When you track time, you are gathering data that will allow you to do project costing.  This is especially important when you’re working on a fixed fee.  I once had a client who bid a project low because it was a good publicity piece.  Since they knew it was going to be a loser, they didn’t bother keeping up with the project cost reports.  When the project was finished, they finally took the time to review the time data they had gathered.  Guess what?  The project was over budget by 400%!  The designers went crazy trying to make it the best piece ever. Why?  Because no one gave them a limit.  When you actively monitor your project time and budgets, you can give your employees a sense of the project scope and keep scope creep under control.

Project costing information also helps you price future projects.  Take the above situation, for example.  With the time and cost information on that project, the client is armed with useful information for a similar quote request.  Sometimes a project is over budget because of poor project management and sometimes it’s just a bad quote.  Managers will have to do their own due diligence to determine why the project went south. The time tracking information will help them figure out the problem on current projects and will be a great resource for future project pricing.

A major benefit of time tracking is the ability to value work in process.  When you bill on a fixed fee basis, it’s difficult to match your revenue to the expenses in any given month, if you aren’t tracking time.   Using the time applied to various projects will allow you to calculate the value of the work performed during the month, whether or not you invoice it.  The matching principle is a fundamental of accounting and for good reason.  When you can match revenues to expenses, you get an accurate profitability picture.  The sooner you see accurate financial reports, the sooner you can make better business decisions.

In addition to accurate financial statements, monitoring the value of your work in process will allow you to see potential cash flow problems in advance.  For example: A client who was tracking work in process, but wasn’t monitoring it, came to me with cash flow concerns.  They didn’t understand why their sales were fantastic, their revenue was good, and collections were going well, but there was no cash in the bank.  A review of their balance sheet trends revealed a rapidly growing work in process account.  They were doing a lot of work through the months, but there was a break down in the invoicing process.  Projects were either not invoiced after completion, or they were stalling out before completion.  If they had been monitoring the work in process, they could have seen this problem and made corrections before they had a cash crunch panic.

Now that we’ve reviewed some excellent financial reasons for time tracking, let’s take a look at some other benefits that will help everyone feel better about the policy.  One way that time tracking helps your employees is it allows you to “right size” your staff.  I’m sure you’re thinking: “My employees are NOT going to like me hounding them about productivity and laying off their co-workers, if we don’t have enough work to keep everyone productive.”  You’re right; your employees won’t like that.  But, let’s flip that around.  Instead of looking at the negative side of right sizing, let’s look at the positive side.  I had a client whose employees were constantly complaining they were overworked.  With the time tracking information, we were able to finally see, in real numbers, that they were overworked.  Not only could we see areas of the business where they were over-staffed, we could also see where they were under-staffed.  The overworked employees were very happy to have some of their workload shifted to others.  Keeping your staff from burning out is just as much a productivity concern as having too much capacity.

For owners and salaried employees, time tracking can also lead to a better work/life balance.  The very act of tracking how you are spending your time will make you more productive.  It’s very sobering to see the inefficiencies in your day.  If you see it, you can do something about it.  This information will help you justify the need to delegate or outsource tasks that you are taking too much of your time that would be better spent elsewhere.  You’ll also see areas where you can adjust your work habits to get more out of your workday in less time.

The bottom line…. Time tracking is a pain, but there are many benefits. You don’t have to track every single moment of the day to get measurable results. Strive for capturing at least 80% of the workday.  When you implement the new time tracking policy, speak to your employees in terms of the benefits they’ll see, like keeping their risk of burn out at a minimum.   Also, a better bottom line for the business means more opportunity for bonuses and salary increases.  The whole company should benefit from better performance.

~Kelly

“We threw a big project in Kelly’s lap and she got it done on time and under budget.  Her patience and humor make her a pleasure to work with, and she clearly has sound financial judgement, providing us with insight and constructive suggestions for improving our operations.  We highly recommend her services, and are excited to continue working with Kelly as a “business partner” – so that we can spend more time doing what we like to do!”

Thanks, Carey!  I really enjoy working with you too!

For the complete answer, see: http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

In general, service providers you have paid $600 or more in 2009 need to be issued a 1099.  Service providers include: independent contractors, accountants, public relations firms, janitorial services, etc.  Payments to service providers are reported in box 7, non-employee compensation. Sales commissions paid to non-employees are also reported in box 7.  This does depend on the type of entity you paid:

• Sole proprietors, partnerships, and LLC’s taxed as sole proprietors or partnerships DO get a 1099.
• C Corporations, S Corporations, and LLC’s taxed as C or S Corporations DO NOT need to be issued a 1099.

In addition, payments for rent are issued in box 1 and follow the same corporation/non-corporation rule.   Rents paid to real estate agents do not need to be issued on a  1099.

Payments to attorneys are always issued on a 1099 (regardless of corporation/non-corporation status).  These payments will either be reported in box 7 as non-employee compensation or box 14, gross proceeds paid to an attorney.  See 1099 misc instructions for further information.

