Why is a time tracking relevant for an accounting or audit firm?
Time tracking is proving itself to be one of the most important business practices in the modern office.
It enables companies to track their progress and make informed decisions about their next steps. Our solution was created by solving different tax and financial issues for our own clients.
Time analytics measures accounting company progress through key performance indicators. KPIs are quantitative gauges of the current state of any business. Their analysis can help managers come up with resolutions that will bring a positive change to the entire team’s performance as well as profit and loss accounts. This can be done through task redistribution, identifying top and low performers among accountants and clients alike, and in many more ways.
Also, time tracking can help you bring your accounting team closer together. Namely, knowing how your projects are progressing and which employees are working with which clients is the basis for transparency and equal work distribution.
Which categories should you track?
Time Tracking per Employee
Employee time tracking is one of the most important opportunities time tracking brings. Its benefits include:
- Insight into whether your employees are working during the entirety of their work hours
- Seeing the effectiveness of their work
- Discovering unproductive behaviors
- Finding out who are the top and low performers
- Tracking important indicators, such as overtime and vacation and sick time
- Tracking time utilization
Time Tracking per Work Tasks
Work hours tracking per task can help you determine both the current state of your company and the possibilities for improvement in the future. Knowing how long a certain task takes will help you in future time predictions as well.
Other important results of task tracking include determining organizational oversights as well as identifying lapses in task delegation. The practice also answers the question of whether some activities should be outsourced and time better used.
Time Tracking per Client
Understanding your own company is very important. Yet, it is by no means enough for success. Understanding your clients and their demands is equally significant, as your profit doesn’t depend exclusively on your own work. It is a combination of your efforts and the clients you take on. Here are some of the benefits of time tracking per client.
- Firstly, it enables companies to track the profit each client makes them (without time tracked you cannot allocate a cost to a certain client, and as a result, you cannot make profit assessments)
- It gives you an insight into the top and low performing clients
- You can redefine prices, contractual terms and suggest a different cooperation model according to these insights
- You will know if you need to terminate contracts with your low performing clients
- Finally, this analytic will guide you in drafting new offers for future clients
Projects / Service line
Tracking time per service line or project enables an accurate insight into profitability and efficiency on a project or service line level. For example, within an accounting firm, it is very important to know what profit margin is coming from accounting itself and how much do payroll, invoicing, tax advice, financial advice, etc. contribute. It is also important to know how much time each of these activities takes up.
The Time Tracking Process
Track time easily
Simple time tracking is important for companies striving to increase and measure productivity. There are many time tracking software solutions out there, but many are very complicated for the average user. This means that some employees will take a lot of time to learn how to track time within complex platforms. Additionally, some solutions require a lot of time for the initial setup on the administrator’s side as well.
To put it plainly – with some systems, time tracking and even getting the platforms’ initial settings right, require a lot of time which could be spent working on tasks. Hence, a user-friendly solution is the best way to go.
Track only what you need to
There are many ways to track employee time. Some companies use timesheets, others opt for automatic work hours trackers, and some decide to record keystrokes and mouse activity, and take screenshots of user desktops at set intervals.
The last option can be overwhelming for many employees since it raises privacy and trust issues. It also creates tension in the company, as it implies distrust and a level of micromanagement many people have a problem with.
Finally, using a platform that takes screenshots can oppose the GDPR. Hence, other tracking options are a more universal solution.
Create recurring tasks
Time tracking platforms are very difficult to navigate when you have to create each task separately. This also makes the software’s logs hard to review.
If you are looking for a time tracking solution, make sure to choose one that enables the employees to make their time entries in a couple of clicks, especially when it comes to repetitive tasks.
Billable rates
When it comes to billable rates, it is important to define the planned (expected) billable hourly rate for each employee or client.
Additionally, it is even more important to calculate the realistic billing rate. Then you can see whether it differs from the planned billing rate and by how much. Determining these values is important for any company that aims to remain profitable.
When an accountant or consultant tracks their time while they perform the service, the time tracking software should account for the employee’s default billable rate. Alternatively, the employee can manually adjust their rate.
When a project is completed and invoiced, the managers can calculate a realistic billable rate by dividing total revenues with real spent billable hours by employee.
Time tracking allows easy implementation of a billable hours chart, which can save a significant amount of time.
Cost rates
Cost rates include the employee hourly rate based on their pay and other direct expenses, as well as hourly rate based on general expenses. Some of time tracking software’s most important abilities include drawing the defined cost rate automatically and calculating the cost prices per project or client.
Review timesheets
A comprehensible timesheet is one of the reports every time tracking tool for accountants should have.
