Charts of accounts: how to structure your books for consulting profitability

You export your P&L from QuickBooks. One line says "Consulting Revenue: $847,000." Another says "Operating Expenses: $623,000."

Great. Except you know some clients are profitable and others aren't, but your accounting system can't tell you which ones. Your bookkeeper categorizes everything as "consulting services" or "general expenses" because that's how your chart of accounts is set up.

Last month, you asked whether your change management engagements make more money than your process optimization work. You built a spreadsheet from scratch and guessed at cost allocations. Your books? Technically accurate. Strategically useless.

A properly structured chart of accounts for consulting firms separates revenue by service line and tracks expenses by cost category. It creates the visibility you need to determine which services and projects drive profit.

Why your COA structure determines what you can measure

Your chart of accounts is the filing system that determines what financial questions your books can answer. One drawer labeled "stuff" versus labeled folders for every category you care about. That's the difference.

Your COA defines what questions you can ask.

The chart of accounts defines every category in which transactions are recorded. Those categories determine what shows up in reports.

Got one "consulting revenue" account? You can only answer "what's my total revenue?"

But separate accounts for strategy work, operations consulting, and change management? You can answer "which service line grows fastest?" and "where should I focus sales efforts?"

Your P&L, balance sheet, and cash flow statements pull directly from COA categories. The questions you can answer equal the categories you create.

No "contractor expenses" category? Can't calculate the direct cost per project.

No "client travel" category? Can't see if travel-heavy clients justify their margin.

That simple.

Structure decisions stick permanently.

Changing your COA later means reclassifying historical transactions. Need to move 500 transactions from "consulting revenue" to three separate service accounts? Hours of manual work. Maybe days.

Most firms start with whatever QuickBooks defaults they got. Six months later they realize it doesn't show what they need. They spend the next two years meaning to fix it.

Then they hit $2M in revenue and need profitability data for investor conversations.

Months of cleanup work.

Set it right early. Already past early? Set it right now.

Generic templates miss consulting metrics.

Generic templates designed for product businesses miss the project-based metrics consulting firms need. Product businesses care about inventory and COGS.

We care about utilization rates, project profitability, and revenue per consultant.

Different worlds.

The default "services revenue" account doesn't distinguish between retainer revenue (predictable, high-margin, easier to forecast) and project revenue (unpredictable, variable-margin, harder to forecast).

The default "contractor expense" doesn't distinguish between specialist contractors for specific expertise and offshore resources for capacity.

You need consulting-specific structures that match how your business makes money. Not how a retail store moves widgets.

This is also where integrated payroll and bookkeeping services become critical—especially if you want to scale without adding internal finance headcount.

How to structure revenue accounts

Consulting firms need revenue structured by service line and client type. Not one big bucket called "consulting revenue."

Service line accounts reveal profitability.

Create separate accounts for each major service: "Strategy Consulting Revenue," "Operations Consulting Revenue," "Change Management Revenue," "Implementation Services Revenue."

This reveals which offerings make money versus which ones just keep you busy.

Take a firm that showed $900K revenue and $100K profit last year. That's an 11% margin. Sounds okay.

But service line breakdowns might reveal strategy consulting work runs at 35% margin while implementation runs at 3%.

Different services have radically different economics. Lump them together? You're flying blind.

Track each service as a separate revenue account. Only offer one service type? Create accounts for delivery models instead: retainer-based, project-based, and hourly.

Client type accounts show revenue mix.

"Retainer Revenue," "Project Revenue," and "Hourly Revenue" accounts show your model mix and help forecast cash flow.

This matters because retainers are paid monthly, projects are paid at milestones, and hourly work is paid in arrears. Each has a different cash flow pattern.

Eighty percent of revenue from projects? You're dealing with lumpy cash flow.

Sixty percent from retainers? You've got predictable baseline revenue and can weather slow sales months.

Many firms use class tracking in QuickBooks to add this dimension without multiplying revenue accounts exponentially. Either approach works.

Engagement size accounts identify winners.

"Enterprise Client Revenue," "Mid-Market Client Revenue," and "Small Business Client Revenue" show where you win most.

You might think you serve all business sizes equally. Then your breakdown shows 70% comes from mid-market clients, 20% from enterprise, and 10% from small business.

Your sales team spends equal time on each segment? You're misallocating effort. Double down on mid-market since that's where you win.

Reimbursable revenue protects margin calculations.

Many firms miss this separation. Create a "Reimbursable Revenue" account so margins calculate correctly.

When you bill clients for travel or contractors, those reimbursements flow through revenue but shouldn't count as "earned" revenue for margin purposes.

Bill a client $5,000 in contractor costs? Record it as reimbursable revenue. Your margin calculations use service revenue only, not pass-through costs.

