Stop Using Timesheets For Billing And Start Using Them To Improve Your Profitability
Historically, timesheets come part-and-parcel with accountancy practices and other professional firms, where they’re mostly used as part of the billing and invoicing process.
While this is still common practice for many practices, it doesn’t come without its issues.
With all the changes and challenges facing accountancy practices in 2017 and beyond, if practices want to thrive (not just survive), then they should stop using timesheets for billing and start using them as a tool to improve their profitability…
The Issue With Time-Based Billing
Time-based billing promotes inefficiency…
If a job takes you 5 hours, but you only told the client it would take 3, you will inevitably write-off those additional 2 hours.
I don’t need to do the sums for you to know that’s a lot of money being written off each year…
Vice-versa, if the job takes you 3 hours, but you told the client it would take 5, you will only get paid for the 3 hours worked.
Not only is time-based billing inefficient, it’s largely inaccurate.
It’s claimed that in accountancy practices the accuracy of time recording is somewhere between 50% to 90% with a good average being around 70%.
This means that there’s more chance of you writing-off time, and ultimately writing off potential profits.
Alternatives To Time-Based Billing
I won’t go into any great detail on these in this article, so here’s a quick overview…
The two main alternatives to time-based billing are:
- Fixed pricing
- Value pricing
Both of these pricing methods greatly outperform time-based billing, and will ultimately lead to an increase in profits for your accountancy practice.
Although you might shift away from time-based billing to one of the alternatives above, this doesn’t mean you should scrap using timesheets…
They still have their place, and that place is being used to monitor efficiency and improve profitability.
Using Timesheets To Improve Profitability
In this scenario, timesheets don’t need to be recorded to the tee, they simply need to be used as a control mechanism to monitor how efficiently work is completed.
For example, you have a client paying a fixed price of £1200 a year for management accounts, tax return etc. The work is completed in stages throughout a 12 month period.
If you don’t use timesheets at all, you will have no real idea how many hours of work you and the team put into this project over the year, and therefore have no idea whether you made a profit on it or not.
Alternatively, by using some form of time recording, and reviewing that information on a systematic basis (perhaps every quarter), you can easily highlight any inefficiencies that might be occurring.
These inefficiencies might be down to one of these two reasons:
- Your team: Certain staff members might be taking much longer to do specific tasks than what would be expected.
- Your systems: The systems in your practice for completing work or collecting all the required information from clients might not be as efficient as they could be.
By monitoring time spent on projects, and using that information to measure efficiency, you can start to set targets to improve on these specific areas.
And once you start doing this, your practice efficiency, and ultimately your profitability will surely increase.