Last Updated: November 2025
Disclaimer: This guide provides general information only and does not constitute tax, legal, or financial advice. Superannuation rates, contractor classification tests, and instant asset write-off thresholds change regularly. Partnership arrangements and profit distributions may have legal implications. Always verify current requirements at fairwork.gov.au and ato.gov.au, and consult with a registered tax agent and legal adviser for advice specific to your circumstances.
Management consulting firms face unique bookkeeping challenges that differ substantially from standard businesses. Unlike retail or manufacturing, consulting firms must track time billing and utilisation rates, manage work in progress across multiple engagements, handle equity partner profit distributions, navigate consultant contractor vs employee classifications, and recognise success fee revenue correctly.
Industry research indicates that consulting firms with poor time tracking and utilisation management achieve 15-25% lower profitability than well-managed firms despite similar revenue. Consulting practices often bill strong hours but deliver weak profits because time is not captured accurately, WIP is not billed promptly, and overhead allocation is incorrect.
This comprehensive guide explains how to manage bookkeeping for management consulting firms in Australia, covering time billing systems, utilisation rate tracking, WIP management, partner distributions, consultant classifications, and the specific requirements that separate consulting bookkeeping from general business accounting.
Management consulting firms require a specialised chart of accounts separating time-based fees, project fees, success fees, and different consulting service types.
Consulting revenue should be separated by billing model and service type:
Time-Based Fees:
Project-Based Fees:
Success Fees:
Retainer Revenue:
Other Revenue:
This separation allows you to analyse revenue by service type, calculate average hourly rates, track utilisation, and identify which consulting offerings deliver best returns.
Consulting firms have specific expense categories:
Consultant Costs:
Professional Development:
Client Engagement Costs:
Technology and Tools:
Professional Costs:
WIP represents consulting time and disbursements incurred but not yet billed to clients.
Current Assets:
When you invoice the client, WIP transfers to Accounts Receivable and corresponding revenue is recognised.
For retainers or projects paid in advance, deferred revenue represents payments received for services not yet delivered.
Current Liabilities:
Time tracking is fundamental to consulting firm profitability. Accurate time capture determines revenue, measures utilisation, and calculates project profitability.
Consultants record time in 6-minute (0.1 hour) or 15-minute (0.25 hour) increments. Time is recorded at the consultant's hourly rate.
Example: Senior Consultant rate $350/hour
This time sits in WIP until billed to client.
Consulting firms typically have tiered billing rates by consultant level:
Example: Consulting firm rate card
Actual costs (salaries) are lower than billing rates. The difference represents gross margin.
Utilisation rate measures percentage of available time spent on billable client work.
Calculation: Billable Hours / Available Hours x 100
Example: Senior Consultant utilisation
Target utilisation rates vary by level:
Low utilisation indicates underutilised capacity or excessive non-billable time. High utilisation (over 85%) may indicate lack of time for professional development or innovation.
Time billing (Time & Materials): Bill client for actual hours worked at agreed rates. Low risk for consulting firm, all time is recoverable.
Example: Strategy project
Fixed fee: Quote a set price for defined scope. Consulting firm bears risk if project takes longer than estimated.
Example: Process improvement project
Fixed fees require accurate scoping and strong project management.
Some firms quote blended rates where all team members bill at single rate regardless of level.
Example: Implementation project with blended rate
This simplifies billing but requires careful team composition to achieve target margin.
WIP represents time and disbursements incurred but not yet billed. Proper WIP management is critical for cash flow and profitability.
As consultants work on engagements, time accumulates in WIP.
Example: Strategy engagement WIP
This $70,000 sits on balance sheet as asset until invoiced.
Consulting firms typically bill WIP monthly, at milestones, or at engagement completion.
- Monthly billing: Invoice all WIP accumulated during month. Provides steady cash flow. Common for retainers and ongoing advisory.
- Milestone billing: Invoice when project milestones achieved. Used for fixed-fee projects.
- Completion billing: Invoice when engagement finishes. Creates lumpy cash flow. Used for smaller projects or success fee arrangements.
Best practice: Bill WIP within 30 days of time being recorded. Aged WIP over 60 days becomes difficult to collect.
Track WIP by age to identify engagements with unbilled time requiring invoicing.
Example: Firm-wide aged WIP
WIP over 90 days should be billed immediately or investigated.
Sometimes time cannot be billed because:
Written-off WIP is expensed, reducing profit without generating revenue.
Example: Process improvement project
High write-off rates (over 8-10% of WIP created) indicate poor project scoping, quality issues, or scope disputes.
Consulting firms structured as partnerships require systems to track partner contributions and distribute profits appropriately. Partnership structures and profit distribution arrangements have legal implications and should be documented in partnership agreements prepared with legal advice.
- Equity Partners: Own share of firm, share in profits and losses, receive monthly drawings against expected annual profit, capital accounts track accumulated equity.
- Service Partners (Salaried Partners): Title of partner but paid fixed salary, do not share in profits, may receive performance bonuses, no ownership stake.
