Time & billing seems like a pretty straightforward application. You enter a client, set up an engagement, create tasks and billing rates for each, and then enter hours spent at each task and expenses incurred. at the end of the engagement, or a time agreed on at the start of the engagement, you send the client a bill, and hopefully receive payment in a reasonable time.
If you're a sole practitioner, the application might actually be this easy. But in m
any cases, even a sole practitioner doesn't have it quite this simple. And if your firm's staff is larger than just you, the process is definitely more complex.
That's because time & billing, while often sold as a standalone application, is almost always just a part of the overall management of your accounting practice. And understanding where this part and its components fit in the overall workflow of your firm is necessary if you hope to run the practice efficiently and effectively.
CAN'T EVEN SEE ALL THE TREES ...
With many accountants, the term "practice management" revolves around revenue generation, even if that is just an extension of time & billing. But practice management is actually an all-encompassing description for just about everything that goes on in your practice, whether the practice is a sole proprietorship or a large multi-partner firm.
Practice management certainly does recognize the importance of revenue generation and collection -- after all, nobody is in business to lose money. But that's certainly not the sum and whole of any business, professional or not.
The process of running a firm or practice includes using your resources most effectively and efficiently. And that means managing staff, projects, revenue generation and assets as effectively as possible.
WHO, WHAT AND WORKFLOW
Where and how does time & billing fit into this overall picture of practice management? It doesn't, at least not as a single plug-in application. In most practices, pieces of the time & billing application are scattered into the overall workflow of the firm. And using the application means knowing where these pieces should be located in your practice to get the most effective use out of the overall application.
Workflow is a term that's bandied around more and more every year. And many of us have at least some idea of what it means. But much fewer have an actual handle on the overall workflows that exist in the practice.
In studying the workflows that exist, most of us tend to look at the workflows of specific applications. But workflows within a practice are frequently interconnected and intertwined. Just as accounting data is more useful when it's shared between applications using a central set of databases, an awareness of the interconnections of workflows within a practice can often result in higher efficiency and elimination of redundant processes.
Investigating and understanding the way your practice works involves performing a systems analysis. Systems analysis actually refers to a discipline, rather than just an individual technique, and consists of processes and techniques designed to uncover and document what's happening in an environment, where it's happening, and what the results are.
That's all on a micro level. The second part of the analysis process means switching to a macro view. Where do the individual trees fit into the forest? For example, documenting internal control for an audit or review engagement is a form of systems analysis applied on a specific level and to a specific goal. In doing so, however, an analysis of internal control almost always threads its way through a significant number of business processes.
How does time & billing fit into all this? The answer isn't the same for every practice.
You don't need a graduate degree in systems analysis or operations research in order to understand what processes are going on in your practice. You just have to look at your practice hard, in depth, and understand what's really happening, rather than what you think or expect to happen. Sometimes your understanding of the practice is spot on -- other times, not so much.
For many practices, using process analysis is a good place to start. Using a program such as Visio or SmartDraw lets you flowchart where the various process that run through your firm start, the path they take through your staff and clients, and what applications, including time & billing, fit where.
You may be surprised when you do this. For example, revenue generation and collection don't start with establishing realization rates. They start when you begin negotiating an engagement with your client.
WHERE DOES THIS PART GO?
No one would argue that time & billing (or value pricing) is an unimportant component of overall practice management. But understanding that it's just one part, and that the discrete processes of time & billing are scattered into various timeframes of the management process, is a critical mindset.
The first task in the process of practice management isn't even software-related -- it's negotiating an engagement with the client. For the most part, if software is involved in this task, it's probably word processing used to prepare a proposal, and, when the engagement is accepted, to produce an engagement letter.
From there, tasks and deadlines need to be established and distributed to staff and managers. This part of the engagement, depending on complexity, may require a project management application, such as Microsoft Project. In many cases, a calendaring utility often found in many time & billing applications, will work, especially for smaller practices. Examples of this kind of utility can be found in software from Office Tools Professional, ImagineTime and other vendors.
This task is often described as due date monitoring. Regardless of what a particular vendor calls it, Fred Lindsey, the president of ImagineTime, describes it well: "The due date system is open and available at all times and is used to notify the staff of upcoming tasks, deadlines past due and so forth. Managers use the due date system to assign tasks to staff, and it also serves as a means of communicating work responsibilities."
Also available are specialized packages that go well beyond just calendaring or due date monitoring. Stand-alone packages such as ProSystem fx Engagement from CCH and Engagement CS from ThomsonReuters are specifically designed to monitor workflows from start to finish on large and complex engagements. These applications usually integrate with the vendors' practice management offerings. Both CCH and ThomsonReuters promote these applications as being particularly useful in audit engagements, though, of course, they aren't limited to these.
Keeping track of deadlines and due dates is vital to keeping an engagement running smoothly, but so is keeping in touch with your clients. Whether you use a modular practice management system like those from CCH or Thomson Reuters, or a set of utilities, client relationship management is a vital component of any practice, regardless of size. Vendors may approach this aspect of practice management in different ways. ImagineTime offers and prices its Finish-Line/Due Date/Workflow and its Calendar Scheduling and CRM modules separately, though there is some overlap between the two modules. Office Tools Pro, on the other hand, offers its utilities as a single bundle.
