Time tracking and the V.B.T. (Value Billing Taliban)
by Frank Stitely, CPA
Stitely and Karstetter
I have long been a true believer in value billing. Five times a day I kneel towards the east and pray, “I am not selling time. I am selling expertise.” However, I just can’t follow with the end of the prayer which goes, “Time trackers are evil. We must stone them.” Time tracking is essential to value billing, done profitably.
More unconventional wisdom from Frank Stitely, CPA: Who’s Missing in Action From Your Workflow Processing System? | How to Make an Extra $72,000 by Working Smarter
Let’s invite some people to leave our discussion. If you are a coach, consultant, or some other type of CPA advisor, who has never owned an equity position in a CPA firm, please exit stage left. Yes, I know you have decades of experience observing CPA firms. I have decades of experience watching professional football. That doesn’t qualify me to coach the Redskins. Veteran poker players know that playing someone else’s hand is easier than playing your own when big money is on the table. If you’re a CPA firm employee, please stay. Some day you’ll need this information. But sit there silently until we are done.
There are three reasons time tracking is important:
- First, it allows for accurate value pricing and profitability tracking.
- Second, it’s a tool for employee and partner improvement.
- Lastly, it’s a tool for staff and partner evaluation.
Before you blindly recite the value billing prayer for the fifth time today, please consider that our predecessors in the profession weren’t imbeciles, regardless of what the consultants say. They knew we weren’t selling time. Hourly billing was never about selling time. It was about not losing money.
Hourly billing reduces the chance of losing money on a project. If you bill out a $25 dollar per hour employee at $70 per hour, you likely won’t lose money. Value billing has no such guarantee. At the heart of value billing is some form of fixed or outcome-based pricing. If you price a project correctly, you make money. If you price a project incorrectly, you lose cold hard cash. This is why time tracking is essential to value billing. How can you correctly price a project, when you don’t know how long it will take and how much it will cost?
So, you say you do know how long a project takes. How do you know? Even more importantly, after the completion of a project, how do you know if you made money without knowing how much time was spent? How can you price the next similar project?
The V.B.T. will tell you that, as an experienced manager, you just know from experience. Once you toss out the time sheets, your employees will miraculously stop cruising the internet during work hours. They’ll show up on time every morning, even Mondays, without hangovers. They’ll be as motivated to prepare tax returns as the Christians were to flee the lions in ancient Rome.
The real answer is that if you aren’t tracking time spent on a project, you have no idea. No, you really don’t. I guarantee that however long you think it takes your staff to prepare a tax return, it takes longer. I further guarantee that however long you think it takes you to prepare a tax return, it takes longer for you as well. I know this because I have time records.
When I bill for a tax return, I am amazed at the number of times we touched the return. At the end of the project, I don’t remember the ten e-mails and four telephone calls it took to get the return out the door. Fortunately, with time tracking, I don’t have to remember. I have the data in front of me. From memory, I might be tempted to charge $700 for a return without knowing that we have $1,000 invested in it. On the other hand, with time records, I might decide to charge just the $700 if we had an inexperienced staff person prepare the return, The point is that I have the data to make the judgment. I’m not guessing. Without time tracking you are.
Raise your hand if you have clients in the construction industry. If you really think time tracking tracking is unimportant, you should be advising your construction industry clients to give up job costing. They should just know how much labor they are using on jobs from experience. If you aren’t so advising your clients in the construction industry, you are a heretic to the V.B.T. cause, and so shall ye be stoned, infidel.
Here’s the primary argument against time tracking: Employees hate time sheets. Therefore, time sheets are bad. Here are some other things employees hate: balance sheets that must balance, cash flow statements, and stewed tomatoes. They’re right about stewed tomatoes.
Our employees, like the other seven billion of us on the planet, don’t like to be watched and judged. The management term for this is accountability. Our employees are right to be skeptical about our use of time tracking. I once had an employee tell me about the time he spent on a return, “You can’t handle the truth.” I think he was channeling Jack Nicholson in “A Few Good Men.” He (and Jack) were wrong. I needed the truth.
When I see someone spend ten hours on a return that should have taken five hours, I don’t immediately suspect internet porn as the problem, unless it’s a partner. I suspect we have a training issue. This summer, we taught a first year employee to prepare corporate tax returns. We had a lot of write-downs. But I expected that. I didn’t berate her for being slow. We worked on her knowledge during our summer leisure, instead of assuming she was fine, and then learning during tax season that she was not. Employees are right to be suspicious of time tracking, but that doesn’t excuse us from our managerial responsibilities to hold them accountable for their results.
If you don’t have data to objectively evaluate your staff, just how do you evaluate them? Since we’re not that good looking as a profession, God help us if looks are the measure. We would all still be grunts in the profession. How do you know if Susie or Janet is the more productive employee? Who deserves the biggest raise and the promotion if you don’t have productivity data?
The productivity data from time tracking leads to objective evaluation. Great employees welcome the feedback that poor employees fear. When your productive and unproductive employees receive identical compensation, the good ones leave for jobs where they are compensated for their accomplishments. You may think you accurately identify your great employees, but without data, you really are making evaluations based on appearance, not reality.
The V.B.T criticism that time tracking involves fantasy numbers, not real data, deserves some discussion. There is a hint of truth in this complaint. If your employees complete time sheets at the end of the week, the hours reported are surely unreliable. Weekly time sheets are useless. On Friday, nobody remembers exactly what he did on Monday. Fortunately, there is a solution to this. Trash the weekly time sheets in favor of daily time keeping.
All good time and billing solutions have task timers. Use them. Ours allows multiple open tasks at one time. If I get interrupted by a telephone call in the middle of reviewing a tax return, I stop the tax return task timer and open a new one for the telephone call. I may decide later not to bill for the call, but if the client calls three more times during the month, I probably will bill for it. What are the chances I would remember to bill for this at the end of the month if I haven’t tracked the time? If I have a fixed price arrangement with a client, I need to know how many times he calls and how much time is consumed. Otherwise, how do I properly price next year’s agreement? Daily time tracking not only tracks time more accurately, it increases billing as well by recovering lost time.
Earlier I proposed that time tracking helps us improve employee performance. What works for employees works for partners as well. At the end of each day, I look at where I spent my time. This holds me accountable for my daily time management. One of the central tenets of improving time management is that you need a baseline to improve. If you don’t know how you currently spend your time, how do you plot a path to improvement?
Finally, daily time management doesn’t significantly steal time from client projects. I barely spend five minutes per day starting and stopping time tasks. Done daily, time tracking is accurate and nearly painless. Done weekly, not only is time tracking inaccurate, it is truly a loathsome task.
Before you cast that next “he just doesn’t get it” stone, please reconsider your objections to time management and its importance to value billing done profitably. In any profit and loss statement, both revenue and expense matter, even with CPA firms. Value billing is the revenue side of your firm. Time tracking gives you the expense side. Paired, they give you the information you need to successfully manage your firm.
Tomorrow, instead of kneeling and reciting the V.B.T. prayer, recite this instead, “I need to know my costs as well as my revenues to succeed.”