The sales team gets a quote or an order and then enters its details into a customer relationship management application.
  • Sales operations then re-keys this exact same information into the company finance system.
  • Services personnel also gets in on the re-keying game by entering the data into a professional services automation solution.
  • The project manager opens up Excel to see what the project resource implementation schedule looks like.
  • Finally, the finance team starts re-entering times and expenses so it can submit an invoice and recognize revenue for the project.

This set of steps is about as inefficient as setting a breadcrumb trail - so time-consuming and error-prone - when you already have a fully powered-up flashlight and GPS at your disposal. Plus, such an approach to project accounting only amplifies many of the common problems already faced by service organizations, such as revenue leakage, protracted billings and collections, delayed and over-budget projects, poor resource utilization and difficulties managing geographically dispersed assets.

"Current project accounting practices amplify existing problems for services organizations."

The effects of repetitive and redundant project accounting are wide-reaching. In addition to the issues listed above, there is also all of the new pressure that it places on everyone from accountants to company CFOs, which can translate into mounting employee frustration as well as growing confusion about who is responsible for what. According to the December 2015 edition of the Intacct CFO Perspectives Survey (which gathered responses from 114 CFOs and vice presidents of finance), 57 percent of respondents admitted that they managed between 3 and 5 systems, with a mere 11 percent reporting that they only oversaw their firms' financial software.

At the same time, these executives expressed the desire to gain fresh insights into their businesses, beyond just the typical broad-brush measures of profits and losses. Unfortunately, the project accounting status quo does not lend itself to this level of knowledge. Its primary shortcomings include:

  • Errors and inaccuracies: When data points are regularly re-keyed and shuffled between departments, there is always the risk that something will be entered incorrectly, leading to variations on some of the nightmare Excel scenarios described in that Forbes article we discussed earlier. Silos between departments and applications also mean that teams may be diverging from a single version of the truth.
  • Low confidence in decision-making: As a result of all of this error-prone and labyrinthine processing, it becomes tough to know if you are ever dealing with the genuine article. Instead, it is possible that you will "see double" and have to sort through duplicate reports. There isn't an accurate, consistent and auditable trail to fall back on, similar to what happened with Hansel and the breadcrumbs.
  • Risky manual tracking: Without automation in place, each financial process becomes a chore that is just waiting to fall behind schedule and further strain your available resources. On top of that, sharing financial data between business systems and applications can require a lot of extra work, which as we know opens the door for human error and can require others around the organization to divert their time to help out.

Creating a better trail with automated comprehensive cloud accounting software

We know the goals that services organizations are aiming for (i.e., a manageable audit trail, easy integrations between different applications, etc.). The question is how to reach them. An answer is not hard to come by, fortunately: By upgrading from spreadsheets and on-prem financial solutions to cloud financial software, services organizations can master day-to-day complexity so that they can then begin addressing their long-term financial performances.

Real automation for project delivery and accounting
Cloud software allows teams to capture comprehensive data throughout their daily operations, via automation of all financial processes along with seamless integration across systems. In practice, this means rapid insight into your actual and budget hours, project tasks (and their respective statuses), resources, recognized and incurred revenues, expenses and profits.

Equipped with this information, teams can make superior decisions when it comes to tasks like resource scheduling and project budgeting. Once the project is completed, additional useful data is also available, such as breakdowns of revenues, expenses and profits by project, by customer and by service types.

Cloud budgeting software makes auditing much easier.

Cloud budgeting software makes auditing much easier.

Visibility into your most important metrics
Legacy project accounting can leave teams with plenty of questions but not a lot of answers. For example: Despite all of their hard work on tasks such as data entry, managers are left asking how profitable the company's service delivery is, or whether its current cost structure can sustain its growth.

Modern financial tools with capabilities such as cloud CRM provide this vital information that services organizations are looking for. They can keep tabs on utilization, project profitability and even metrics such as combined loan to value ratio.

Economics that actually make sense
A spreadsheet error can be costly, and so can the upkeep of a legacy accounting solution. In contrast, cloud software offers quick payback time thanks to a convenient subscription-based pricing model and direct support from the cloud service provider.

Hansel and Gretel lost their trail and had to go through some interesting ordeals to get back home, but something similar does not have to happen to your services organization. Cloud-based accounting gives you clear insight into every phase of your project, from delivery to accounting. Moreover, its comprehensive feature set is more affordable and flexible than anything available through your spreadsheets or traditional desktop accounting software.

RKL Team

Written by RKL Team

Since 2001, RKL eSolutions has helped growing companies maximize their technology resources and investment. Over the years, we have helped hundreds of small and medium sized businesses as their strategic business partner. We specialize in the needs of Entertainment, Software & SaaS, Professional Services, Manufacturing, and Non Profit organizations. Our experienced consultants have a passion for making every facet of your business successful and are intent on building a long-term relationship with every client.