Partner drawings are not expenses but distributions of profit to owners, recorded as reductions in partner equity.
Example: Four-partner firm
At year end:
If actual profit is only $1,080,000, each partner's share is $270,000, already drawn $240,000, final distribution $30,000.
Note: Partner drawings are not subject to PAYG withholding (partners are not employees). Partners are responsible for their own income tax through individual tax returns.
Equal split: All equity partners share profits equally regardless of individual contribution. Simple but may not reflect different contributions.
Points-based: Partners allocated points based on seniority, origination, delivery. Profits distributed based on points.
Example: Four partners with point allocation
Annual profit $1,200,000:
Eat what you kill: Partners receive share based on revenue they originate and deliver. Drives business development but may discourage collaboration.
Partnership profit distribution methods should be documented in partnership agreements. Consult with legal advisers when establishing or modifying partnership structures.
Each equity partner has capital account tracking:
Example: Partner capital account
Capital balances become important when partners join, retire, or firm is sold.
Consulting firms often engage subject matter experts, interim executives, or specialists as contractors. Misclassifying employees as contractors creates financial and legal risks.
Per ATO practical compliance guideline PCG 2023/2:
Factors indicating genuine contracting:
Factors indicating employment:
If consultant is actually an employee, you must pay superannuation guarantee (12% current rate).
Example: Subject matter expert paid $180,000 annually as "contractor" but actually employee
These classification issues may warrant legal advice if arrangements are uncertain.
Some firms use "associate consultant" or "contract consultant" models. If associates are actually employees, superannuation and other entitlements apply regardless of title.
Red flags for misclassification:
Some consulting engagements include success fees tied to outcomes achieved. Revenue recognition for success fees follows AASB 15 Revenue from Contracts with Customers.
Transaction success fees: Common in M&A advisory, capital raising, asset sales.
Example: M&A advisory
Revenue recognition per AASB 15: Retainer recognised monthly as service provided. Success fee recognised when transaction completes (outcome is achieved and performance obligation satisfied).
Performance incentives: Tied to specific metrics or results.
Example: Operational improvement project
Revenue recognition: Base fee recognised as work is performed. Performance fee recognised when results are measured and validated (typically requires client sign-off).
Success fees should only be recognised when per AASB 15:
Do not recognise success fee revenue when engagement starts or while work is in progress.
Consulting firms commonly incur various expenses in the course of earning business income. Whether these expenses are deductible depends on your specific circumstances and how they relate to your income-earning activities. This section provides general examples only - always consult your registered tax agent for advice specific to your situation.
Common business expenses consulting firms may incur include:
- Professional costs: Professional indemnity insurance, cyber liability insurance, professional memberships
- Professional development: Management consulting training and certifications, industry conferences, courses and seminars
- Client engagement costs: Travel to client sites, accommodation when working remotely, research and data subscriptions
- Technology and tools: Video conferencing subscriptions, project management software, presentation tools, research databases, CRM systems
- Equipment: Computers, presentation equipment, office furniture. Current instant asset write-off threshold is $1,000 for businesses with aggregated turnover under $10 million. Assets above this are typically depreciated. Check ato.gov.au for current thresholds and rates.
- Home office: If working from home with dedicated space exclusively for business
- Motor vehicles: For consultants attending client sites
For specific advice on what you can claim and how to claim it, consult your registered tax agent. Visit ato.gov.au for general ATO guidance.
Management consulting firms use specialised tools for time tracking, project management, and financial management.
- Harvest: From $12 per user per month. Time tracking by client and project, expense tracking, and invoicing. Best for smaller firms (2-15 consultants).
- Toggl Track: From $10 per user per month. Time tracking with project categorisation and utilisation reporting. Best for firms wanting lightweight time tracking.
- FreshBooks: From $19 per month. Time tracking, expense tracking, invoicing, and basic accounting integrated. Best for very small firms (1-5 consultants).
- Asana: From $13.49 per user per month. Project and task management with client engagement tracking.
- Monday.com: From $12 per user per month. Visual project management with customisable workflows.
- Xero: From $78 per month (Growing plan). Cloud accounting with project tracking (Xero Projects add-on $20/month). Best for most Australian consulting firms.
- MYOB: From $69 per month. Alternative to Xero with similar capabilities.
Medium firm (10-20 consultants):
Consultants not recording time daily or accurately means unbilled time, incorrect utilisation metrics, and poor project profitability data.
Cost: Firm with 15 consultants losing average 2 hours per week each in unrecorded time = 30 hours weekly. At $300 average rate = $9,000 weekly or $468,000 annually in lost revenue.
Solution: Make time tracking mandatory daily. Use tools that integrate with project management. Review time sheets weekly to ensure compliance.
Allowing WIP to age beyond 60 days creates collection problems. Clients dispute historical charges.
Cost: Firm with $180,000 in WIP over 90 days old may only collect 65%, writing off $63,000 in legitimately worked time.
