Full Sail Partners Blog | Professional Services Firms (4)

Year-end is the final accounting process to close “the books” at the end of each year. With 2023 just around the corner, it is never too early to plan for your year-end close. Planning and organization on your part can make the year-end process less challenging for the entire accounting staff.   

Take the Time to Document and Get Organized 

As always, you should take the time to document your year-end procedures. Not only the tasks performed in Deltek Vantagepoint and Vision, but all accounting tasks you perform should be documented so that you have a comprehensive guide that you can refer to every year. It is also vital that you create an accounting calendar.  

The accounting calendar is not just for year-end, but for month-end and quarter-end tasks as well. This calendar is a schedule of anticipated dates for financial activities. You should also develop a year-end checklist to make sure you don’t miss anything. One other tip to make this process go smoothly is to make sure that you are performing your month end reconciliations on a timely basis. 

Common Year-End Tasks 

Some of the more common year-end tasks for most companies are: 

• Reconcile All Cash Accounts - Verify all transactions have been posted into Deltek Vantagepoint/Vision to ensure your general ledger balances match your bank statements. Make adjustments as required. 
• Credit Card Reconciliations – In order to ensure all credit card transactions are captured, make sure all expense reports are entered and posted. 
• File Reconciliation Report – This report should be run at month-end and at year-end. This report identifies discrepancies between the GL and the subledger reports. 

• Final Invoicing – Process all client invoices for the fiscal year. 
• Review Outstanding Accounts Receivables - Follow up with clients who have outstanding accounts receivable beyond 30 days. Send past due statements and/or simply give them a call. Enter the results of your collection efforts in the comments section of Vision Invoice Review. Year-end is an excellent time to collect your outstanding receivables. If you determine there is uncollectable AR, be sure to write those invoices off. 
• Review Unbilled Detail - Time and expense transactions that cannot be invoiced to clients should be written off at this time. 
• Fixed Assets – Fixed Assets are larger purchases that are made throughout the year (i.e., equipment, automobiles, furniture, computers, etc.). Check to see if all fixed assets reported on the balance sheet are still owned. If not, record the sale or disposal of these fixed assets. Verify the depreciation on your fixed assets as well. Then make any necessary adjustments. 
• Employee Expenses and Accounts Payable - Verify that all accounts payable vouchers have been recorded in Deltek Vision/Vantagepoint. Make your 401(k), SEP IRA, and Simple IRA contributions, if you have not done so. Try and pay all your vendors and employee expense reports by year-end. 

• Notes Payable - Verify notes payable (i.e., loans) amounts on your balance sheet match the statements from your lenders. Then make adjustments if necessary. 
• 1099 Forms – Order 1099 forms. Make sure all W-9 forms from your vendors and/or contractors that are paid $600 or more throughout the year are on file in the Firms Hub in Vantagepoint or the Vendor Info Center. Don’t forget 1099s should be mailed by January 31st. 
• W-2s – Order W-2 forms if you run payroll in Vantagepoint/Vision. W-2s should be mailed by January 31st. 
• Budget for Next Year - Create your GL budget for the new year. 

Be Prepared to Close Out the Year 

In Deltek Vantagepoint and Vision, opening the 1st period of your fiscal year also opens the new fiscal year. Depending on your security rights, you can still process in the prior fiscal year if needed. 

There are several initialization utilities that need to be performed. For example, Open New Period (fiscal year), Open New Benefit Year, 1099 Initialization and Open a New W-2 Quarter/year if you are using the payroll module. Deltek Vantagepoint and Vision will generate a posting log for the initialization utilities. If your Vantagepoint or Vision database is configured for Multicompany, the initialization utilities need to be run in each company. The only exception is the Open New Period utility, which opens for all companies at once. 

Deltek will issue a Year-End update at the end of December containing tax updates for payroll users. Also, be on the lookout for Deltek’s Vision and Vantagepoint Year-End guide for more detailed information on year-end closing. 

