Timesheets have long been a staple in accounting firms, originally helping to track billable hours and measure team member productivity. However, as firms evolve with automation and value-based pricing models, the relevance of timesheets is open to question. As an accounting firm coach, consultant and mentor I am often asked “should we do timesheets”. Here are some pros and cons to consider.
Pros of Using Timesheets
- Accurate Billing and Revenue Tracking Timesheets allow firms to track billable hours “precisely”, ensuring that clients are charged appropriately for the work performed. This is especially critical for firms operating under traditional hourly billing models. The problem is I don’t want firms to be working this way! I’ve included it as a pro because I know some older style firms still believe this. I don’t!
- Performance Measurement, Workload Management and Team Member Wellbeing By monitoring how team members spend their time, firms can assess efficiency, identify bottlenecks, and make informed decisions about workload distribution, individual team member performance and team member wellbeing. For example, if a team member is consistently working very long hours, it could be a sign they are either overloaded, overwhelmed, under skilled, or have personal issues they are avoiding by working more. Each of those warrants action in response.
- Client and Project Profitability Analysis Timesheet data can help firms analyse which clients and projects are most profitable. Understanding how much time is spent on each engagement can inform pricing strategies and resource allocation. It’s not unusual for me to hear a story from a firm owner or manager that they had a really big client but when they actually analysed the resources that were be used to service that client, they realised the profitability was disproportionately small. In some instance they dumped that big client and replaced it with multiple, smaller, more profitable clients.
- Regulatory and Compliance Requirements For firms subject to compliance regulations, such as insolvency firms needing to maintain records of engagement hours, timesheets provide essential documentation.
Cons of Using Timesheets
- Administrative Burden Manually logging time can be tedious, leading to time wastage and potential inaccuracies due to rushed or neglected entries. Over the years timesheet capture has got better but we are not there yet in making it frictionless. AI holds some promise in that regard. My belief is that every person doing a timesheet must, at the very worst, have completed their timesheet for that day before they knock off for the day.
- Encourages Inefficiency When team members are incentivized to maximize billable hours, they may prioritize time spent over actual value delivered. This can lead to inefficiencies and discourage innovation and automation. Bad idea!
- Detracts from Value-Based Pricing Models Most modern accounting firms have shifted away from hourly billing to fixed-fee and value-based pricing. In these models, timesheets become less relevant, as the focus is on outcomes rather than hours worked. I believe there is a strong argument that it is smarter to measure outputs than inputs. The COVID pandemic and the prevalence of working away from offices gave rise to more firms grasping the power of this. So long as a team member can complete what is agreed by the agreed deadline it doesn’t matter when, where or for how long they worked.
- Employee Morale and Trust Issues Requiring detailed time tracking can create a culture of micromanagement and distrust, making team members feel scrutinised rather than empowered to deliver their best work efficiently. I don’t see this a lot in well run firms as team members are educated on the benefits of timesheets both for themselves and the firm.
Conclusion
There is no one size fits all answer here. On balance however, I do think most firms benefit from having timesheets. Putting aside some instances where they may be required by regulation, I believe the benefits of being able to understand client profitability and better manage team member performance and well being outweigh the overhead associate with maintaining them.
Ultimately, firms must weigh the benefits and drawbacks to determine whether timesheets align with their business model and long-term goals.