Consultants, coaches, and other professional service providers run into a bookkeeping problem most retail or trades businesses never face: figuring out exactly when work you've done, but haven't yet invoiced, actually becomes revenue.

Billable Hours Need to Turn Into Revenue at the Right Time

If you bill by the hour, revenue is generally recognized as the work is performed, not just when you send the invoice or when payment arrives. Time tracked but not yet invoiced at month-end is real, earned revenue your books should reflect — leaving it out understates your income for the period the work was actually done.

Retainers Are a Liability Until You Earn Them

A retainer paid upfront isn't revenue the day it lands in your account — it's a liability, often called unearned revenue, until you actually perform the work it's meant to cover. As you deliver services against the retainer, you recognize the corresponding portion as earned revenue. Recording the whole retainer as income immediately overstates your revenue in the period you received it and understates it later.

Project Fees: Recognize Revenue as the Work Progresses

For fixed-fee projects, revenue should generally be recognized in proportion to how much of the work is actually complete, not simply when you invoice milestones. A project that's 60% complete but only 30% invoiced still has real earned revenue your books should reflect, even if the cash hasn't arrived yet.

Keep Client Funds and Your Own Funds Clearly Separate

If you hold any client funds in trust — a common requirement for lawyers, and sometimes relevant for other professional service providers — those funds need to be kept entirely separate from your operating account and never treated as your own revenue until properly earned or disbursed.

What You Can Deduct

• Professional liability (errors & omissions) insurance
• Licensing, association dues, and continuing education
• Software and subscriptions specific to your practice
• Office space, whether home office or leased
• Marketing and business development costs

FAQ

Do I need to invoice before I can recognize revenue? No — for accrual-based bookkeeping, revenue is recognized as it's earned, which can be before the invoice goes out. Work-in-progress that hasn't been billed yet is still real, trackable revenue.

What if a client pays a retainer I never fully use? Any unused portion stays as a liability until it's either applied to future work, refunded, or contractually forfeited — it never becomes your revenue just by sitting in your account.

Is a deposit the same as a retainer? Functionally similar for bookkeeping purposes — both are liabilities until earned. The exact terminology tends to vary by profession, but the accounting treatment is the same.

Retainers, work-in-progress, project revenue timing — Margot knows the accrual logic that generic bookkeeping advice glosses over. Ask Margot a question right now.