3 Reasons to Track Your Time (Especially if You're Value Billing)

Value billing is all about charging clients for the value of the services provided, rather than the number of hours spent on the work. The question then becomes, should you track your time and your employees' time even if you're not getting paid based on the number of hours worked?

If you want to maximize your profitability, the answer is yes.

The Value-Billing Problem

With value-billed services, clients understand exactly what they’re getting, the scope is clearer, and it’s usually easier to sell than work billed by-the-hour. What’s not to love?

The problem is that many accounting firms are value billing without a solid understanding of the time associated with that work. The thought is, “We’re value billing, so we don’t have to track our time.”

But without a healthy culture of accurate time-tracking, you cannot truly understand the most important profitability metrics in your business. Value billing without time tracking also leads to a whole host of issues that limit your firm’s ability to scale while maintaining desired margins.

In this article, we take a deep dive into the benefits of time tracking for your value-billed work.

But First - The Culture Implications of Time Tracking

Many managers of accounting firms believe that introducing time tracking will hurt their work culture. They don’t want to be "Big Brother". 

The reality is that most people get the idea of time tracking all wrong. It's NOT about finger pointing or cracking the whip on employees. Neither is it about micromanagement. 

• It's about knowing which clients you should fire because they're taking too much of your time. 
• It's about uncovering profitable (and unprofitable) processes that can be of benefit to everyone.
• It’s about getting the data you need to see what’s really happening in your business, so you can build an amazing company together.

With that said, let’s dig into the concrete benefits of smart time-tracking.

3 Reasons to Track Your Time (Even If You're Value Billing)

1. Forecast and Plan Resources Accurately

Let’s say you plan to bring on 15 additional clients in the next quarter. How many new staff do you have to hire to service those accounts? Without a real understanding of how much time each client really takes, forecasting is just guess-work.

That’s why forecasting is a balancing act that many firm owners never get quite right. 

You have to walk a tightrope between selling services and planning the right resources to fulfill that work in the future. 

Time tracking solves this problem by helping you understand how long it truly takes to do a task. You'll know exactly how long every previous project took and the resources needed to get them over the line. This information allows you to do a better job of planning your team's time, pricing and staffing across different accounting projects. 

With more accurate forecasting, you will be more confident in your ability to hire as you grow.

2. See Realization by Client 

Without tracking time, it is very difficult to tell which of your clients are the most (and least) profitable. 

Sometimes, spotting the profit-eaters is easy. They’re noisy and needy and your team doesn’t like working with them. 

But more often, it’s the little things here and there that eat away at a client’s profitability.

For example, say a firm has two large audit clients whose engagements are very similar in scope. Let’s call them Client A and Client B.  Since their audits are similar, the fees charged to each client are identical. Client A, however, is a little more “high maintenance”. They prefer in-person meetings at their headquarters an hour from the firm’s offices. 

The CFO of Client A will also call the audit partner on a near-daily basis with small, one-off questions. Client A prefers interacting with the audit partner as they are less trusting of lower-level staff. Client B, meanwhile, is more laid back. They are comfortable with video conferencing. They save their questions for when the audit team is in the field and are willing to interact with all levels of firm employees. 

As you can imagine, the actual value of time spent on Client A’s engagement well exceeds the value of time spent on Client B.  Without diligently tracking time spent on each client, this information could not be quantified and used to construct future engagement budgets.

In short, time tracking can help you see which clients are “leaking” your profits and which should be given priority status.

3. Understand Realization by Staff

Employees are assets. They are the engine that drives your firm forward. 

But do you know exactly which of your staff members are the most profitable? 

Without a robust time and billing software, the answer is very hard to get.

Knowing who those profitable employees are gives you a tremendous advantage. For example, in most firms, there are a few all-star employees who do things differently. By knowing who these key players are, and by watching what they do, you can uncover exciting ways to improve your processes, which the rest of the team can learn from to improve efficiency and profitability across the board. 

Get the Data You Need to Make Smarter Decisions

The primary reason to track time on value-billed projects is that it gives you the ammunition you need to make smarter financial decisions. It will help answer questions like these...

• Which clients are the big fish that we need to focus on and keep happy? And which clients actually lose us money? 
• How many people should we hire if our growth stays the same? What if we start growing twice as fast as normal?
• Which services are the most profitable? 
• Should we raise our prices? 
• Who are my most profitable employees, and how do they spend their time? What can they teach the rest of us?
• Is my “no time-tracking” policy really building the culture of efficiency I need or is it causing us to work harder and longer for the same amount of money? 

What to Look for in a Time and Billing System

As you saw above, there are many valuable benefits to tracking time - first and foremost, getting all the data you need to run your firm and make smart decisions. 

But what now? How do you implement a time and billing system that works? 

Here are a few features that any system should have:

• Ability to enter hours in real time. Offline spreadsheets, Post-It notes and pads of paper just will not cut it.

• Web-based interface. Cloud-based software will allow your staff to be more nimble in where and how they work.
• Ability to log both billable and non-billable time. Even if time is non-billable (for activities such as short phone calls and internal audit meetings) it should still be able to be allocated to a client so that leadership can see the true time spent on an engagement.

• Ability to enter hours EASILY.  The time entry solution selected should not have unnecessary bottlenecks and prompts.
• Ability to budget time to each individual client.  This will allow firm leadership to compare actual performance to expectations.
• Simple, visual reports. Firm leaders should have the ability to pull down weekly and monthly time reports. To be quickly understood, you need to see these reports graphically (not just the raw data in a CSV).

Wrapping Up and Moving Forward 

We all want to run more profitable businesses. 

But without the right data, we’re handicapping our leadership, our staff and our ability to grow profitably. 

If you have the motivation to drill down on profitability and the tools to track your true time costs on all the work you bring on, you will be able to take action to guide your firm to a successful future.