Track Your Time: Are You Sucking Future Growth From Your Company?

By Alex Vorobieff

You pick up a company income statement (or P&L) and the accompanying mini-P&Ls (or analysis) showing profitability by product and customer. Some products appear very profitable — and others are producing a giant sucking sound.

For the unprofitable products, the issues sometimes jump off the page; the material costs per unit are too high, or sales are falling fast. Whenever you focus on a portion of your company, there is always the chance all costs generated by that portion of the business are not included or too much non-related overhead costs are pushed on that mini-P&L.

It is up to the accountant to allocate enough costs and then there is the question if those allocation methods reflect reality.

What If You’re Missing Huge Costs and Unprofitable Products Are Killing the Company?

What about time spent on products and customers by account management and senior management who typically do not track and charge their time to products or customers?

Management time spent on a product or a customer is not just their respective salary and benefits calculated on an hourly basis. Management time has a huge opportunity cost. If you are the CEO and chief sales person, the time spent away from generating new business is costing the company more than just your hourly wages and benefits.

If you have the ability to generate an additional $4 million in sales a year and you spend 25 percent of your time wrestling with special issues of a demanding existing customer, you are potentially giving up the ability to add $300,000 in future marginal profit. Does that existing customer generate enough profits to justify 400 hours of your time at $750 an hour?

Creating Value With Useful Information

To earn more money you have to create more value. Outside of lawyers, consultants and others that charge for their time, in companies that don’t sell man-hours, the higher the value someone needs to create, the less likely the person will accurately track their time for projects, products, customers or divisions.

Management costs are often allocated to their divisions or products by the amount of revenue each area generates. Rarely are those costs allocated by the amount of actual time spent and opportunity cost is generally ignored since it not a Generally Accepted Accounting Principal (GAAP). GAAP-compliant financials are the not the issue here; relevant analysis that helps you allocate company time and resources is critical for creating value.

New products and closing big accounts always take longer than expected. By tracking the actual time, you have better information for the next major decision and building more achievable annual plans. When people track their time and know someone will look at how they spent it, they will spend it differently.

Why Bother — Does It Really Matter?

There are consequences if you ignore opportunity costs. Your company could lose existing business when costs associated with one product or customer are charged to all products and customers to subsidize the time-suckers.

If you raise rates on customers that don’t receive value compared to the rate they are charged, they’re more likely to take their business elsewhere.

I have seen, over the years, the customer that drives the hardest bargain often demands the highest level of service and constant attention. Customers that excessively use up management time often receive more value than they are charged and will buy more at rates that do not cover your true costs.

A Simple Step to Better Information

Track your time.

The process is similar to faithfully writing down what you ate and drank. What you think you consumed over a month is often in stark contrast to the day-by-day summary that includes weekend eating, after-10 p.m. snacks, and that extra glass or two of wine.

Today’s handheld phone apps make it easier than ever to track your time (or food intake). Any information you can provide your accountant will better help them prepare mini-P&Ls that reflect reality. You can even start with an estimate on a weekly or monthly basis on where time was spent. Over time you can improve the tracking and accuracy.

There are plenty of iPad apps that can be used to track time. The table below starts with basic tracking systems and moves into classic time-tracking software. I am currently testing these and will provide a summary of the best in a future blog.

App Description Benefit/Limitations
Day One Journal/diary — Great for once-a-day summarizing activity Simple and easy to start tracking time. Easily syncs with Dropbox. Requires someone to add up time. Set a daily reminder to enter info.
TimeTag – Capparsa Personal time sheet Between a journal and full-time tracker software. Easy to start tracking. Visual summary of time spent. Import into Excel, syncs with Dropbox.
Cube Time & Expense Tracker Time tracker software Easy to set up and get started. Uses Google to store information while free version requires Internet connection to save info.
TimeTracker — Silverware Software Time sheet Provides key tools to track detailed activity by client/project/task and import into Excel.

Show your management team what you find. Let them know if they capture this information it helps when we consider whether to increase or decrease rates on a product or customer and that the decision is based on the best information available.

Next up, I’ll discuss phase 2 of this action plan, by exploring some of the iPad apps available for tracking your time.

Alex Vorobieff provides fractional CFO services to companies that want to use their financial information to make informed business decisions

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