How Time Tracking Can Support Your Finances and Lead To Bigger Profits

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Running a business can be a wild ride, especially when you’re trying to juggle all the moving parts. Between managing clients, overseeing projects, and trying to keep everything running smoothly, it’s easy to feel stretched too thin. But what if I told you there’s a simple way to get a clearer picture of your business’s profitability and where you are stretching the limit? It’s really straightforward and it’s probably even something you’ve done before! Time tracking is a secret ingredient to scaling a wildly profitable business.

In this blog, we’ll dive into:

• The surprising benefits of time tracking and how it can reveal the true profitability of your services.

• Why tracking time isn’t just for hourly billing—it’s essential for understanding labor costs and refining your pricing.

• How time tracking can help you identify inefficiencies in your business, leading to better profit margins and smarter decision-making.

• Simple steps to get started with time tracking, including a handy tool that can make the process painless.
  

Time tracking might not be the most glamorous part of running a business, but it’s one of the most powerful tools you can use to boost your profitability. Whether you’re a solo entrepreneur or managing a team, understanding where your time goes is crucial for making informed financial decisions. While some might view time tracking as micromanaging, it’s really about gaining insight into the true costs of your services and ensuring that every hour spent is accounted for in your pricing strategy.

The Importance of Time Tracking in Business

When you work with clients, it’s essential to know how much time you and your team are dedicating to each one. This is not just about billing accurately—it’s about understanding your direct costs and how they impact your bottom line. For instance, in our business, we track the time each team member spends on a client and create a journal entry every time we run payroll. This entry logs the total hours spent per team member per client, allowing us to see the direct cost associated with that client.

This practice enables us to run special reports that reveal:

• Gross Profit: The revenue generated from each client minus the direct costs of providing services.

• Expense Analysis: Identifying all related expenses, such as software costs or administrative support, that are required to service the client.

• Profitability Assessment: Determining whether a client or project is truly profitable after accounting for all direct and indirect costs.

The Impact of Time Tracking on Profit Margins

Let’s consider a real-world example. Imagine you charge a client $500 a month for a service. Without time tracking, you might think that your costs are limited to software expenses—say $50 a month—leaving you with a perceived profit of $450. However, once you factor in the time your team spends on the client, the picture changes dramatically.

Suppose your bookkeeper spends five hours a month on this client at a rate of $35 an hour. That’s $175 in labor costs. Add in the $50 for software, and you’re looking at $225 in total direct costs, leaving you with a profit of $275—not $450. If an assistant also contributes an hour of work at $20 an hour, your total direct cost rises to $245, further reducing your profit to $255.

Now, imagine that your bookkeeper’s hours increase to 10 per month due to scope creep or underpricing. Your direct costs skyrocket to $420, slashing your profit to just $80. Without time tracking, you’d never know how much these changes impact your profitability. As an entrepreneur, your time is a super valuable resource and it is essential to understand this for your pricing strategies so that you are able to pay yourself and your team members appropriately.

Time Tracking Beyond Client Work

You might only be thinking of tracking your time in terms of the work that you are doing for clients, but time tracking isn’t just for client work. It’s also valuable for understanding the costs associated with running programs or managing internal projects. For example, if you run a coaching program, tracking the time your team spends on it can help you assess whether your pricing is adequate. You might discover that you need to adjust your fees to cover the true costs of delivering the program. You also have to consider the amount of time required on administrative tasks to manage and deliver your offers to each client and factor this into your pricing strategies as well.

Making Time Tracking Work for You

When you hear time tracking do you immediately feel a bit of anxiety? Maybe you cringe a little? Like it’s yet another thing to keep track of and add to your plate? We get it, it can be one of those annoyingly tedious tasks, but tracking your time doesn’t have to be a daily task or something that feels like micromanaging. You can implement it on a quarterly basis, tracking time for one month to gather data and then reassessing each quarter. This periodic review allows you to identify areas where you need to raise prices, cut back on services, or invest in additional resources to maintain profitability.

Key Takeaways:

• Accurate Cost Analysis: Time tracking provides a clear picture of the direct and indirect costs associated with each client or project.

• Informed Pricing Decisions: With accurate data, you can adjust your pricing strategy to ensure profitability.

• Profitability Monitoring: Regular time tracking helps you stay on top of scope creep and other factors that can eat into your profits.

Time tracking is not just about keeping tabs on how your team spends their time—it’s a vital financial tool that can help you optimize your operations, improve profitability, and make smarter business decisions. By embracing time tracking, you can ensure that every hour spent on client work or internal projects contributes to your bottom line. If you’re ready to work with a financial team that can help you understand more than just the dollars and cents of your business but how your operations and systems impact your finances, grab a free consultation with us here, we’d love to support you in scaling to your next level.

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