Solution: Set monthly billing targets. Review aged WIP reports monthly and invoice all projects with WIP over 30 days unless specific reason to delay.
Recording partner drawings as salary expenses rather than equity distributions overstates expenses and understates profit.
Cost: Four-partner firm with $240,000 annual drawings each ($960,000 total) recorded as salaries overstates expenses by $960,000, significantly understating profit.
Solution: Record partner drawings as reductions in partner capital accounts (equity), not as expenses. Only salaried partners (non-equity) should have their compensation recorded as salary expense.
Failing to track utilisation means you cannot identify underutilised consultants or over-utilised consultants heading for burnout.
Cost: Senior consultant with 50% utilisation (should be 75%) represents lost revenue of 25% x 160 hours x 12 months x $350/hour = $168,000 annually.
Solution: Track billable vs non-billable hours by consultant. Calculate utilisation monthly. Investigate low utilisation (reassign to projects) and high utilisation (hire additional resources).
Engaging specialists or interim executives as contractors when they work full-time exclusively for the firm creates superannuation obligations.
Cost: Two "contractor" consultants paid $160,000 each but actually employees would owe $38,400 in superannuation (12% x $160,000 x 2) plus SGC and penalties.
Solution: Review contractor arrangements against ATO tests (PCG 2023/2). Seek legal advice if classification is uncertain.
Recording success fee revenue when engagement starts rather than when outcome is achieved overstates current year profit contrary to AASB 15.
Cost: M&A advisory firm records $800,000 success fee when engagement starts in June. Transaction fails in August. Profit is overstated in year 1.
Solution: Only recognise success fee revenue when outcome is achieved per AASB 15 (transaction closes, results validated, amount certain and collectible).
What is a good utilisation rate for management consultants?
Target utilisation rates vary by level per industry benchmarks: Partners 50-60%, Senior Consultants 70-80%, Consultants 75-85%, Analysts 80-90%. Utilisation below target indicates underutilised capacity. Utilisation above 85% may indicate insufficient time for professional development. Calculate utilisation as billable hours divided by available hours (excluding leave and public holidays).
Should consultants be employees or contractors?
This depends on the actual working arrangement per PCG 2023/2. Consultants who work for multiple clients, use their own equipment, quote fixed prices, and control how they perform work are genuine contractors. Consultants who work exclusively for your firm, use your equipment, work set hours, and are integrated into your business may be employees requiring superannuation (12% current rate) and other entitlements. Consult your accountant or employment lawyer for advice on specific arrangements.
How should I recognise revenue for fixed fee consulting projects?
For fixed fee projects, recognise revenue based on percentage of completion (hours incurred / total estimated hours) or when milestones are achieved per AASB 15. For example, a $100,000 fixed fee project with 200 estimated hours where 110 hours have been completed is 55% complete, so recognise $55,000 revenue.
What is the difference between equity partners and salaried partners?
Equity partners own a share of the firm, share in profits and losses, receive monthly drawings against expected annual profit, and have capital accounts. Salaried partners have the title but are paid fixed salaries like employees, do not share in profits, and have no ownership stake. Only equity partner drawings should be recorded as distributions of profit (not expenses). Partnership structures should be documented with legal advice.
How often should consulting firms bill work in progress?
Best practice is to bill WIP monthly or at agreed milestones. Monthly billing provides steady cash flow. WIP over 60 days becomes increasingly difficult to collect as clients may dispute historical charges. Review aged WIP monthly and invoice anything over 30 days unless specific reason to delay.
Can I claim client entertainment expenses?
Client entertainment has specific treatment. Generally, entertainment expenses are not deductible. However, some client-related expenses may be deductible depending on circumstances. This is a complex area with specific ATO rules. Consult your registered tax agent for advice on specific entertainment expenses.
What records do I need to support time billing to clients?
Maintain detailed time sheets showing date, client, project, description of work performed, hours worked, and billing rate. Many clients require detailed time narratives. Time records should be contemporaneous (recorded daily or weekly). Retain time sheets for at least five years for ATO purposes.
How should I track project profitability?
Use accounting software with project tracking (Xero Projects, Harvest). Create a project code for each engagement. Record all time worked by each consultant, all direct costs (travel, research subscriptions, subcontractors), and allocate overhead. Compare total project costs to revenue billed to calculate gross profit margin. Review monthly.
Can consulting firms claim the instant asset write-off for office equipment?
Current instant asset write-off threshold is $1,000 for businesses with aggregated turnover under $10 million. Office furniture, computers, and equipment above this threshold must be depreciated over effective life. Check ato.gov.au for current thresholds and consult your tax agent before making equipment purchases.
How should I handle success fees in bookkeeping?
Success fees should only be recognised as revenue when the outcome is achieved per AASB 15 (transaction closes, cost savings validated, performance target met), the amount can be reliably measured, and collection is probable. Do not recognise success fee revenue when the engagement starts or while work is in progress. When the success event occurs and success fee is invoiced, recognise the revenue.
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