The Common Project Tracking Mistakes in Service Businesses

Growing a service business can stall because of operations, specifically, how projects are tracked. Many firms rely on project systems only for invoicing, which hides margin leaks, creates blind spots, and leaves founders wondering why cash feels tighter than revenue suggests.

Here are the most common mistakes we see in service firms, what they look like in practice, and how to fix them.

Mistake #1: Not linking wage costs to the right project

Payroll is often lumped into one expense line, which makes individual projects look more profitable (or less) than they really are. If salaried staff aren’t tracked against projects, costs float in “overhead,” and the real story is lost.

It’s not because founders don’t care about costs, the problem is that timesheets are inconsistent, and payroll isn’t mapped by project. Without that connection, you can’t know which projects are healthy and which ones drain cash.

How to fix it:

• Allocate payroll expenses directly to projects - Once you know your payroll expense, allocate it across projects. This way you capture not just base wages but also CRA remittances (if your provider remits on your behalf) plus all additional costs like bonuses and benefit costs.
• Enforce accurate time tracking by project - Employees should log time to the right project, and those entries must be reviewed before submission. The combination of accurate time data and the payroll bill ensures wage costs are allocated fairly.

In practice, this means comparing payroll expenses to time tracking, then distributing costs across projects based on how time was actually spent. Done consistently, it gives you a clean, defensible link between labor dollars and client work.

Mistake #2: Treating all revenue as equal

Revenue is misleading when viewed as a sum. A $300K fixed-fee project may look impressive, but without knowing how that revenue breaks down by project, it’s impossible to see whether it’s truly profitable, or if a smaller engagement is actually carrying more weight.

The real risk is that leadership ends up scaling the wrong kinds of work, doubling down on flashy revenue numbers instead of sustainable, profitable projects.

The right approach:

• Tag every dollar of revenue to a project - Use classes in QBO or tracking categories in Xero so you can run project-specific P&Ls and see the actual profitability of each engagement.
• Standardize the process - Ensure that every invoice, retainer, or pass-through charge is tagged to the right project at the time it’s recorded.
• Review regularly - Project-level P&Ls should be part of your monthly close, so that margin leaks are caught in real-time, not at year-end.

Once revenue is consistently allocated to projects, you can clearly see which engagements are worth repeating, which are underperforming, and where pricing or scope needs to change.

Mistake #3: Mismanaging revenue recognition

Many service firms treat their project module purely as a billing tool. That’s not necessarily wrong - you can use project tracking for invoicing alone, but if that’s the case, you need to make sure revenue recognition is handled correctly behind the scenes.

For example, if you’re invoicing clients upfront for an annual contract, you shouldn’t recognize the full amount as revenue in month one. Instead, you should defer revenue and release it monthly in line with the actual delivery of work. Likewise, if you bill clients based on project milestones, revenue should be recognized as those milestones are completed, not simply when the invoice is sent.

How to fix it:

• Keep revenue up to date - Invoice promptly for project completion or milestones as scheduled.
• Defer upfront billings - If you collect annual fees, defer a portion monthly so reported revenue aligns with the actual work performed.
• Match revenue to effort - Ensure that recognized revenue reflects how much of the project is actually complete during the reporting period.

The principle: whether billing upfront or by milestone, align revenue recognition with work completed. This gives you a truer picture of project performance in real time.

Mistake #4: Skipping project-based budgets

Another common blind spot is budgeting. Many firms run projects without assigning both a revenue expectation and a labor budget at the start. What happens is there’s no baseline to measure performance against, so overages and margin slips only surface after the fact.

Modern accounting tools make this easier than ever. Both Xero and QBO allow you to set up project-specific budgets and import them directly. That means you can compare actuals against budget in the same platform you already use for invoicing and payroll.

How to fix it:

• Set project budgets upfront - Include both revenue expectations and estimated labor hours/costs.
• Use the tools you have - Import project specific budgets into QBO or Xero so actual vs. budget is visible in real-time.
• Review monthly - Incorporate project budget variance into your close process so adjustments can be made quickly.

With budgets in place, you’re actively managing them against targets.

Mistake #5: Ignoring overhead allocation

Even when payroll and direct costs are properly assigned, many firms stop short of analyzing overhead. Expenses like software subscriptions, rent, or general admin salaries are often left floating in “overhead” with no attempt to allocate them to projects. The result is that project profitability looks better than it really is.

A good month-end discipline is to review all overhead costs that haven’t been tagged to projects and decide whether they should be allocated. Some expenses can be split equally across projects, while others are better allocated based on historical labor hours or another reasonable driver.

How to fix it:

• Run a month-end overhead review - Identify expenses sitting in overhead with no project tag.
• Choose allocation drivers - For example, split evenly across projects or allocate based on each project’s share of labor hours.
• Adjust allocations consistently - Apply the same method every month so results are comparable.

Doing this gives you a truer picture of profitability once all costs (not just direct ones) are accounted for.

Final Thoughts

For founders of service firms, tracking projects the right way means you know:

• Which engagements deserve more investment
• Where margin consistently slips
• How to staff confidently without burning cash

Project tracking can turn from an invoicing tool into a decision-making engine. That’s where controllership comes in: building the cadence, enforcing discipline, and giving you the data you need to run a business at scale. 

Ready to see this in your own numbers? Book a meeting with us to get started.