Professional services
Bookkeeping for professional services firms
Agencies, consultancies and law firms sell time. That makes work in progress, and in some cases client money you are not allowed to touch.
Agencies, consultancies and law firms sell time. That makes work in progress, and in some cases client money you are not allowed to touch.
At a glance
A services firm converts hours into invoices, and the gap between doing the work and being paid for it is where the accounting lives. Books built for a product business handle that gap badly.
Time delivered but not yet invoiced is an asset. A firm that recognises only what it has billed understates its position, and the reported figure swings on invoicing timing rather than on how much work was actually done.
It also masks the real problem in most services businesses: work that was delivered and never billed at all, which is pure lost margin and invisible unless WIP is tracked.
Where you hold funds on a client's behalf — a law firm's IOLTA account, an agency holding media spend, a consultancy on retainer — that balance is a liability, not revenue, and for regulated professions the rules are strict.
Trust accounting rules generally require client funds kept entirely separate from operating funds, reconciled on a set cadence, with a per-client ledger that ties to the account balance. Commingling is a bar complaint rather than a bookkeeping error, and the consequences are professional rather than financial.
A firm-level margin is an average, and averages conceal. Once you can see contribution per engagement you usually find a small number of clients consuming disproportionate delivery time at a fixed fee, subsidised by everyone else.
WIP and unbilled revenue tracked, client funds segregated and reconciled, profitability visible per engagement, and a monthly close with a named accountant.