A ROSE BY ANY OTHER NAME
While it doesn't seem like the traditional time & billing is going away, there is an increasing move toward value pricing as a replacement or supplement to traditional methods of determining the amount(s) that a client gets invoiced. Revenue generation and cash flow may be central to time (or value) billing, but an important part of the process is resource utilization.
In a standard T&B system, the hours, staff and rates are collected to determine if the practice is running efficiently. A major goal of this process is not only to bill the client for work performed, but to calculate the realization rate - how much bang for the buck each member of your practice is generating. That's critical in understanding how efficiently your practice is operating.
With a value pricing approach, the realization rate computations are built into the front end of the process. In effect, you calculate the realization rate you need and expect for a particular engagement to produce the profit you require, and come up with an overall price that the engagement is going to cost the client. In many instances, you may also add in a "fudge factor" to cover those times when you miscalculate and end up on the losing side of the profit line.
Chances are you're already doing this to some extent in your practice - you're just not calling it value pricing. For example, many practices that perform write-up bill the client on a fixed monthly basis, rather than per hour, are actually employing value pricing.
Ron Baker, the founder of the VeraSage Institute, is one of the industry's leading proponents of using value pricing, rather than traditional T&B. "Value pricing completely replaces time & billing systems," he told us. "There's no need to capture time for realization rate computation, but there is a need to do project management that actually projects resources into the future. By the time hours are recorded on a timesheet, they can't be managed. It's like timing your cookies with your smoke alarm."
Value pricing hasn't yet taken the accounting profession by storm, but the idea of charging a client on what the work is worth, rather than how much time it takes, is gaining increasing attention.
Baker is passionate about this. "My life is dedicated to eradicating time & billing, realization rates, utilization, and any other measurement denominated in hours. They are meaningless and, in many ways (talent attraction, retention, lack of focus on customer value, lack of innovation, R&D, and on and on), are holding the profession back."
Still, many firms are reluctant to tamper with the systems in place. James Bourke, CPA, a partner in WithumSmith+Brown PC, is a frequent speaker on technology. He told us, "For the most part, even here at WS+B, T&B has not changed much over the past 30 years. Firms are still accounting for their time, most down to the tenth of an hour. Most are also doing daily timesheets, and while most may be done online today, the bottom line is that most firms are still doing them. As for value pricing, yes, a handful of firms are doing it for all services (tax and audit included), but they are the extreme minority."
"Why?" he asked. "Many CPA firm metrics are still driven by hours, charge hours specifically. Many firms still use performance goals that have charge hours at the root. As sad as this is, many firms are still very connected to charge hour accounting."
Still, Bourke realizes the reality of billing in the real world. "Having said that, I would be lying if I told you every job is billed by the hour. In fact, for a majority of our jobs we are under agreed-upon budgets, with signed engagement letters. So, what will inevitably happen is that the time on the job will come in over budget and we are capped at billing the budget amount. So in effect we could say that we really have a fixed-price job, regardless of where the hours come in."
"So why do we continue to measure hours in T&B?" Bourke continued. "It's the 'accountant' in us! We want to know how close we really came to hitting the budget. We also track the hours as a way to potentially recover additional billings if we can prove that the hours that were spent were related to difficulties that we encountered that were not anticipated when we entered into our original agreed-upon budget."
THE RIGHT PLACE AT THE RIGHT TIME
Regardless of whether you chose billing on time, on value pricing, or a combination of the two, some tasks are ubiquitous to the process. Accounts need to be set up for new clients, deadlines established, and staff assigned. Rates also need to be established regardless of the approach you take to revenue collection. With standard time & billing systems, this can be as granular as having different rates for the same task depending on which staff member is performing it.
Even with value pricing, you may want to track time and expenses. If your practice is using flat-fee/value pricing on engagements (or some of them), tracking time and expenses gives you feedback on how accurate your estimations were in pricing the engagement. That's vital for setting fees on future engagements.
Gathering data is an integral part of any financial system, as well as many other applications. With time & billing, you want to make this as easy as possible. You also want to make sure this happens as close to real-time as possible. Fortunately, time and expense entry has been available for laptops, smartphones and other portable devices for years. With the popularity of cloud-based applications, it's only a matter of time before data entry and other aspects of practice management move en masse into the cloud.
One last thing that you need to give some thought to is reporting and approval. The timing of specific reports is going to directly affect the productivity of the firm, assuming there are more than two staff members. This is even more critical when there are different levels of approval or multiple staff approvals needed before time and expenses are processed further or a client billed. Errors in scheduling and flow through the firm can create roadblocks, so it's important to understand what reports are available, when they should be generated, who they should be routed to, and what actions are to be expected as a result. A good practice management system will tie report generation, approvals, and routing into the calendar/due date application.
Looking into where elements of time & billing fit into the overall practice management system isn't an absolute necessity. Chances are, even if the firm practice system isn't fine-tuned, it's unlikely that your practice will be fatally affected.
But taking the time to verify that the time & billing application is effectively deployed and running smoothly can have a positive effect on your practice's productivity, efficiency and on its cash flow.
Ted Needleman writes frequently on software, hardware, and technology-related subjects, and was previously the editor-in-chief of Accounting Technology.
