Are timesheets worth using? Using timesheets for accounting is embedded in culture, but it’s dated—and some might argue—unnecessary.
As the industry changes, old practices may fall away while others gain traction. To help you make sense of these changes, we brought you another episode of On the Margins: LIVE, with hosts Caleb Newquist, Gusto’s Editor-at-Large, and Will Lopez, head of Gusto’s accountant community. The duo welcomed veteran speaker Greg Kyte, founder of Comedy CPE.
How Greg Kyte joined the crusade against time-sheets
Who really benefits from time-based billing? What is its purpose? Caleb, Will, and Greg discussed these questions and dove into some of the horror stories of working with this model. Greg explained that almost everyone has a few traumatic experiences from being either taken advantage of, forced to work unnaturally long hours, or having to adhere to work models that outright don’t make sense. Timesheet compliance has created a culture of timesheet anxiety.
He brought up a time in which he was hired to be a tech advisor, but was then forced to do tax work because he wasn’t putting in enough billable hours. He was forced to do this simply because he wasn’t meeting a quota for billable hours—he’d never actually agreed to do this work.
“They told me, ‘Hey, listen, you’re not going to get enough billable hours to meet your annual goal just by doing the information technology site work that comes into our firm. So when tax season comes, everybody who’s on our team instantly becomes a tax person as well.’ So the end of January comes, I get pushed into the deep end of Ultra Tax.”– Greg Kyte
To make matters worse, UltraTax—the software they were using—was incredibly inefficient. On top of that, the firm was disorganized and in the midst of changing its processes during the busiest season of the year. However, what really triggered Greg’s incredulous reaction and departure was how inefficiently the firm was being run based on the billable-hours model. It just didn’t make any sense:
“I’m just trying to figure this stuff out. I’m horrible at taxes. It takes me forever. But still, it’s the busy season. I’m begging people for billable work. … Finally, the partner who’s in charge of me pulls me into his office [and says] ‘Hey, listen. Here’s the deal. You are so slow at doing taxes that none of the partners want to give you any work, so I’m going to give you some because I’m a nice guy.’ … My brain broke at that point, and I was like, ‘Wait a second. So you’re saying that it’s better for the firm for me to do zero work than to do some work just a little slower than you’re expecting?’ I bailed out of that firm [as quick as I could.]”– Greg Kyte
After leaving that firm, Greg became more and more interested in alternatives to the billable-hours model. Searching for work in which he could meet billable hours goals was a huge challenge. In the midst of this struggle, he stumbled across VeraSage Institute, an organization that redefines how to define value in professional services. It probes professionals to consider new ways of defining value, why CPAs fear having value conversations with clients, and how accountants can effectively lead value conversations with reluctant customers.
The think tank VeraSage Institute was founded by CPAs Ron Baker, Dan Morris, and Justin Bartnett. It draws on the expertise of knowledgeable professionals in diverse industries such as law, advertising, and technology, in addition to accounting. According to VeraSage, accountants may fear discussing value with clients because they’re not prepared to walk away from a deal, and they generally see themselves as passive recipients of whatever value a customer decides on.
Greg became intrigued by VeraSage Institute’s mission and with Ron Baker—one of its founders—in particular.
“I read an article in the Journal of Accountancy that Ron Baker wrote called ‘Pricing on Purpose,’ where it talked all about how billable hours were horrible. I was going, ‘This is totally speaking to me.’ … I didn’t have the courage to bring it to the managing partner to say ‘Hey, I think this is something you could look into.’ I had fantasies of running past his office and throwing in the issue [and trying to] hit his desk, and hopefully, it would just happen to open right to that article.”– Greg Kyte“
The more Greg learned about values-based pricing, the more interested and invested he became in it.
“I had a period where I was writing some smart ass letters to the editor at the Journal of Accountancy as well, … one of which got published and I was very proud of it, … and the next day, I got a call from Ron Baker who’s like the value pricing guru. … He was like, ‘Hey, I called about the letter to the editor that you sent to the Journal of Accountancy.’ And I go, ‘Oh, nice to meet someone who works for the Journal of Accountancy.’ And he’s like, ‘No, no, no, no’ And I’m like, ‘I just sent it yesterday. How’d you get it if you don’t work there?’ And [he] was like, ‘They thought that I had put you up to writing this.’”– Greg Kyte
At this point, Greg explained that he’d joined what Caleb jokingly called the “anti-timesheet crusades” with Ron Baker, the “Richard the Third of Value Pricing.”
Why timesheets don’t work and why businesses still don’t use value-pricing
According to Greg, billable hours and timesheets are not models that value anyone except higher-level management and firm owners. He used strong language to describe what he feels is an exploitative and unfair way of operating a business.
“It’s the sweatshop effect, where if I’m paying my people, if I run a firm, and I bill by the hour, I’m paying my staff a salary, but I’m pimping them out hourly. So my profits go up if I put the pressure on you to go and work a 60 hour week where you can bill all that time, and so … the incentives are aligned not for me to promote any kind of work-life balance for my staff but instead to push them hard to just go and work more time, more time, more time. … I think a lot of us who’ve made the exodus out of public accounting into industry kind of go ‘Oh my gosh. Why does anyone stay at a firm? This is so much better out here.’”– Greg Kyte
Gusto’s mission is always to create a world where work empowers a better life. We know the serious consequences of neglecting work-life balance and running a firm in a way that depletes its staff of energy, enthusiasm, and motivation. Few benefit from a workforce that’s under unnecessary pressure and is unhappy or unwell. It’s no wonder CPAs are branching out into more entrepreneurial, consulting, and advisory roles.
