“It’s imperative that you don’t leave accounting operations on the back burner.”
Chances are that you are beginning with professional services accounting and wish to explore the basics of the same. Or you might be looking for specialized accounting firms to delegate your accounting and financial operations. Your clients are relying on you and expecting more from you day by day.
Therefore, the financial operations of your firm can be nothing less than top-notch. There is no scope for errors in the journal entries or accounting, and the financial reporting and analysis must be of high grade to boost the firm’s performance.
Therefore, it’s imperative that you don’t leave accounting operations on the back burner. To make sure of that, we will cover the basics of professional services accounting in this article.
Additionally, for the firms wishing to outsource the accounting operations to a partner, we will get you started with that as well. Alright then, let’s dive right into it.
Basics of Professional Services Accounting
Accounting operations make the backbone of financial reporting and evaluation. However, often, professional services firms fail to lay down a seamless accounting system.
There are two reasons why accounting becomes more meticulous and complex for professional firms than other types of businesses.
One, the volume of transactions for these firms is relatively high. On top of that, the margin of error for such firms is almost none, and therefore, the quality of the accounting operations has to be rich.
1. It Starts with a Business Account
Assuming you have registered your business, the next step is to open a business bank account with your company information.
While opening a separate business bank account is a compulsion for an LLC, corporation, or partnership, it is also recommended for sole proprietorships and small businesses.
It helps to keep the business and personal income separate and has immaculate importance in cash flow tracking and business analyses.
2. Identify Cash Ins and Outs
Your business bank account will register hundreds of transactions every month. However, you must maintain clean, accurate, and organized records of these transactions.
It is essential to categorize the income and expenses to track the cash flow in and out of the business.
This is why one should itemize the deposits and withdrawals depending on their purpose and type. Moreover, you need to ensure the income and expenses are accurately recorded.
You can also utilize expense-tracking apps like Expensify and Shoe boxed. These applications allow you to switch from collecting expense receipts to saving them digitally.
This simplifies day to day bookkeeping and enables you to record every withdrawal accurately.
3. Cash Accounting or Accrual – What’s it gonna be?
A business can base its accounting system on either of the two types of accounting methods – cash accounting or accrual accounting.
These two different accounting methods have stark differences, and it is important to choose the right one as per your business preferences.
For that, first, it’s essential to understand the fine line between the payment collected and earned. For example, a client pays you for an annual service plan at the beginning of the calendar year.
You have collected the payment; however, you have yet to deliver the service over the year. You will be providing the service throughout the year, and with every passing day, you will earn the bits of it.
Cash accounting is the simplest of the two and records every transaction when the cash is received or spent. It doesn’t differentiate between if the cash is earned or if it’s a prepayment.
However, this type of accounting doesn’t distinguish revenue from liability and gives an incomplete picture of the firm’s cash flow. This is why more specialized firms stick to accrual accounting.
The accrual method of accounting distinguishes between revenue and liability and only recognizes the received cash as revenue when it is earned.
Therefore, until the time the professional services are actually delivered to the client, the received money is always a liability.
This method of accounting accurately describes the exact cash balance for the firm.
Before you begin with professional services accounting for your firm, it is a requirement to choose your accounting method.
4. Choose the Accounting and Payroll Software
Accounting software is very important for simplifying the day-to-day processes and automating them. Accounting software fosters productivity, time-saving, and accuracy in business operations.
These are not only helpful but a necessity in the age of advanced financial technology. Therefore, professional services firms need first to choose a suitable accounting software.
In addition to recording transactions and maintaining and processing these financial records, the firm must pay its employees, vendors, and independent contractors.
5. Find a Safe Payment Gateway
Business payments, both B2B and B2C, hold confidential information about your business, clients, individuals, vendors, and customers.
Therefore, you need a safe and secure payment gateway that shields your business database and bank transactions from any harm.
Some safe ways for collecting electronic payments are PayPal, Square, and Stripe.
Moreover, some software comes equipped with merchant services and allows you to send and receive payments through their gateways.
The critical step is to find a safe payment gateway that you find reliable and intuitive.
6. Plan your Business Taxes
The firm needs to calculate the different types of taxes, such as – employment taxes, sales tax, property tax, and income tax, among others.
Therefore, professional services firms need to register all the transactions accurately and use them for calculating accurate business taxes.
All for-profit firms must file tax returns and related documents to the respected tax authority, such as the Internal Revenue Service.
7. Establish and Monitor KPI and Internal Controls
Firms and businesses alike need to establish internal controls and critical indicators. The key performance indicators (KPIs) help businesses review and track their performance.
Once you define the key performance indicators (KPIs), you should monitor the performance regularly.
The internal controls help the firm assess and manage the risks throughout the business operations. You should review the effectiveness of internal controls timely. Whenever required, you must revise the KPIs and internal controls.
8. Organize an Independent Audit
An audit helps evaluate the correctness of the financial records and operations. Professional services firms should organize independent audits to assess financial operations.
The audits provide their report on whether the financial records are justified or if there is a mistake. This also allows the firms to understand the scope for improvement and make the required changes in the financial operations.
The audit and assurance services are not only helpful for the firms but essential to ensure compliance and enhance their performance.
9. Consult an Accounting and Tax Advisor in a While
One must consult an accounting and tax expert when laying out your accounting system. Moreover, every once in a while, you should take the help of their expertise.
With the help of their knowledge and insight, they can help you improve your accounting and financial operations.
Introduction to Outsourced Professional Services Accounting
Today, professional services are operating in big numbers in all the markets in the United States and abroad.
As the preference for quality among individuals, businesses, and organizations continues to grow, professional services continue to supply the growing demand for high-quality services.
The professional services accounting challenges can be quite complex and yet similar to what a small business experiences.
These firms cater to a large number of individuals, companies, or nonprofit organizations and help them manage their tasks.
This means such firms have to deal with a massive volume of transactions, making bookkeeping, accounting, and financial management very difficult.
Thankfully, outsourced accounting and bookkeeping providers exist. Therefore, professional firms can outsource the accounting and financial operations to the service providers.
The latter are specialized and have a knack for carrying out accounting and financial operations for other businesses efficiently.
The Need for Outsourced Professional Services Accounting
Outsourcing is the norm today, as businesses and firms seek to delegate to the service providers to decrease the in-house burden and overall expenses.
Moreover, outsourcing the accounting and financial operations comes with added benefits for the professional services providers.
Firstly, they can worry less about the accounting tasks and dedicate themselves to providing high-end quality to their clients.
The accounting firm can be their partner and advisor as they flourish and grow and register more clients and businesses.
Specialized accounting firms help professional services to manage their finances meticulously and increase overall profitability.
It can be overwhelming to begin delegating the firm’s accounting and financial operations. Therefore, we have compiled this guide to fill you in on the features of outsourcing professional services accounting and the benefits and challenges of doing so.
The above guide shall help you get started on professional services accounting and financial operations. However, laying down the accounting system and ensuring it runs smoothly requires the expertise of a professional accounting team.
We are to help you design your accounting system or do it for you. Contact our accounting experts at 1800-580-5375 and take a free consultation today!