This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
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All time should be entered by every team member. This enables us to accurately review WIP, productivity and average hourly rates at a practice level. Failure to enter all time sheets results in overstating practice productivity and average hourly rates.
Let’s look at an example:
Say Tim owns an accounting practice with 12 full-time staff including himself. He has nine full-time accountants, one practice manager, one administrator, and himself as the sole director. His practice manager and administrator are not required to enter time sheets, and Tim only enters his billable time. His nine full-time accountants are very good at entering their time accurately.
When we look at a quarterly report for the practice, we’d like to know what our practice productivity is, and what our average hourly rate is. Based on the time sheets entered, there are 4,470 hours entered in those three months, of which 2,995 were billable and 1,475 were non-billable. Tim therefore thinks his productivity is 67%. He generated $402,300 of revenue in the quarter, which gives him an average hourly rate of $90.00.
In reality, however, Tim has grossly overstated these two metrics. The actual time for the three months was 5,460. His practice productivity is therefore 54% and his average hourly rate is $73.68.
If Tim was to enter all time, it would allow him to see that he is actually sitting under the industry average, and there is a clear opportunity to increase his average hourly rate by $10 or more, which would add $230,000 to his bottom line for the year.
Time sheets allow us to see what is happening. If we don’t enter all time, we may miss things that would otherwise allow us to improve the performance of our practice. If there are directors that do not want to enter their time, get an administrator to enter their time based off their calendar, and make the rest of the time up with non-billable time. The most important thing is we get all time entered so we can accurately report on these fundamental metrics in our practice.
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