Oops, Where Is That 60k?
“Your income is directionally proportional to the problems you solve.” Want to make more money? Solve bigger problems.
It took me 5 years to realize that applies to my business even more than to the problems I solve for my customers.
What are the biggest problems in your business? Are you out of time? Team unreliable? Can’t seem close the right deals? For over 5 years straight our income doubled. I can tie each of those growth spurts to internal operational decisions. Working on our business as well as our products & services has proved the most profitable expenditure of time and resources we have made. We improved and systematized project management. We standardized our approach to certain projects. We set actual goals. We identified and propagated culture intentionally. Each of these paid off handsomely.
Work on Your Business: Tracking
The day I realized I had a business marked a significant change. While many people start a company intentionally, I started doing technical services on the side. It took me two years and an argument with Boeing Co’s HR to realize I was a company (of 1) not just writing code. The interesting challenge with being in business without realizing it is that you don’t work on the business itself. Thanks to some good advice, I approached the Small Business Development Center (SBDC) and asked for some help. They set me up with a bookkeeper (for free) who guided me through the process of putting together a financial plan and accounting books.
I clearly remember the questions she asked, mostly because I had no idea how to answer them.
“What is your most profitable service? What are your time and expenses associated with building new customers? How much of your time is not billable?
How are you supposed to make any decision on the direction of your business when you have no idea how things are going?”
She sent me home with a basic task. Start by tracking everything. You don’t know what is important yet, but if we have the data, we can begin to tease out the answers once you figure out the right questions. I clocked ALL my time, not just the time spent on projects. I became serious about tracking and entering finances. When we met three months later, we dug through my data and rapidly doubled my income by removing a few major distractions and unprofitable services.
Where Did All Our Money Go?
As our company continued to grow, tracking became more and more important. In fall of 2010, Peter, Reid & I were staring at the P&L from our agency. Something simply wasn’t adding up. We were working harder than the numbers were showing. We had the feeling all year but simply couldn’t nail it down. We track everyone’s time, the services provided, the dollars in and out.
We stepped out for a business retreat and took the phones off the hook. After 3 days of focus, a pattern emerged and we realized we had been losing a lot of money.
I like to invoice clients by the 3rd of each month. For hourly contracts, I would calculate all the hours worked, and send the bill. Tragically, It turned out that a large number of our contractors were not as diligent as I in entering their hours. Most of their hours would be in, but periodically people would backfill a couple hours before sending in their invoice. Problem was, if I had already sent out the bill to the customer, those hours got missed. We would pay the contractor for their time, but weren’t getting paid for it. It was almost always a small amount, never more than 2-3 hours a person per month. Small enough that we never noticed. When you multiple it times 25-40 people (depending on the month) across many months though, it added up.
We realized over $60,000 of billable time had been given away to our customer in 2010 when we caught this (ouch). The fix was easy. We build “The Clock Blocker”, a little app that put a rolling 3 day limit on time entries. I made sure to wait until the 4th of the month to run my reports. It took a couple hours to solve the problem. Without the data we were tracking though, we would have never have identified the issue.
Now we know, and knowing is half the battle.
I love some of the points you make. I know it’s hard for people to see the value in being meticulous about the details, but it’s vital to lay a good foundation to build upon with solid procedures.
And nothing like a little honesty to serve as a kick in the pants.
I think the biggest challenge is in seeing the return in being meticulous for those of us (like me) who by our very nature tend towards creative entropy rather than organized harmony. The only way I can do it is to tie the activity to a very define set of results which I want more than the discomfort of the activity. Use that to sustain the behavior through to the point at which it becomes habit and no longer takes thought, hence removing the possibility of waffling.
Strategies that works fine when you are small, don’t necessarily work when you are getting bigger. These strategies are not perfect, but fixing them when you are small isn’t worth the trouble. Unluckily, no system/software can predict which inefficiencies should be solved, and the right time to solve them.
I encountered the same problem, but caught it almost immediately with Harvest’s “Uninvoiced” report. With the click of a button, you can see all hours that have been entered but not invoiced.
Hi Shane, thanks for the great read.
My question is: What system do you use to have contractors’ submit their hours?
I always just have them invoice me and then, painfully, cut and paste those hours to the specific client’s invoice (since everyone’s format is different). I’ve tried to get contractors to use my time tracker – OfficeTime.net – so I can merge their hours in, but some are already set up with a system they like and pdf their invoices over (the reason for the cut and paste).
It sounds like you are having them add their hours into your system, is that correct? And if so, how do you have it set up?
Thanks for the insights!
Bethany
Hey Bethany,
That was a problem we faced in our early days. The solution was simple. Upfront we tell people on hourly projects that if their hours are not in the pm system when we do billing, we won’t pay for them. We also check on a regular basis and nag people who are not entering their time. If they want our business, then they need to clock in our tool. We depend on it to make wise financial decisions. Waiting 30 days to find out how much we have accrued is fairly dangerous. Many of our team members double enter (their and our system), but our projects or large enough that we have some sway.
Great advice. I love the fact you’re so upfront about stating to your contractors, use this program or you don’t get paid. Such a simple solution, yet most companies try and be flexible to keep the contractors happy when it should be the other way around.