If you want to know how to consider your profit or remaining budget for a particular project or part of your business or charity, then this is the series for you.
We talked about the idea of project tracking – what it is and ways to apply it – in part one. We considered ways to cope when your project runs for dates other than your financial year – whether that’s longer than a year, shorter, or simply a different 12 months – in part two. In this final instalment, we will look at ways to account for expenses when only part of them needs to be attributed to your project.
Perhaps your project takes 50% of the time of one employee: you’ll need to make sure that half their wages, NICs, pension, etc – everything you pay to have that employee – is allocated to that project. You’ll also need to consider your overheads.
An Example
Have you ever heard those statistics like, “Filling potholes cost Council X £50,284.27 in 2023”? Have you ever stopped to think about that? What are the costs involved in that? There’s the call centre time spent logging complaints and locations, possibly an app for the public to report it directly online, someone to schedule the crews, the crew, tarmac, the necessary machines, etc. In statutory accounts, there is no line item expense called “Filling Potholes” Go on, check your local council’s accounts, I’ll wait. So how do they work it out? Well, if I were doing it, I’d use the concept of projects. Going down the page, we’ll see expenses across several categories/accounts: Wages, Software, Machinery, Road materials, etc. Going across the top, we’ll see the total for the council and then the totals just for the Pothole Crew, kind of like this:| Total for Council | Pothole Crew | |
| Wages | £500,000 | £4,000 |
| Software | £87,000 | £10 |
| Machinery | £351,000 | £103,000 |
| Road Materials | £180,000 | £6,000 |
| Total Expenses | £1,118,000 | £113,010 |
“But I’m not running a council,” I hear you saying
Of course you’re not. But your project may well include parts of expenses just the same. The Pothole Crew is not using all the wages, software, and tarmac used by the whole council, just a part of it. How much? This is the idea we’re exploring in this blog post.Charities
It may be that your grant covers parts of your regular outgoings. For example, if the project will take 50% of the time of one of your employees, you hopefully included 50% of their wage (plus your employer NICs, taxes, etc) in your project budget for your grant application. If you have 5 employees, you may have also included 10% of your overheads to go with that employee time (rent, insurance, software, etc). You’ll want to include these proportions in your project reporting, too. You have a couple of options for how to do that: Each time you pay for the employee (wages, tax, NICs), you can split the purchase invoice so that half the amount is on its own line, going to that project.
Overheads
You have 3 options for tracking your overheads:- You would split every overhead purchase invoice so that 10% of the amount is on its own line, going to that project.
- Or, you could ask your bookkeeper or accountant to periodically journal the relevant total to that project. How often you do this depends on what you need to see in your reports.
- If you only care about annual figures, you might only journal these annually.
- If you need the monthly breakdown, you’ll need to journal these monthly.
- Or, you can track it on spreadsheets.
Businesses
Going back to the examples from the first post in this series, we thought about, for example, tracking different sales channels: Sales made via your own website vs eBay vs Amazon. Make 3 projects:- Website
- eBay
- Amazon
Overheads
And then you’ll need to consider whether your overheads should be split, as well.
You may decide that you would be in business regardless of that revenue stream, so it’s unfair to say that some percentage of your overheads are attributable to that revenue stream. In this case, you’ll focus on your overall profit and loss to see how the big picture stacks up.
Or you may decide that you want that truer picture. If a revenue stream is showing a small profit without overheads accounted for, it could tempt you into thinking it can be left as-is. However, if you then add its share of the overheads and see that it’s making a loss, you’ll come to a different conclusion.
If you decide to track overheads, your options are the same as in the Charity Overheads section above.
What next?
I hope this short series has given you a solid understanding of how to use projects in your accounting reporting to empower you with the insights and information you need to better manage your company. We’ve covered different ideas for how you might use projects, how to tackle different project periods, reporting for charities, and dealing with allocating parts of expenses to your project. As your business or charity grows, harnessing the power of project reporting is a crucial part of being able to understand what’s happening in different parts of your business. If you could use a hand setting this up, please get in touch, I’d be thrilled to help.Hi, I’m Sara-Jayne Slocombe of Amethyst Raccoon. I help your small business thrive using the power of your numbers, empowering you so that you have the confidence and knowledge to run your business profitably and achieve the goals you’re after.
I am a UK-based Business Insights Consultant, which means I look at your data and turn it into information and insights. I separate the noise from the signal and translate it all into actions that you can actually take in your business.
I also facilitate the Power Pod Roundtable, which is a business discussion group.
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