A consulting or systems implementation firm sells projects. Each has a scope, a budget, a team and a burn rate. Yet in many firms the books are organised only by customer and by month. The owner can see that revenue rose and margin fell, but not which project caused it.
QuickBooks Online can carry most of the project accounting a firm of this size needs, if it is set up for it. This guide covers the setup and the month-end routine.
Set up the structure
Customers, with projects underneath. QuickBooks Online's Projects feature, available on the Plus and Advanced plans, groups invoices, time, expenses and bills under a project for a customer. Create one project per engagement or statement of work, not one per customer.
Service items that carry rates. Create service items for each role or rate card, with the standard billing rate on the item. Time entered against the item then values itself.
Classes or locations for the business view. If you report by practice area or office, use classes for that dimension. Keep projects for the client view and classes for the internal one.
Capture time and expenses against projects
Time. Whether you use QuickBooks Time or a separate timesheet tool, every entry needs a project, a service item and a billable flag. Set approval before invoicing, so the invoice only picks up approved time.
Billable expenses. Travel, subcontractors and materials that the client reimburses should be marked billable and assigned to the project when they are entered. Expenses not marked billable at entry are rarely recovered later.
Subcontractors. Bills from subcontractors working on a project should carry the project too. Otherwise the project's cost understates the real cost of delivery.
Invoice from approved time
Raise invoices from unbilled approved time and billable expenses at the agreed frequency, usually monthly for time-and-materials work. QuickBooks pulls in the unbilled activity for the project, so the invoice matches the work recorded.
Some large clients require invoices through their own supplier portal against a purchase order. Keep the purchase order number and remaining value on the project, and check the invoice against both before it is submitted. A rate that differs from the purchase order is the most common reason an invoice is rejected.
Month end: the work that makes the numbers right
Unbilled time. Work performed in the month but not yet invoiced is revenue earned in that month. Recognise it at month end and reverse it when the invoice is raised. Without this, revenue follows the invoicing calendar rather than the work.
Retainers and prepayments. Money received before the work is a liability, not revenue. Release it as the work is done.
Not-to-exceed caps and fixed fees. Compare hours to date against the cap or fee each month. Flag any project expected to overrun before the hours are worked, not after.
Budgets and burn
QuickBooks Online shows what has happened on a project. It is weaker at showing what is left. Most firms keep the budget and burn-down alongside it, in the timesheet tool, a project management system or a short weekly report.
What matters is that the budget figures and the actuals come from the same hours and the same rates. A burn-down built from a different set of numbers will not reconcile to the books, and nobody will trust either.
What project accounting in QuickBooks will not do
It will not forecast. It shows the work done and billed, not the pipeline or the resourcing plan for next quarter.
It will not manage utilization by itself either. Project margin and utilization are related but different. We cover the second in utilization rate for professional services firms.
And if a firm has grown to several entities, projects in separate QuickBooks files will not roll up on their own. That needs consolidation outside QuickBooks Online.
Frequently asked questions
Can QuickBooks Online do project accounting?
Yes, for many services firms. QuickBooks Online's Projects feature, on the Plus and Advanced plans, groups invoices, time, expenses and bills under each project so its profitability can be reported.
How do you record unbilled time in QuickBooks Online?
At month end, recognise revenue for approved time worked but not yet invoiced, usually through an accrual entry against an unbilled receivables account, and reverse it when the invoice is raised.
How should a services firm account for a client retainer?
As a liability when it is received. It becomes revenue as the work it covers is performed.
What is a project burn-down?
A comparison of hours or cost used to date against the project budget, showing how much budget is left and whether the project is on track to finish within it.
Do I need separate project accounting software?
Not always. Many time-and-materials firms run project accounting in QuickBooks Online with a separate timesheet tool. Firms with many concurrent fixed-fee projects often add project management or professional services software for budgets and resourcing.
Where CFOLogic fits
We set up the project structure, rate items and billable workflows in QuickBooks Online, then run the monthly close with unbilled time and retainers handled properly. Each month you get project margin alongside utilization, so the projects that are eating the margin show up while there is still time to act.