Working More and Making Less:
A Case for Proper Time Reporting

by Lydia C. Jones, Georgia SBDC

Business owners in the service industry often complain about working more and more hours and producing little or no profit. When queried about how staff time is billed, some say "employees try to record billable time at the end of a job."

In the absence of a system for inputting, collecting, and routinely reporting time, employees use various approaches for billing time. They use some of the following creative strategies:

• The "what seems logical" approach involves looking at the finished job and calculating that the job "probably took about six hours."
  
  
• The "we need to stay within the estimate (or budget)" approach is by far the easiest, and allows the employee to bill exactly the number of hours that were included in the original estimate—regardless of how much time the project actually required.
  
  
• The "this client has excellent season tickets" attitude helps keep the billable hours low when employees are eager to enjoy eating hot dogs at the ballpark with a happy client.
  
  
• The "oh yeah, we finished the job about three months ago and it's time to bill some hours" attitude certainly helps a client's cash flow.

discount hotels in StuttgartThere are many reasons for low profit performance, and a careful review of financial records is needed to find the cause. Two of the most common reasons are insufficient billing rates and unexpected costs or expenses. For example, billing rates for management supervision are sometimes either not included or included at lower rates than the expertise required. Unexpected expenses—like the cost of buying lunch for 500 Indians (extras) during a production delay at a photo shoot—are inevitable, at least according to creative staffers.

Both problems have logical remedies. Billing rates should include actual employment costs, a factor for overhead, and a profit factor. Functional hourly billing rates are often used to distinguish work completed at a lower level of expertise, and therefore less expensive, from work completed that requires more expertise. Inclusion of a percentage contingency amount in an original estimate can offset cost overruns or unexpected expenses.

After analyzing and correcting billable rates and costs, the business manager should investigate time reporting. Overlooking the importance of accurate and timely billing for services rendered not only increases the risk of poor profit performance but also leads to severe cash flow problems.

Service businesses that consider time reporting a serious part of operations usually experience the benefits of healthy bottom-line profits. The following steps can help a business establish time reporting procedures or formalize an existing reporting policy.

1. Institute policies on the executive or board level that define requirements for submitting time as well as the consequences for non-compliance.
   
   
2. ERROR MSGConsider requirements for all employees to submit time records either electronically or written on timesheets that account for a minimum number of daily hours—seven and a half hours, eight hours, etc.—include time by client, by function, and in a minimum of quarter hour increments; record time spent completing administrative tasks such as staff meetings, expense reports, company projects, etc.; list vacation, sick or annual leave time.
   
   
3. Research the cost and availability of software that allows employees to input time.
   
   
4. Netherlands TripsAssign one employee the task of monitoring time input or timesheet submission.
   
   
5. Evaluate the need for policies that serve as incentives for accurate and timely submission of the data or radical policies such as "no timesheet—no paycheck" for employees who respond better to absolute regulations.

ERROR MSGBear in mind that some employees may grumble about dealing with corporate time reporting policies for a while, but most favor periodic bonuses, increases in stock values, and keeping their jobs—all possible incentives when profits come rolling in.

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SBDC consultants can help a business owner evaluate internal controls and establish checkpoints to ensure accurate time reporting practices to help minimize the risk of poor profit performance and resulting business failure. To obtain assistance, contact the Small Business Development Center in your area.

> See also: Pricing, Sales & Selling

Lydia Jones a business consultant in the Georgia State University office of the Georgia SBDC Network. To find your local SBDC call the state office at (706) 542-6762 or via the web at www.sbdc.uga.edu.