Why Successful Firms Go Beyond Accounting to Financial Management
March 5, 2020
Many architecture and engineering (A/E) firms see the terms “accounting” and “financial management” as synonyms. But the truth is that while they’re related, they are very different practices. And while limiting its focus to the former will allow an A/E firm to meet its financial obligations and survive, the latter is required for firms that want to thrive.
More than Better Accounting
Busy A/E firm principals often tell us they have no interest in investing any time or money in doing accounting any better than they currently are. They’ll say that things are “going just fine” and that they don’t see a need for making any changes. But, in our work with highly profitable firms, we’ve seen that there are a number of benefits from elevating the accounting process to be a true financial management process.
Many firms use QuickBooks to handle their accounting, and it’s well-designed for that task. But as such, it’s a relatively rules-based system that adheres very closely to generally accepted accounting principles (GAAP). Firms need a system like that, of course, because it produces the accurate and consistent information (as seen on income statements, balance sheets, and cashflow statements) that feeds into a system like Factor AE, which provides in-depth financial management capabilities and a more easily understood picture of a firm's financial health. The two complement one another.
Making the Move to Financial Management
From our experience, it’s clear that the first step in transitioning to a financial management approach is ensuring that proper accounting practices are being followed and enabled by the necessary technology and skills sets. The result of these practices has to be clear, concise, accurate data since that’s what you need to feed into financial management processes.
Supply a financial management tool with bad data and it will produce bad guidance on how to run the firm, which will make the data subsequently produced by the accounting system even worse, and the vicious cycle continues!
"Accounting will allow an A/E firm to meet financial obligations and survive, while financial management is required for firms that want to thrive."
Integrating with an Industry-Leading Accounting Package
Many A/E firm management systems have built-in accounting functionality along with financial management features. In our view, a better approach is to let QuickBooks do what it does best (and has done for many years), and then offer tight integration to it.
We’ve found that this prevents the “bleeding” of project/financial management functionality into the accounting world and vice versa. Used in tandem, the two systems provide powerful accounting and financial management capabilities without either system having to change to accommodate the other.
Financial Management’s Positive Influence on Results
In addition to its value in the analysis and presentation of financial results, a financial management system goes a step further and can influence financial results. This is something QuickBooks can’t do since it doesn’t touch operations enough.
Unlike accounting, which is the responsibility of just a few people at a firm, financial management is the responsibility of every decision maker in the firm. This includes people in every area, from project management to HR to marketing. They all influence, and are influenced by, financial management data.
How are our projects progressing? Are we adequately staffed and retaining good employees? Are our marketing efforts paying off? The answers to these questions (and many more) and the actions that those answers prompt are all tied back to financial management, not accounting. As a result, financial management is not only critical to operations, it’s also a foundational tool for business planning.
Making Firm Owners More Comfortable with the Numbers
A/E firm owners, who typically don’t have a background in accounting, tend to shy away from getting too involved in that side of the business. “You have to learn accounting in college to understand that stuff,” they say to themselves. Unfortunately, that disconnect from the numbers makes it harder for principals to manage effectively.
But, when they implement a well-designed, user-friendly financial management tool, it becomes easier for them to access and understand the data, and then they’re much more comfortable getting involved in the numbers. This is especially true when the financial management tool is distinct from the accounting tool, and the complexity of a dual-purpose system isn’t perceived as a barrier. Ultimately, an owner’s newfound comfort level helps grow and expand the firm’s financial management efforts and improve its results.
Go From Surviving To Thriving With Factor AE
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