Timesheets are important for work hours confirmation, as well as tracking breaks, leaves, overtime, etc. In some countries, they are a mandatory document when it comes to paying the salaries. There are a and models, but a detailed timesheet for each full-time equivalent should include:
- List of all activities performed per client
- Details of work performed
- Total hours spent
- Billable and non-billable hours structure
- Hourly billing rate
Get an Insight through Time Reporting
If you track time without actually using the data you collect, you are not utilizing this business practice’s full potential. If you want to get the maximum out of your time tracking software, it is important to be able to receive high-quality reports that help you make better business decisions. Time analytics comes with a comprehensible dashboard that offers analytics per client, accountant, task, and project or service line.
Our platform displays data regarding total, billable hours, non-billable hours, expenses, etc. it offers real-time data, as well as accumulative reports.
Time billing
Time Analytics enables you to create transparent and accurate invoices for your clients. These invoices are based on timesheets and overviews of all tasks per client and hours data.
Cost tracking
Cost tracking is important because it is only possible to calculate profitability and efficiency indicators per individual client and project through tracking costs per work hour.
How to do cost tracking per project and clients
A time and expense tracking program should draw the price of a work hour, including all direct and indirect costs automatically, and allocate them per project.
By default, the system sets up the cost rate for each employee. The total cost rate equals the sum of the pay rate and overhead cost rate.
The software offers an easier option as well, which is just setting up the pay rate. For example, if the total gross salary is $1500 monthly and if the average monthly working time is 150 hours, the pay rate will be S10.
This way you can access only the gross expenses and clients. Yet, if you want to see closer expense estimates, our suggestion is to add the overhead rate to the pay rate.
For example, the total overhead expenses (office space lease, office supplies, phone and internet bills) are $7500 per month for a company with 10 employees, which makes it $750 per employee. If we divide that sum by the number of working hours on a monthly level, we will come up with a $5 overhead hourly rate.
This means the total cost rate is $15. Once you enter this rate for each employee into the program, it will automatically add the expenses to the projects and clients the employee is engaging and tracking their time with. This is done by multiplying the logged time by the hourly rate.
This way you can see how much each activity, client, or project costs you without calculating and allocating the expenses yourself.
What are the essential KPIs that accounting and audit firms need to track
Company average billable rate
The average billable hourly rate is the average amount of money your company receives for the work you do for your clients. It is important, and you should compare it to the planned billable rate to determine if you are making the expected profit.
Employee billable rate
Tracking the billable rate per employee is crucial in determining your top performers. This KPI represents the hourly rate you bill your clients for a specific employee.
Tracking the realized billable rate by month as well as compared to the expected billable rate and total cost rate is necessary for a more accurate employee assessment.
Cost of project/client
This metric represents the total company expenses allocated to a client or project. Without the expenses data, you can’t know what profit is coming from an individual client. Without the data about the time spent per project, you can’t determine your expenses. Hence, time tracking is the link connecting these two values.
Knowing your expenses per client and project makes cost budgeting in your next budgeting cycle easier and more accurate.
Time utilization
This metric shows how much time is taken up by dividing billable and total work hours. It is an important KPI, as it gives the management insight into the time the staff takes to make the company profit vs the time non-billable activities take up.
Project / Service line billable rate
Understanding the project billable rate is important since you need to know whether you are making a profit from your projects. It can also help you define the rates for future ventures.
The average billable rate per project is calculated by dividing the total revenue from a project by the total hours spent on said project.
Client billable rate
This KPI gives you all the necessary information on the average billable rate you are getting per client. It is calculated as total income divided by the total hours spent on a client.
Billing rate utilization
This indicator shows the difference between the planned and realized profit. In other words, the realistically achieved billing rate versus the projected amount.
It is calculated as the ratio between the realized billable rate and the planned or negotiated rates
Work task structure
Companies can adjust their organizational design and increase efficiency based on the work task structure and the knowledge of how much time each of them takes.
Overtime per employee
Understanding the reasoning behind overtime, and calculation of overtime is very important for any organization. You need to know whether the overtime hours were caused by the demands of the job or employees being unproductive. If the former is the case you may need to look into hiring additional help or transferring another team member to the task. On the other hand, if the latter is true, you should probably talk to the managers or employees about their work habits, identify the problems and find the best solutions.
Conclusion
Understanding the benefits of time tracking is extremely important for the accountancy business, especially for easier managing KPIs.
Work hours tracking platforms shouldn’t be seen as a way to micromanage or punish employees, even though this is the easiest option. Instead, the true potential of time tracking lies within the reports and metrics it provides over time.
Time Analytics offers powerful reporting features that can help any accounting, tax, or auditing firm. Our platform can point the management towards underlying problems within their organizations. It can also increase transparency among the employees themselves and help distribute the tasks so no team member is either over or underworked.
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