33.3 Bookkeeping and accounting

Like any business, a consulting organization needs bookkeeping and accounting to control the financial side of the operation and produce information required by law. This section gives some comments on accounting problems faced by consultants but is not meant as a complete review of accounting in professional firms. Such information is available from specialized publications.

Choosing your system

The accounting system used should be an effective management tool, fully adapted to the nature of consulting operations. It should be as simple as possible. A single practitioner who serves a few clients and has a limited range of expenditure can use a very simple system indeed. The complexity of the system will increase with the growth of the firm and the complexity of its operations, but even a large consulting firm should try to keep its accounting simple.

A consultant who is versed in accounting can decide personally what system to use. There are standardized proprietary bookkeeping systems and computer programs for small businesses and professional service firms; the consultant may be able to purchase such a system, including all forms and books, from a supplier of office equipment, software and stationery. In some countries, the associations of professional firms have issued accounting guidelines and recommendations for their member firms. An alternative is to ask an accountant to design a tailor-made system. Bookkeeping and accounting are also well suited to outsourcing and many consultants choose this solution.

The essential criteria to be considered include the following:

●What is the structure of the firm’s income (volume, number of clients, frequency of payments, collection problems, different kinds of income)?

●What is the structure of the firm’s expenses (different expense items, critical expense items, frequency of expenses)?

●What are the firm’s material and financial resources (buildings, equipment, stocks of materials and spare parts, financial reserves, cash)?

●How is the firm’s operation financed?

●What are the existing and potential problems as regards cash flow and liquidity?

●What information is critical for sound financial management and how frequently should it be provided?

●What records and reports are mandatory?