Bookkeeper for Business Consultants

This is not a textbook. It is how the numbers actually behave in a consulting business: big infrequent invoices, retainers that sit in your account before you earn them, and the owner's own hours missing from the P&L. Once you see that pattern, the monthly bookkeeping becomes a way to answer questions, not a chore.

How does money come into a consulting business?

The money doesn't arrive with the work. A project that takes three months gets billed once, a retainer lands on the first of the month and has to cover the whole month, and the bank account is full at a few moments instead of all month long. Your cash balance at the end of the month is not the same as how much you actually made in that month.

An earlier pass of research on consulting actually describes it: the revenue from any small consulting firm is usually a handful of large invoices per quarter, not a stream of small ones. A project invoice can sit in the tens of thousands of dollars, a retainer is a fixed number that arrives every month, and the value-based fee lands only after you deliver a result the client asked for.

• An hourly bill is earned the month the hours happen, even if you send the invoice two weeks later.
• A fixed-price project is earned as you reach milestones, across however many months the work actually takes.
• A retainer is unearned: the money sits in your account as a liability until you deliver the hours.
• A value-based fee is booked only when the agreed result is met, not when the money appears.

The sequence the bookkeeping catches is the one that matters between a deposit and the month it belongs to. The check hits the bank one month, the work moved the project in a previous month. Since we keep the deferred lines and dates accurate, your P&L margin is always the month it belongs to. That makes your P&L a true report on the month.

What should I track separately?

Track what you earn by client and by the type of engagement. A P&L that just shows "consulting fees" on one line tells you the total but not where the money comes from, and that total is almost never only one client.

For each client you want to see the revenue crossed against the work of their own: the hours you billed, the contractors you brought in, and the travel that actually sends to that account. A client on a monthly retainer and a project at a one-time fee look different in the numbers, and they need different valuation. It is only once you separate cost by project that you can see which of your relationships pays for the work.

The line that matters most is the contractor line. Most solo consultants bring in a specialist for an engagement, pay them from the project revenue, and let the remainder of that same job sit in the general income pool. Instead, we keep the contractor cost in the same part of the books as the job the person worked on. Then the gross margin on each project is shown in the profit threshold.

Why doesn't my P&L show my real profit?

Because the time you spend is not on the P&L as a cost. In most small consultancies there is no salary line for the owner. That makes every contract look more profitable than it is.

The chart of accounts for a common consultant is mostly a few rent, phone and travel lines; the hours that go into the work are invisible. If the whole firm is the owner and a couple of part-time contractors, the owner's hours are the largest expense in the business and they do not appear as a cost anywhere. That is why the P&L seems healthy, gross margin looks "40 to 50 percent" and the owner's bank account is unchanged.

We close this by tracking the actual hours instead of the job. Then the monthly report can show the effective hourly rate of the work: net profit divided by the real time it took. If the number is less than next best use of your weekend, that is not a cost problem. A P&L without hours is a book that flatters your work.

What goes wrong when the books get behind?

It starts as a small delay, the same evening the bookkeeping loses to the client's work. Over a few months, the books stop showing you what they need to show.

• Invoices go out late or are forgotten, and the payment that had a 15 day term comes in two months later.
• The retainer that lands in your account is spent, then reported as earned revenue when it remained unearned.
• Contractor invoices pile up in a messy pile, so you can't say how much each project really cost.
• Owner's draws and business expenses mix in the same categories, which hides the real cash in the business.
• Everything is rebuilt from bank statements once a quarter, so there is no monthly number to act on.

The catch-up is not the small amount you pay. The cost is the move where you made decisions on a rough guess. The smaller the consulting practice, the more protected that is, because each client is a big piece of revenue and a mistake in one billing is a significant part of the year.

Which reports should I actually use?

For a consulting practice there are four reports that carry almost all the useful information. The monthly P&L statement, on its own, is half of it.

The concept of deferred revenue is the easiest to miss. If you carry a retainer of $4,000 a month, the tax calculation can look fine, while that money actually belongs to the client until you do the work. The schedule answers the question how much do I actually owe in the next month, and it is the answer you can't get from a bank balance.

What decisions should the books support?

The same numbers should support the decisions that change the business: how you set a fee, when to bring in another hand, which of the 4 kinds of engagement to sell.

• When value-based pricing is worth it, for each client, not just when the retainer or project is your best outcome.
• When a contractor is worth keeping, by the margin they actually bring in on the jobs they handle.
• Which kind of work to refuse: even when it is in your books, the low-margin project is consuming all the weekends.
• Whether your price is holding for you or giving any client's business to the exact cost of your own load.

The two most common consulting problems, examined honestly, are not a lack of clients. As one owner described in an online group: they fell into a practice and they work in the system instead of on it. The books good solve that. When you can see a margin for a client, the pricing becomes a business decision and not a guess.

Related reading: the pricing page, the reviews page, the about page.