Downsize Your Accounting
What You Need To Know
93% of architectural firms don't need accounting - bookkeeping is plenty.
Most architectural firms, 93% by census data, have less than 20 people.
Firms of less than 20 people cannot afford the cost of maintaining their financial records using accounting.
All of the financial management tools that you have heard of are overkill.
Even seemingly affordable, generic, accounting software and spreadsheets require excessive time to manage and to customize.
WHY Can't Small Firms Afford Accounting
This graphic represents my allocation of all the time available to an architectural firm. This is my evaluation of how the ideal architectural firm would spend its time resources. I don't expect you to agree with me, but you will have to agree that lots of important issues are in competition for the roughly 1/3 of your firm's time that is not spent on design work. That 1/3 is the time required to run the firm.
In my analysis bookkeeping is 2.4% of the firm's time resources. Bookkeeping includes tracking income, expenses, mileage, reimbursable expenses, project financial records and profitability, invoicing, and payroll.
For a 20 person firm there are nearly 1,000 hours available for bookkeeping. [20 x 2080 x 2.4%] The monthly allocation would be about 85 hours.
In my firm we used Deltek Advantage for 20 years for accounting. 85 hours per month is very close to the effort we required to maintain an accounting system like that. However for most of my career we had a six person firm. For a six person firm there are only 300 hours per year available for bookkeeping. [6 x 2080 x 2.4%] That is only 25 hours per month.
The conclusion I draw is that we were spending three times as much effort as we should have to maintain our financial records. Other things suffered. Especially business development.
What must you eliminate?
Income statements accurate to the penny
Balance sheets
Depreciation schedules
Double-entry accounting chores to keep the “books balanced”
Maintenance of your financial records in the format required for preparing tax returns
Payroll performed in-house
None of those things are your job; but until you can afford to have a part time accountant on staff, you will have to get involved or spend as much time and money as a 20 person firm. IF YOU USE ACCOUNTING.
Income statements, balance sheets, and depreciation schedules can be done yearly by an accountant in 4-8 hours. These items are historical documents that arrive too late to help you run your firm. They are a distraction. Knowing where your time is going on a daily basis is 100 times more valuable.
Let your accountant convert your records into accounting format when they prepare your tax returns - if they need to. Save your time resources for something that will improve your firm, say - business development.
If you can bill one hour more per pay period instead of being sucked into payroll issues, it is cheaper to use a service.
If you are part of a one or two person firm, and more than 1/3 of firms are, you really need a simplified financial records system.
Since there are only 21,000 architectural firms in the US, we are too small of a market for anyone to develop the kind of Architectural Bookkeeping tool that we really need. If you have been following along for a while, you know that I evaluated over 40 bookkeeping apps looking for a winner. Not finding one, I have developed one for my own use. Your biggest need is an architectural timekeeping tool. My latest tool for Timekeeping is HERE.