If in doubt, issue the 1099.  There is nothing wrong with issuing when you didn’t need to to, but you will face penalties if you don’t issue a 1099 when it is required.

I have clients using QuickBooks for Mac.  I like to work from my office and they like to keep QuickBooks on their machine.  Of course, I can take control of their machine with any number of applications and do my work directly on their machine.

An easier, free method is to simply share the data file using a Dropbox.  With this method, each computer will have its own copy of QuickBooks for Mac and will simply open the data file stored in the Dropbox.

A caveat: The QuickBooks file can only be used by one person at a time.  If it’s open and in use by more than one person, you’ll end up with “conflicted file” copies.  I solve this by letting my clients know which days/hours I’ll be updating their books.

1. It allows project costing of your fixed fee projects which can help you stay on budget and profitable.
2. It gives you the information you need to price future projects.
3. You’ll know how much time and money you’ve spent on R&D projects, so you can take advantage of any available tax credits.
4. Your bookkeeper/accountant will be able to generate more accurate financials because you’ll have the information to value work in progress.
5. The accurate financials will allow you to view your financial trends. Watching your trends allows you to make decisions early, so you don’t end up in a cash crunch panic.
6. Time tracking for business owners and salaried employees can lead to a better work/life balance. You’ll see any areas where you aren’t being productive and you can adjust your work habits to get more out of your work day in less time.
7. You can value the time you’re spending on tasks outside of your expertise and make an informed decision about outsourcing those tasks.
8. You can right size your staff. By gaining visibility in how time is spent, you will see when your staff is in danger of burning out. On the flip side, too large of a staff means lower profits and bonuses, so you’ll be able to see the need to downsize as well.

The bottom line…. Time tracking is a pain, but there are many benefits. You don’t have to track every single moment of the day to get measurable results. Strive for capturing at least 80% of the work day. Also, explain the benefits of time tracking to your employees before implementing the policy. Speak in their terms…what it means for their life (work/life balance, bonus potential…).

~Kelly

There are a couple of ways to handle customer deposits in QuickBooks.

Method 1: Receive Payment Without Applying to an Invoice

If the customer hands you a check you, can simply receive the payment without applying it to an invoice. This will create a credit on their account. While this method will allow you to apply the credit to the project invoice, it usually isn’t the best way to handle the situation.

Method 2: Utilize Customer Deposit Liability Account

I prefer the customer deposit liability account method. The correct accounting treatment of a deposit is to treat it as a liability (you haven’t earned the revenue yet, so you’re just holding their money for now).

To use this method you’ll need to:

• Setup a current liability called Customer Deposits
• Setup an “Other Charge” item called Deposits that points to the “Customer Deposits” account you just setup.

If the customer hasn’t paid you yet, you can issue an invoice using the Deposits item (Result: Debit Accounts Receivable, Credit Customer Deposits). If the customer already paid you, you can issue a sales receipt to skip the receive payment step (result: Debit Cash, Credit Customer Deposits)

When the revenue is earned, generate another invoice. On the first line(s), you’ll use your normal item for billing your customers. This line will be for the full amount of earned revenue. On the next line, use the Deposits item. Enter the amount of the deposit as a negative (only up to the amount of the revenue being invoiced). (The Result: Debit Customer Deposits, Credit Revenue, Debit Accounts Receivable for the difference between the deposit paid and revenue earned).

You can always run a transaction detail report for the Customer Deposits account and total by Customer/Job to see what the remaining balance on hand is for each customer. Reconciling this account should become a part of your monthly close process.

~Kelly

I also recently became an MYOB Bookkeeping Partner. Unfortunately, MYOB is far behind Intuit in building out their training and tools for accountants and bookkeepers. At any rate, I’m happy to be a partner with MYOB and have free access to their technical support team.

If you have spent much time with 2nd grade boys, you’ll know that productivity and focus are not things they excel in naturally. My son is in the 2nd grade; I know them well. (Note: I know girls exhibit these traits too, it just seems really pronounced in 2nd grade boys)

My son is constantly distracted and he’ll just zone out half way through a conversation if something shiny catches his eye. I volunteered in his class today and once again noted that many of his male classmates share the same inability to maintain focus.

I was working with two of the super easily distracted boys. My “job” was to get them to re-write their rough draft into a final draft. It sounded like an easy enough task. How hard is writing? After 5 minutes, one of the boys had 1 (ONE!) word written. I implemented a strategy.

It was simple. Have you heard Parkinson’s Law? “Work expands so as to fill the time available for its completion.” If you have 8 hours to complete a task, it’ll take 8 hours.  Conversely, you’ll be amazed what can happen if you only have 1 hour to do the same amount of work.

For the 2nd grade boys, I gave them limits. You have 10 minutes to get that whole page written. They, of course, thought I was insane. I knew they could do it with focus and they did. I was proud of them and they were proud of themselves.

If you’re having problems focusing on the work at hand, try implementing some deadlines. To maintain focus, you need to have achievable milestones at regular intervals.

~Kelly