Time suck: noun. An activity, process, etc. that sucks up as much time as you give it.
Accounting is a non-revenue-producing time suck. I know, because a former boss drilled it into my head regularly. Guess what my job was? Yeah.
In time, my boss concluded that all staff / administrative positions suck both time and money. These jobs focus inward on the business of running a business. I stayed with the company long enough to hold, and later manage, quite a few of those positions in accounting, HR, IT, and management. I got used to being in the cost-control crosshairs.
Blasphemous though it may be, I like administration. I like it for the same reason that I like accounting: It works. It solves problems. It creates order out of chaos. It connects everything together and supports it. It cuts through the fluff and gets down to what is real. Accounting, in particular, is the great B.S. filter of business. Lie, cheat, and steal if you will – sooner or later accounting will rat you out.
Despite my admiration for its indispensable nature, I have to agree: administrative activities – accounting included – are a time suck. Unchecked, they will erode margins and eat profits. You can blame Parkinson’s Law.
Parkinson’s Law (and how to break it).
Parkinson’s Law comes from the lead-in of a 1955 article written by C. Northcote Parkinson in The Economist: “It is a commonplace observation that work expands so as to fill the time available for its completion.” If an employee has eight hours to fill, whatever they do will take at least eight hours. Fortunately, there is an antidote to Parkinson’s Law: Metrics.
Organizations run on metrics, from time clock data to financial statements. Some metrics focus on effectiveness, some on efficiency. All measure performance in some way, and become the basis for determining what works or doesn’t, when to grow or shrink staff, and whether costs are justified. Key performance indicators (KPI’s) are a subset of metrics that serve to evaluate the overall health of an organization, department, process, or person – but that is a topic for another post.
What to measure for accounting.
Measuring accounting performance sounds easy (all they do is count stuff!) but no single number tells the whole story. Do you count the number of deposits processed? The dollar volume of payables? The number of invoices your company produces?
I suggest a different approach: count time. Specifically, measure how much time your accounting staff spends on different functions. Time is the essential metric of accounting activities. But be careful; the purpose of this measure is to manage how tasks are done, not which tasks are done.
Which tasks accounting performs is about strategic effectiveness. Customer AR payments are worthless if not deposited. Neglecting to reconcile bank accounts enables fraud and embezzlement. Failing to properly categorize and post financial transactions, in the proper period, will result in misleading financials, company mismanagement, and an uncomfortably close relationship with the IRS. If you need to measure strategic effectiveness, try a review by a qualified external CPA firm. An ounce of review is worth a pound of IRS audit.
How accounting does what it does is a matter of tactical efficiency – and that is where time tracking is useful. Time tracking measures how much time (and money) you spend paying bills, posting receipts, reconciling accounts, and answering invoice inquiries. Time tracking illuminates the suckiest of the time sucking activities. If you want to control accounting costs, start there.
The payoffs.
Time tracking of accounting functions – and this applies to most administrative functions – serves three main purposes:
#1: Benchmarking.
Time tracking establishes benchmarks for comparison among staff and sets work-hour baselines for scaling. Coupled with cross-training and a rotation schedule for major accounting job functions (e.g. AR, AP, GL Maintenance), time tracking exposes opportunities and needs for training, systemic improvement, promotion, and reassignment.
Benchmarking is essential to scaling staff during growth. Having time requirements for categories of activities – e.g. Bank Reconciliations – allows you to determine how many additional labor hours you will need if, for example, you expect bank transactions to increase by 25% in the next year.
Among staff, comparing time tracking results can show who is more or less efficient with certain tasks, and help determine whether any performance variance is from common or special causes. It could be that the super-fast clerk is skipping essential steps. (I had a clerk once who thought an adjusting entry was the only step in a bank reconciliation.)
#2: Cost Allocation.
Time tracking can help a company better allocate administrative expenses to cost centers. This can be especially helpful if two cost centers require administrative support that is similar on the surface, but vastly different underneath. An example from the travel industry: leisure travel produces fewer invoices than corporate travel, each with a greater average sale amount, and each requiring much more accounting support. Does it make sense to allocate accounting expenses based on invoice count alone? Not in this case.
Cost allocation also highlights hidden waste. How much does AR cost you? The answer is simple enough if you have a dedicated AR clerk. A better question might be “How much are you spending to send duplicate invoices to clients each year?” The answer might surprise you…
Let’s say your accounting clerks spend a total of 10 hours weekly (520/year) sending duplicate invoices to clients (don’t scoff – I’ve seen worse). What does it cost you? The U.S. median wage for accounting clerks is $18.46 per hour, based on a 2,080-hour work year. Add 20% for taxes and benefits, and the real cost is $22.15/hour. But wait! You don’t get 2,080 billable hours. After vacations, sick days, and paid holidays you really get about 1,920 hours. Take off another 10% for overhead like rebooting computers, deleting spam, coffee breaks, and so on. Now you’re down to 1,728 hours. Your real cost is $26.66 per hour, and that means sending duplicate invoices costs you $13,900 per year. For that, a web developer could build an invoice lookup into your website, and you would reap the savings for years to come.
#3: Budgeting.
Time tracking provides a budgeting guide for department size and expense. For any scalable process, item counts or dollar volumes can now be translated into required labor hours. “Units per labor hour” calculations are typical for call centers and assembly line workers, but for accounting, it is a huge improvement over blindly sizing by percentage of revenue. Coupled with knowledge of onboarding and training time requirements (also gleaned from time tracking data), you can target accounting hire dates that ensure you have the right staff in place when you hit key mile markers in your sales budget forecasts.
Time tracking tools.
Ready to start tracking? Great! Fair warning: most people hate having to track time, so your staff may rebel initially. My best suggestion is to lead by example: track your own time for a month and see how you spend it, then explain the process to staff and enable them with a simple tool. Bear in mind also that time tracking should be a periodic exercise – performed just long enough to see patterns emerge and stabilize. Repeat the exercise at least annually, or after any major changes in tasks, assignments, or methods.
Time tracking apps abound. I use Toggl to track basic billable hours, both on my iPad and my Windows laptop. To truly break down accounting in multiple dimensions, you may need something more robust or customized.
Below, I have posted the time tracking Excel workbook I developed some years ago. It includes pivot tables that summarize your time tracking data categorically and by month. The file is free for your use, but please leave my attribution in the file information, and link back to this page to share it.
Download Sample Time Tracking Workbook
Volley.
Agree? Disagree? Squirrel!? Leave a comment!