2007 Review of Time & Billing Systems

From the November 2007 Issue

For many accounting firms, time is often one of the most valuable assets. This is primarily because of its scarce nature. Even during tax season, there really is no way to squeeze more than 24 hours out of a day (although, for billing purposes and with rounding, you can actually get 25 or 26). But nobody works 24-hour days.

Of course, time is not a traditionally depreciable asset; not for tax purposes, anyway. Try that and see how long it takes for the IRS to pay you a not-so-cordial visit. But time, both your’s and the cumulative work time available among the professionals in your firm, is an ever dwindling substance. In one sense, it appreciates as it elapses, since it seems to be worth more when there is less of it. But it continues to dwindle, nonetheless, until there is no more to be spent. So you need to make the most out of it by actually treating your billable time as an asset. Manage it, track it, plan it and, most importantly, get paid for it.

Most professional tax and accounting firms do not bill by the hour for all tasks. Certain routine services, many tax return types and other tasks are often charged at a flat rate, while more complex processes like business consulting, planning, audits and extended write-up are time-based. Obviously, keeping track of the time and expenses incurred for these latter tasks is important when you eventually submit your invoice to the client. But assessing the time your firm spends on flat-rate services is important, since it can help you justify the rates, adjust them as necessary, analyze profitability, and determine the productivity of the firm and
individual staff.

These analytical functions are really more of a practice management function, but are essential and can often pay for the cost of a time and billing system, which can be fairly inexpensive, anyway. As an example, let’s say your firm charges $300 for basic 1040 prep. Is your firm getting the appropriate return for your time? First, you need to find the average time it took last season to provide this service, which a time and billing system will track by job code. You also need to determine average administrative tasks per return for things such as scanning, invoicing, filing, making copies, and other overhead. With this information, you can easily calculate the average cost per 1040 return and see what your margin is on these services. You can also break down the profitability of other services and see which employees or departments are most efficient.

Time and billing systems also include invoicing systems that convert the tasks you’ve completed into itemized bills for your clients, allowing for multiple billing rates based on the client, the staff member, the project or specific task. The AR functions built into the programs manage aging receivables and often enable the assessment of interest and sales tax. Since a key component of these programs is reporting and invoicing, most also include client communication tools, such as templates for collections, cover letters and instructions. In general, time and billing systems serve to streamline the invoicing and processes, and provide quick access to key business indicators that show how productive a firm is across its entire range of client services.