Why Project Accounting Matters
If your business does any type of work that includes unique projects, it’s essential for you to understand project-based accounting to achieve and sustain success.
Project accounting is a specialized form of accounting. It isn’t a normal byproduct of typical bookkeeping, but rather, it requires careful planning, thoughtful structure, and software with specific capabilities. Industries that commonly use project accounting are construction, manufacturing, technology, and production—as they all heavily rely on project management. But even service-based businesses, such as those that offer consulting and other professional services, can benefit from well-kept accounts by project.
The benefits of accounting for projects
Track actual vs. budgeted costs – Most project work is performed based on a type of budget or estimated costs. You may plan for the time and materials, but if you can’t track them, you won’t know if your budget was accurate. You also won’t be able to use current project information to determine reasonable future estimates. For large projects spanning a number of months, project accounting can help you see if you have adequate cash flow for each project stage and make other forecasting decisions.
Track costs by category – Through good project accounting, you can look at both the costs by project and the costs across all projects. Projects with consistent accounting help generate reporting for the total spending in various categories. By knowing how much you spend in materials, for example, you can use the information to make better deals with suppliers.
Identify project efficiencies and savings – With well-planned project accounting, you can easily understand if and why your projects are profitable, and whether they’re more or less profitable than expected due to factors such as lower labor or higher material costs.
Review profitability by project – Good project accounting enables you to analyze in detail—at the micro and macro levels—if certain types of work, projects, or clients are more profitable than others. You can also use it to see if you’re recouping your costs, if certain project managers are producing better results than others, and if other factors exist that influence profitability.
At Syzygy, we specialize in project accounting. By providing strong, detailed project-level information to our clients, they can make informed decisions on the type of work they should choose to do and on managing that work. We’re in the business of helping our clients find their success—even when it’s one project at a time.