Greg shared an example of how this actually plays out in a company:
“They were giving their tax clients a fixed price, but they were still using timesheets to do the budget and the cost accounting. So they say, ‘Well, I think this tax return should take about six hours to complete.’ And here comes Greg after 10 hours going, ‘Hey, I’m almost done with your tax return.’ And they’re like, ‘Oh, you [suck],’ and again, how they allocate profits and expenses among the partners is where it makes the problem worse.’”– Greg Kyte
With so many reasons to switch to value-based pricing, why don’t more firms do it? Are they all evil overlords who want to take advantage of their staff? Hardly. As Greg explains, it’s often about the effort required and fear of the unknown.
“Here’s the thing. It’s not that the billable hours and timesheets don’t work. The reason why people still use them is that… if you want to talk about learning curves, timesheets are the easiest things to figure out, and they’re embedded in our culture. It’s so easy to go, ‘Oh, this is what most people do,’ or ‘This is what I’ve always done,’ and so we’ll just keep doing it, and it seems like we’re making plenty of money doing it this way. It seems like our firm culture is fine. It seems like people are thriving here. It’s a time-tested way to run a firm. So let’s just keep going with it.”– Greg Kyte
He continued to say that people neglect to notice that this system is created by those who have benefited from it, whether it’s the owner of a firm or one of the people who knew how to work the system. Those who weren’t able to do that or who were better suited to a different model didn’t rise to the level of being able to have a say.
To make it even more difficult, most firms simply don’t want to shift how they operate. There’s an initial investment of time, money, and energy that’s hard to overcome.
“I think anyone who is going to give you an honest opinion about switching … from using timesheets to not using timesheets … will tell anyone who’s considering [it] that it is a lot of work. There’s a lot involved in it. … It’s the whole idea that the pain of keeping the timesheets does not exceed the expected pain of making the switch to non-timesheets. And that’s really the biggest problem and the biggest obstacle that we have from just seeing timesheets drop because, again, I think most people will go, ‘You know what? I really love my timesheets. I love filling [them] out. … What I really love is yelling at people because they haven’t filled out their timesheets in a timely manner.’”– Greg Kyte
Additionally, the accounting industry itself is one of the most risk-averse industries out there. One of the very things that make CPAs great at their job—a love of concrete, finite ways of measuring things—is what causes them to hesitate at updating the way they do business. A value-based pricing model like an organization like VeraSage might suggest requires a lot more tolerance for gray areas and unknowns. It involves much more negotiation, flexibility, and possible risk.
“Making a change is going to be a huge difficulty. [It doesn’t] feel comfortable. That’s one of the biggest things people don’t like, especially accountants because we like to root everything in this very numbers-based [system.] How did you get this price? Well, let me tell you, here are some papers that document the hours and we have an engagement letter that shows what our hourly rate is. … [If] you do multiplication and you get it a price, we’re much less comfortable with going ‘No, you’re asking for something that’s very high value, so I’m going to charge you a high price. How do you feel about that?’ and then sitting uncomfortably with another human while [they make a] decision about whether or not they want to give you a business. That’s not something that people like.”– Greg Kyte
As it involves more communication and negotiations, using a values-based pricing system requires soft skills such as empathy, a tolerance for risk, and an entrepreneurial attitude. So it’s not for everyone. On the other hand, CPAs who want to leave the grind and take more control over how they’re compensated can really stand to benefit from this method of operating.
Values-based pricing can benefit firms that want to eliminate timesheets
Even though it may seem counterintuitive to take the focus off of the time it takes to perform a task, closing the door on time-based pricing opens the door for people-advisory. Clients want to know that their needs are being met, and typical timesheet pricing doesn’t achieve that goal.
Values-based pricing takes the focus off the time a job is going to take and puts it on the value your firm adds to the clients’ business. Instead of selling your clients on the time you will save them, you focus on how you can make a more significant impact through a people-based approach.
Instead of presenting services by saying, “I’ll get you ready for tax season in ‘x’ amount of hours, and it will cost you ‘y’ dollars per hour.” A values-based approach says, “I can give you peace of mind and reduce the stress of tax season. Here is my rate for partnering with me through that time.”
It requires more tolerance for risk, uncomfortable situations, and an assertive attitude. However, once implemented, values-based pricing can significantly improve job satisfaction, filter out clients that aren’t a good match, and help you retain top talent.
Learn more about eliminating timesheets and focusing on values-based pricing
Using timesheets is the easiest way to run a business in accountancy, but they have some serious drawbacks. It’s not always an efficient system, it benefits people at the top disproportionately, and it promotes a culture of poor work-life balance. When firms bill by the hour, pay their staff a salary and ask their staff to work long hours, they’re not promoting work-life balance.
Gusto is here to discuss the most important aspects of the accounting industry. Don’t forget to check out our other article based on the same episode: “Why You Need to Take CPE Ethics Seriously.”
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