Without this separation, reimbursable-heavy clients look profitable when they're break-even or worse.

How to structure expense accounts

Expense accounts need to separate direct project costs from overhead. Otherwise, you can't tell what generates returns versus what just keeps the lights on.

Direct cost accounts enable margin calculation.

"Contractor Expenses," "Project Software," and "Client Travel" tie directly to revenue generation. These costs only exist because you have clients.

No clients? No direct costs.

Separate direct costs from overhead to calculate gross margin (revenue minus direct costs) and operating margin (gross margin minus overhead).

Most consulting firms should target 60% to 75% gross margin and 15% to 25% operating margin. Outside those ranges? Something's off.

Compensation accounts reveal labor structure.

Break out "Senior Consultant Salary," "Junior Analyst Salary," "Bonuses," and "Benefits" to reveal labor costs by role.

This lets you calculate revenue per employee by role.

Senior consultants generating $300K on $120K compensation? That's 2.5x coverage.

Junior analysts generating $80K on $65K? Only 1.2x. You need different utilization targets for each role.

Overhead accounts show fixed costs.

"Rent," "Insurance," "Marketing," and "General Software" separate fixed costs from variable costs.

Fixed costs exist regardless of revenue. Variable costs scale with it.

Knowing your fixed overhead tells you the break-even revenue. If fixed overhead runs $30K monthly, you need enough gross margin to cover that before generating profit.

Simple math. Can't do it without proper structure.

Track major categories separately: facilities, insurance, marketing, software, and professional fees. Don't create 50 accounts for minor expenses. "Office Supplies" and "Miscellaneous" can share one account.

Department accounts track functional spending.

"Delivery Expenses," "Sales Expenses," and "Admin Expenses" track spending by function. Shows how much goes to acquiring clients versus serving them versus running operations.

Many firms discover they spend 3% of revenue on sales and 5% on marketing. Then wonder why growth is slow.

Benchmark data suggests 10% to 15% total for both functions when you're trying to grow. Tracking by department reveals these budget misallocations.

How to implement your structure

Good structure means nothing if transactions keep posting to the wrong accounts. Implementation matters.

Many firms hesitate because they assume proper setup and ongoing bookkeeping will be expensive. But the real cost (and what you get for it) is often different from what founders expect.

Map your business model first.

List all service types, client categories, and expense types you have now or plan to add within 18 months.

Don't structure for today's business. Structure for where you'll be in 18 months. Otherwise, you're rebuilding in a year.

List your services. List your client types. List your major expenses. Group similar items. Assign each group an account.

Test each potential account: "Do I make materially different business decisions if I can see this separately?"

Yes? Create the account.

No? Group it with something else.

Use logical numbering

Standard conventions work: 1000s for assets, 2000s for liabilities, 3000s for equity, 4000s for revenue, 5000s for direct costs, 6000s for overhead, 7000s for other income.

Within each range, create sub-groupings. All service revenue in 4100-4199. All compensation in 6100-6199.

Leave gaps between accounts. You'll thank yourself when you can insert new ones without renumbering everything.

Train your team on categorization.

Whoever codes transactions needs crystal clear guidance. Create a one-page guide with specific examples: "Contractor payments for project delivery → 5100. Contractors for general services → 6500."

Review categorization quarterly with your bookkeeper.

When they're unsure, they guess. Those guesses become patterns. Catch miscategorization patterns early before they poison historical data.

Review quarterly

Export your P&L every quarter. Look at each account. Ask: "Does this balance look right?"

Balances that seem surprisingly high or low signal miscategorization. Found one? Track down what happened and fix the pattern.

Add accounts when launching new services, entering new markets, or changing delivery models.

Started offering training sessions? Create a "Training Revenue" account.

Hired your first offshore team? Create "Offshore Contractor Expenses" to separate them from domestic contractors.

Review quarterly. Adjust twice yearly. Rebuild never—assuming you structured it right initially.

What this means for you

Most consulting firms use whatever COA template came with their accounting software. The template was designed for generic small businesses. Not project-based professional services firms.

It shows total revenue and total expenses without revealing which services make money or where costs go.

Setting up proper service line revenue accounts, separating direct costs from overhead, and tracking major expense categories takes 4 to 5 hours. Those few hours create years of better financial visibility.

The alternative? Running your firm with aggregate data that doesn't tell you which clients to pursue, which services to scale, or where profits hide.

Structure your chart of accounts to measure what matters. Start with the service line and expense accounts outlined above. Review your current COA against this structure. Work with your bookkeeper (or an accounting partner who understands consulting economics) to implement the changes over 30 days.

You can't manage what you can't measure.