The data from the 43rd Deltek A&E Clarity Study shows that the opportunity outlook for A&E firms is bright. However, there are significant challenges to seizing that growth. Although net revenue growth is forecasted to grow to 17.6%, operating profit on net revenue is down by 6%. Recruiting and retention challenges loom large over firms, undermining their ability to meet demand and extract profits.  

Here are the top takeaways from the study, along with guidance for navigating the challenges and opportunities ahead.

Labor Challenges and Growing Pains Are Top Stressors 

Labor challenges are front and center for A&E firms, as finding and retaining qualified staff ranked as the top financial challenge. Forty-four percent of respondents said it was their top challenge, a sharp increase from last year. In this highly competitive job market, A&E firms have more open positions, and the cost to acquire new employees has increased. To win over candidates who have plenty of options to choose from, firms are offering increasingly attractive (and often costly) compensation packages.  

Managing growth was the second most commonly cited challenge. Demand is high, leading to an 18% growth in estimated net revenues. But with rising demand comes new challenges. Professional services firms are challenged with bidding competitively and ensuring the timely completion of work. Labor issues are a contributor to this challenge since firms need to fulfill staffing needs to meet current and future demands. 

With inflation and labor costs cutting into profit margins, A&E firms also said increasing profitability is a top concern. Collection periods increased by nearly two weeks this year, and many firms must work diligently to complete work on time, invoice quickly and collect payment as soon as possible. Encountering delays at any point in the process threatens profits and their ability to grow.  

Staffing Challenges Impact Key Metrics 

Persistent staffing challenges aren’t just keeping firm leaders up at night—they’re impacting financial performance. Here are some of the most notable metrics: 

• Operating profit on net revenue dropped to 12.8%, a level last seen in 2015.

• Overhead rates increased to 160%, a 14% increase. 

• Utilization rates dropped to 58.5%, the lowest level of the last 10 years. 

After rising steadily over the past 10 years, operating profit on net revenue dropped significantly. This is largely driven by an increase in overhead rates. As firms face longer project ramp times and non-billable periods while backfilling roles, overhead rates rise. Higher employee turnover is also a contributing factor to lower utilization rates.  

Performing the Backlog Balancing Act 

Backlogs increased by more than three weeks year-over-year. It’s an indication that, while firms are in demand, they need to perform a delicate balancing act to complete projects on time. Bidding, scheduling, and labor planning must be precise, otherwise, increased activity can hinder project delivery, which only reduces client satisfaction in the long run. Firms that can effectively manage expectations will be able to reduce their backlog to sustainable levels. 

Growing backlogs are influencing the average collection period, which increased by 13 days. Firms wait for nearly 77 days, on average, to receive payments on accounts receivable. This is a return to the average collection period seen in 2012 and 2013. Back then, firms were able to lower this rate in the following years. To reduce the average collection period now, they may want to look at returning to those previous strategies.  

For a deeper dive into the key financial metrics from the study, watch the webinar.  

Looking Ahead 

Financial leaders of A&E firms are focused on meeting day-to-day challenges. When asked about their financial priorities for next year, firms selected training project managers on financial management and improving business processes as their top two choices. This is in line with the results from last year. Notably, firms are less concerned with better forecasting, better growth management, and organizational changes and realignment than they were last year. This indicates that they’re focused on improving the efficiency and effectiveness of daily processes. 

The most successful firms will position themselves for success by also focusing on the HR challenges they face. Unconventional benefits, loyalty rewards, and engagement programs can help companies attract and retain the employees they need for the years ahead. Forty-one percent of firms said that they plan to make talent acquisition and retention investments one of their top priorities next year. Those that make the right decisions will stand out from the pack.  

Get More Financial Management Insights 

Despite the challenges A&E firms face, it’s possible to seize the opportunities ahead. By looking back to previously proven strategies and preparing for future demand, financial leaders can make the most of the market. For more financial management insights, click below to download the full report.