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10 Rules for Effective Accounting & Financial Management
December 8, 2020
In order to be successful, an architecture or engineering (A/E) firm has to be good at creating designs and plans. That goes without saying. But another requirement is that a firm has effective accounting and financial management practices.
Some people reading this blog might ask, “Why do you say accounting and financial management? Aren’t they the same thing?” The short answer is, “No, accounting and financial management are not the same thing.”
Accounting is a rule-based system that is, in many ways, detached from your operations and looks back at work completed. Financial management is situationally dependent, integrated with your operations, and forward-looking. It builds on solid accounting, but it’s more than just accounting.
"By fully understanding the implications of these rules, you greatly increase your chances of achieving your financial performance objectives."
In our work with successful A/E firms, we’ve found that the following 10 rules (which we will provide more detail on in a webinar—see below) help guide their accounting and financial management activities:
- Your accounting must be correct. Accounting software is helpful, but the people using it must have a solid foundation in accounting principles.
- A/E industry-specific project/financial software is essential. There are metrics that are key to financial management that a simple accounting package can’t provide.
- Accountants must have A/E industry knowledge. Once you have A/E industry-specific software in place, it’s important that your accountant has industry knowledge that enables them to use the system effectively.
- Owners must have some financial management knowledge. Note that we’re talking about financial management here, not simply accounting.
- Your firm’s relationship with your CPA firm will change as you grow. Small firms often start with an accountant whose primary focus is tax preparation. However, as a firm grows, its finances become more complicated.
- Without accurate accounting, you can’t have effective financial management. The phrase “junk in, junk out” is especially relevant to A/E firms.
- Your firm’s focus must shift from measuring profits to influencing profits. It’s normal for small firms to put the emphasis on simply tracking financial performance early on. Later, “moving the needle” is imperative.
- You must connect your desired financial outcomes with your business plans. Without this connection, business plans are essentially meaningless.
- Planned profits are better than accidental profits. Executing a strategy and bringing in an expected amount of profit is much better than “stumbling onto” profit.
- Poor financial management can inhibit the delivery of services. If your modeling and predictions for the financial outcome of projects is consistently inaccurate, it makes it much harder to take on bigger, more complex projects.
By fully understanding the implications of these rules, you greatly increase your chances of achieving your financial performance objectives—from annual profits to long-term firm valuation.
Get More Insights on A/E Firm Accounting and Financial Management in a Free Webinar
Brad Wilson—A/E industry accounting expert and one of the minds behind Factor AE—will unpack each of the 10 Rules above in an online presentation titled “Make or Break: How the Accounting Function Impacts A/E Firm Success” on Tuesday, December 15, 2020 at 1:30 p.m. Eastern.
This informative session will also include three real-world case studies, and is ideal for anyone who plays a role in A/E firm accounting and financial management. Register Today!
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