Does your firm bill your clients by using timesheets?
Timesheets are incredibly common across many professional industries, and numerous accountants use them. Although time tracking may appear to be a fair and easy way to bill clients, different problems with timesheets can be detrimental for your clients and can hurt your relationships with them.
Gusto, along with our partners at CPA Academy, delivered an informative webinar all about the problem with timesheets. “Value Pricing: Timesheets are Dumb For Your Clients, Your Staff, and Your Firm,” featured the accounting expertise of Greg Kyte, founder of Comedy CPE, and Caleb Newquist, Editor-at-Large at Gusto. You can watch the entire presentation here.
In addition to this article, which is Part Two of the webinar series, you can also read Part One, Part Three, and Part Four of the series. The other articles will teach you additional information about using timesheets, and they will inform you about the benefits of using value pricing.
The problem with using payroll timesheets
Timesheets are common in the accounting industry. Numerous accounting firms still utilize time tracking to bill clients because it’s a simple way to charge for services. Although it’s common for firms to use timesheets, there are many reasons why time tracking isn’t an optimal billing solution.
When charging by the hour, your clients have to engage in an agreement full of uncertainty. They don’t necessarily know how much tasks and services will cost when agreeing to an hourly rate. Even though there are notable drawbacks to using timesheets, most accounting clients accept the ambiguity of charges because they don’t see an alternative way of paying:
From a client’s perspective, here’s the [way] time billing works: … Time times rate equals the price that they pay. [There’s] tons of uncertainty in that for the client, and they’re willing to accept that uncertainty because they feel there’s not an alternative and they’ve been convinced that it’s a fair way to do things.– Greg Kyte
Timesheets are so standard that people accept paying by the hour even though there’s ambiguity in the total price and services performed. The hourly rate charged by accountants often doesn’t represent the value of their services. Accountant’s hourly rates are based on competition and their firm’s financial needs. Although time tracking is often not based on value, clients are still willing to pay hourly rates because they believe that it’s a fair estimation of accounting services’ worth:
[Clients are] not harmed by the timesheet on the face of it, but if you peel it away, they kind of are. It seems fair because you told them, ‘Here’s what your rate is,’ and you probably pull the number out [and say,] ‘It’s probably going to take us around this much time, but we don’t really know how good your QuickBooks file is and how much we’re going to have to clean that up.’– Greg Kyte
Although you can give your clients estimates about how long tasks will take, you can’t be certain of your services’ duration because every client’s tax situation is different. They’re utilizing your services without knowing the total price.
How time tracking can hurt your relationship with clients
In addition to the uncertainty that your clients experience when you bill them by the hour, you can also hurt your professional relationships with them. The times in which you’re on and off the clock can become difficult to determine, and the total number of hours you take to complete a task can end up distressing your client. Greg observed that some accountants do not report accurate timesheets because they don’t want to upset their clients:
Writedowns happen … regularly. Because you see … how much time was actually put into a project, and you go, “I don’t feel very good about getting ripped up by one of my clients for this giant bill, so I’m too scared to send them everything that we agreed upon. … We’re going to give them an in-house coupon for that.”– Greg Kyte
When there’s ambiguity in pricing, you can hurt your relationship with clients by sending them unexpected charges. Additionally, your clients may become skeptical of the amount of time it took you to perform services. Greg noted that accounting firms that charge by the hour often accumulate charges through unproductive interactions with clients, such as small talk:
I worked with a large regional firm to do our taxes for our business. And they billed me by the hour … When I call them, knowing how the billable hour thing works, … I have an agenda. I’m going, “This is a call worth making,” and if they start telling me about their daughter’s soccer team, I’m going to be like, “Nope.”– Greg Kyte
Accounting firms often stay on the clock when they aren’t performing services. Even if you don’t charge your clients when making small talk, there may still be distrust because they’re unsure of how much actual work you perform when billing them. Your clients might not dispute a charge, but they could become skeptical of the validity of your billing practices. For example, Greg recounted that his professional relationship with his accounting firm was hurt because of their questionable charges, but he refrained from disputing the fees:
They’re marketing this product to me. I ask them [to] do these calculations so that I can figure out if this is right for me, … and I got billed … [for] calculations that I asked for to help them to sell me a product that I may or may not want [to] support. And I’m kind of going, “Okay, do I call, and do I complain about that, or do I just eat it [and pay the bill]?” … I just ate it, but it’s not helping the relationship here.– Greg Kyte
Although Greg didn’t dispute the charges, he took note of how the firm unfairly billed him. Going forward, he may be doubtful of the validity of the firm’s charges, which will further hurt their professional relationship.
Bottom line: When you charge your clients by the hour, you can hurt your relationship with them, and they might end up switching to another firm.
Using timesheets with fixed prices
One alternative to billing clients by the hour is charging a fixed rate while requiring accountants to complete timesheets. This method of charging clients can also create problems revolving around the quality of work. When accountants need to complete timesheets when performing services with fixed prices, they might have to work too quickly.
If you give me a fixed price agreement, but you’re … still allocating costs for the job based on timesheets, that’s also pressure that is on the firm. … You don’t want to go over your budgeted amount of time for this fixed price agreement, so you’re pushing everybody to go faster.– Greg Kyte
Using timesheets with a fixed price agreement can still create problems because firms need to stay below budget in order to net a desirable profit from clients. When accountants need to work quickly when completing services, they might overlook important details and not produce quality accountant work:
If all you’re worried about is, ‘Is this job profitable or not based on our timesheets?’ then you’re going to be pushing people to go faster, to cut corners, and give the client a sub-optimal product.– Greg Kyte
When accountants have to work quickly to maintain profitability, the quality of their services will suffer. If they’re working with timesheets, they might produce poor quality work for clients, which will then hurt your accounting firm’s reputation and professional relationships.
Learn more about the disadvantages of using timesheets
Although timesheets may appear to be a fair and easy way to price your services, they come with downsides that can be detrimental for your clients. The uncertainty revolving around the total price and time you bill clients can hurt your relationship with them. Clients may pay your fees without questioning the charges, but the payments can still weaken your professional relationships. Charging your clients fixed prices while utilizing timesheets within your firm can also be bad for your clients because your accountants may need to work too quickly, leading to poor quality accounting work.
Learn more insights about accounting timesheets by reading Parts One, Three, and Four of this webinar article series if you want to learn more about timesheets and value pricing. You can also watch the entire webinar here.
Are you looking for more ways to serve your clients while growing your firm in the process? Consider partnering with Gusto! Gusto empowers accountants to become trusted advisors for their clients. Your clients need more than an accountant. They need an advisor. As a people advisor, you combine your financial expertise with people-focused advising. Gusto has the tools to help you do just that. Learn more about People Advisory.