Running a successful architectural firm involves more than just creative design—it requires smart financial management.
How can you keep track of project costs, billable hours, and cash flow effectively?
Specialized accounting for architects plays a crucial role in managing the unique financial needs of the architecture industry. From monitoring project profitability to ensuring tax compliance, having the right accounting systems in place helps you stay organized and profitable.
In this blog post, we’ll explore how tailored accounting solutions can drive the financial success of architectural firms.
Project Accounting
Architectural firms rely heavily on project accounting to track the financial health of individual projects. This specialized accounting approach helps architects stay on top of project budgets and timelines while ensuring profitability.
- Tracking project costs and revenues: A CPA monitors financial transactions for each project, ensuring all costs and revenues are accounted for. This provides a clear view of how each project is performing financially.
- Monitoring budgets and timelines: Keeping track of project budgets and timelines ensures resources are used efficiently. A CPA helps monitor these aspects to avoid budget overruns and delays.
- Calculating project profitability: A CPA evaluates the profitability of each project by comparing revenues to expenses. This helps architectural firms understand which projects are driving business growth and which need adjustments.
With accurate tracking of business transactions, architectural firms can make informed decisions that drive success.
Time Tracking and Billing
Accurate time tracking is a vital part of accounting for architects, ensuring that both billable and non-billable hours are properly managed. Tracking billable hours for each project ensures that you’re getting paid for the work you do, while non-billable time, like internal tasks, helps you keep tabs on business expenses.
Invoicing based on either time spent or key project milestones ensures accurate financial statements. Many architectural firms rely on software like Harvest or Toggl to streamline these processes, making time tracking and billing much easier and more efficient.
For example, an architectural firm using Harvest can seamlessly track project hours and create invoices that align with the hours logged or specific project stages. This ensures clear and timely billing for clients while managing internal time effectively.
Expense Management
Architectural projects often involve a wide range of expenses that need to be tracked and billed accurately. Here’s how proper management accounting can help an architecture firm stay on top of its costs:
Materials and Supplies
Materials like building models or drafting tools need to be tracked. Every expense should be accounted for to avoid surprises in the income statement. Proper tracking also ensures clients are billed correctly for these materials.
Travel Expenses
Architects often travel for site visits or client meetings. Managing these costs ensures they are properly billed to clients rather than eating into profits. Clear documentation helps ensure all travel-related expenses are reimbursed without confusion.
Subcontractor Fees
When architects bring in subcontractors, those costs must be monitored closely. These fees can add up quickly, so tracking them ensures they don’t disrupt the budget. Accurate tracking also prevents underbilling, which can impact profitability.
Software and Technology Costs
Architecture firms rely on software like CAD programs. Keeping these costs in check ensures that technology expenses are passed on to clients where appropriate. Monitoring these costs ensures the firm remains technologically competitive without overspending.
Need professional accounting services to streamline your firm’s finances? Check out our Accounting Services at Potrus CPA for expert support.
Financial Reporting
Specialized financial reports help architectural firms stay on top of both project performance and overall financial health. Here are the key reports that firms should focus on:
Project Profitability Reports
These reports analyze how much profit each project generates by comparing revenues with expenses. They provide a clear picture of which projects are most financially successful. Regular reviews help you allocate resources wisely and improve project management.
Utilization Rates for Staff
This report tracks how much time your team spends on billable work versus non-billable tasks. Higher utilization rates mean better profitability. Is your team focusing enough on client work? Monitoring this helps firms optimize productivity and reduce wasted effort.
Work-in-progress (WIP) Reports
WIP reports show how far along projects are and how much has been billed. They prevent overbilling or underbilling clients and keep revenue predictions on track. These reports help with expense tracking and keeping projects financially balanced.
Cash Flow Forecasts
Forecasts predict incoming and outgoing cash over a set period. They’re crucial for managing short-term business accounting needs and ensuring the firm stays liquid. This helps architectural firms avoid cash shortages and plan for future expenses.
READ MORE: What to Expect During a Financial Audit of Your Business
Chart of Accounts
Architectural businesses use a specialized chart of accounts to organize financial data clearly. This setup helps track industry-specific categories like:
- Design fees: These fees cover the conceptual and detailed design phases of projects. Tracking this separately allows firms to assess how much revenue comes from design work alone.
- Construction administration fees: These are the costs related to overseeing a project’s construction phase. By isolating these fees, firms can better understand how much they earn from managing projects.
- Consultant fees: Many projects require outside consultants, such as engineers or landscape architects. Keeping these fees in a distinct category ensures they are billed and reimbursed correctly.
- Project-specific expenses: Any direct costs tied to individual projects, such as materials or subcontractors, fall into this category. Tracking these helps you evaluate project profitability and manage expenses efficiently.
A well-organized chart of accounts improves financial reporting and gives you the data needed to make informed decisions.
Tax Considerations
Architectural firms face unique tax considerations that require expert guidance. One such opportunity is the research and development tax credit, which can be claimed for innovative design work.
Additionally, state and local taxes may vary based on where a project is located, so keeping track of these is essential to avoid surprises. Depreciating specialized equipment, like design software, can also help reduce tax liabilities. For example, an architecture firm investing in new CAD software could depreciate that expense over time.
Partnering with a CPA familiar with these complexities ensures firms gain all the benefits and stay compliant.
Why Specialized Accounting for Architects Drives Success
Accounting for architects requires a specialized approach that tracks project performance, manages expenses, and ensures tax compliance. By utilizing tailored accounting systems, architectural firms can gain valuable insights into profitability, cash flow, and overall financial health.
Partnering with a CPA who understands the industry helps you stay on top of your finances while focusing on creative work.
Whether it’s tracking billable hours or taking advantage of tax credits, having expert financial support can ensure long-term success and stability for architectural firms.
At Potrus CPA, we specialize in accounting for architects with tailored solutions to streamline your financial systems and boost profitability. Our industry expertise helps you manage your business more efficiently, so you can focus on your creative work.