If you ever have problems managing the money and numbers side of your business then…
I Love Timesheets and if You Don’t, Then You Don’t Know What You Are Missing Out on
I can hear the howls of protest already. Timesheets? Surely no true entrepreneur would use timesheets?
Don’t we all charge on the basis of the value we provide, and not the dreaded hourly rate? The answer is yes; we absolutely should charge our clients based on results and value. Sometimes it’s just not possible I know, but that should always be our aim.
Why would you need a timesheet?
So, if you are billing for the value you provide rather than the hours you work, why would you need a timesheet? Filling out timesheets seems a bit outdated – and maybe even a little condescending or authoritarian.
There’s a big picture to consider.
In our own consultancy business, we fill in timesheets diligently. We not only record the time allocated to various projects, but also the type of activities performed. For example, if someone is writing a report for a client, their time would be allocated to XYZ Project: Report Writing. And to make sure we’re as accurate as can be, we break down our time into 15-minute increments.
We don’t do this to micro-manage our team or to waste time on administration. We do it in the interest of getting the best possible information for managing our business.
Did you make money or not?
While all entrepreneurs, like yourself, are driven to change the world, there is still that pesky thing about having to make a profit. No profit = no business. You may simply deduct your expenses from your revenue at the end of the year, but that won’t tell you much about how your business is operating.
Your timesheets, however, will give you granular information on each project or type of work you do. By allocating all labour costs (and expenses) to the appropriate project, you will be able to see which projects are profitable and which are not, and what delivers a greater profit margin. Without accurate time data, you simply can’t gain this depth of insight.
How to use these insights:
1. Better estimates.
The best way to lose money in business is to charge less than your costs. Simple, I know. But if you don’t know what your costs are, how can you be sure? When we prepare a quote for a prospective client, we know what resources are required to complete a certain type of project, and what they will cost.
As an example, when we prepare a cost estimate for groundwater testing, we know how long it will take to:
- Pack all the equipment and get to the site.
- Complete the water testing.
- Pack and dispatch the water samples to the laboratory.
- Check and enter all the monitoring data into a database.
- Prepare a report for the client.
The project cost can be estimated with a narrow error margin because we draw on accurate time data collected over many years. Using this information, we can prepare a quote for the client and be confident that the project will earn a profit.
2. Timely delivery.
Just as importantly, if you have accurate time estimates, you won’t be missing your delivery deadlines. Not sticking to timelines is one of the best ways to; (a) annoy your clients intensely and (b) force them to start cosying up to your competitors.
3. Performance measures.
Some of your performance measures may also rely upon accurate time data. A common measure for service-based companies is ‘% billable hours’ or ‘number of billable hours’. I personally do not like or advocate this as a measure of individual performance, but I do agree that it can be useful as a company-wide metric.
Take a look at the graph below of a company’s % billable hours.
Something drastic has happened in the area of the orange circle. Even if the % billable hours was not a ‘Key’ Performance Indicator for this company, I’m sure the owner would be interested in finding out exactly why the company’s productivity has suddenly plunged. Without time data, the owner would most probably not even be aware that there was a problem.
4. For the tax advantages.
If your entrepreneurial business is engaged in innovation activities, you will no doubt be eyeing the Government Research and Development (R & D) Tax Incentive. Did you know that labour costs can be included in R & D expenditure, but only if they can be allocated directly to the R & D project?
As a business owner, I seek complete transparency in how my business is operating, and part of achieving that is the accurate allocation of resources. I trust that by now, those vociferous objections I heard at the beginning of this post have at least quietened down to a dull roar.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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