The firm I run, Xen Accounting, has been operating for 5 years… (gulp)… without a timesheet. Sounds crazy? To many firm owners and managers, running an accounting firm without timesheets probably does.

Not only has the firm been operating, but it has been operating well and operating profitability. Not having timesheets has also without a doubt improved team morale and the relationship we have with our customers.

In this post I’ll share a bit about my experiences on what it has been like running an accounting firm without timesheets for the past 5 years.

 

A bit of history

When I started Xen Accounting, the concept of offering a fixed, monthly price that included a menu of services, a specified level of professional support and cloud-accounting apps was a newer concept in Canada. Essentially, it would give everything the customer wanted, bundled  into a subscription pricing model.

This approach was implemented when I started the firm because I wanted to improve the experience that small business owners received from their accounting firm as one of the pain points small business owners face is receiving a surprise bill from their firm but also the feeling of constantly being on the clock which creates an uneasiness and uncertainty in price.

I wanted to remove as much friction in the relationship as possible. If a customer had a question, I wanted them to call and ask and not worry about being charged. This in my mind would create a closer relationship and would increase the opportunities of spotting additional mandates that can then be later built into the current engagement as a change order.

I had implemented this subscription model upon day 1 of starting the firm. Due to the model and since I was a one-man show at the time, tracking time was therefore not important for billing purposes, hence, no timesheets were required.

So the implementation of this pricing model really derived itself from wanting to create a better customer experience. One that included no surprises and brought the advisor and customer closer together.

What I didn’t know at the time was that there were a ton of advantages to running an accounting firm without timesheets.

 

Challenges faced

Upon implementation, I soon realized that I had no clue how to price things using a subscription model. Case in point, when the firm launched, I think our highest priced tier included literally an all-you-can-eat buffet of accounting services and support for under $300/month.

For at least a full year (and probably even more) there were countless pricing mistakes that probably resulted in a chunk of losses. Even to this day, we don’t hit the nail on the head with all mandates.

When you charge by the hour, you have a timesheet and your time becomes the driver for price. It’s the easiest pricing model that you can possibly implement.

In a subscription model, you’re including several different services, you’re providing customer support for their questions throughout the year and you’re perhaps including the accounting software and systems in your pricing as well. Since your plans may change from customer to customer, how on earth do you create a price that you are actually comfortable with? This is the biggest challenge of not having timesheets.

That’s when I started reading about pricing theory. I read many books on the subject that talked about how to set prices and the psychology of pricing. Truthfully, most of them were pretty boring, but the one that clearly stuck out was Ron Baker’s book, “Implementing Value Pricing” (sidenote, I did a book review podcast on this book a few years back which you can access here), which was a huge eye opener and lead to a massive shift in my mindset, which was not easy to overcome since us accountants have been trained to think that our price is tied to the hours we spend on something, which couldn’t be further from the truth. Tying time to your price is actually a terrible way to justify your price. Ron is also a staunch supporter of ripping up your timesheet, which is discussed in the book.

I won’t go into rebutting some of the popular arguments in favour of the timesheet (I have other older posts on this subject and will probably write up a revised one down the road), but after reading Ron’s book, I knew that I was not going to be implementing timesheets for practice management purposes at the firm.

 

Drawbacks of running an accounting firm without timesheets

The big drawback for me about not having timesheets is that the pricing model is much more difficult to implement. You have to understand a bit of price theory, understand what makes people tick, go through a deeper discovery phase with the client upfront (if not, you will fix the wrong price and perhaps end up with scoping issues) and attach a price to the value you’re delivering with no exact formula.

Accountants don’t like doing things in that manner for the most part. Accountants generally don’t want to shoot a dart at the board, they want every number to be 100% backed up. Well, guess what, pricing doesn’t work that way.

So the biggest drawback is about understanding the pricing model and not having an easy way to produce a price, which a timesheet certainly can do.

 

Advantages of running an accounting firm without timesheets

For one, having predictable, recurring revenue is an absolutely beautiful thing. This is what can happen if you implement a subscription based pricing model that isn’t based on time.

Secondly, I firmly believe that eliminating a timesheet will incentivize you, as a firm, to be more efficient and to find ways on how to constantly improve processes. Once your fees are no longer tied to a timesheet, you will want to systematize every possible process in your business. If you look at the thought leading firms in the country, none of them are using timesheets, yet they are the ones that have innovated the most, automated the most and have received the best praise from their customers. I believe a big part of this has to do with lack of timesheets and placing their focus elsewhere rather than on time.

Third, running an accounting firm without timesheets forces you to look forward and not backwards. Timesheets record what has happened in the past and most firms put more of their energy into analyzing the past rather than planning for the future. I’m amazed at the lack of forward-looking planning that takes place at a lot of the firms out there in terms of workload management. Why else are accountants still working crazy hours and putting in crazy overtime?

Well, first you can argue that more hours equals more dollars in a time based model, but there is also a lack of forward-looking workload planning that takes part at many firms. Our firm, as an example, puts in no overtime, we don’t work weekends and we don’t work nights. Other than some exceptions, we put in a normal work week, even in “busy season”, which is completely unheard of. Since we don’t have timesheets, we need to look at other metrics, and our metrics really revolve around planning months in advance to see if our team is either over or under capacity. We estimate time and project it forwards, but we do not record or track time. Big difference.

Fourth, your team will be happier and will perform better, therefore helping the firm’s bottom line. Firm profitability is, in part, a function of ensuring that the work coming in is produced efficiently and at a high level of quality and a major part of ensuring this comes down to the team delivering the service. If the team is miserable, it’s natural that the firm is not going to be as efficient, nor as effective, as one that is happy. Things just roll better with a happy team. If you do a poll of the top things that drive accountants nuts at their firm, at the top of the list, you’ll find timesheets. Some people leave their firm solely because of timesheets. Eliminate timesheets and you automatically have a much happier team ready to produce more efficient and higher quality results.

Fifth, running an accounting firm without timesheets is less admin work. No timesheet management required, no invoices that need to be produced (you can automate that with recurring monthly invoices), no collections required (if you also automate your billing), etc.

 

Is running an accounting firm without timesheets a good idea?

If you’re asking me, yes.

If you’re starting your firm from scratch, you have the luxury, much like I did, to start your model without having to transition or get partner buy-in. Educate yourself about how you can run your firm effectively without the use of the timesheet. In my opinion, the pros outweigh the cons.

If you already have an existing firm, then I would still recommend educating yourself, but to also transition things slowly, perhaps with certain service lines, such as bookkeeping, or with a segment of your client base, before implementing a complete migration away from timesheets.

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Ryan Lazanis

I’m Ryan Lazanis. I’m a CPA by trade but definitely don’t consider myself a normal accountant. I identify more with being an entrepreneur and I love disruptive technologies and business models. My aim is to help modernize the old, traditional accounting profession by giving firms the tools they need to modernize. To get the latest on the best technology, practice management & marketing resources for your modern firm, click here to subscribe to my newsletter.