Are timesheets necessary for salaried employees?

One of my favorite clients asked this question today and I thought it was so good I would take time to post my answer on the web site.

There could actually be two questions here. First, "Am I required to keep timesheets for my salaried employees?" The answer is no if you are talking about taxes or some form of IRS regulation. Second, "Should I require my salaried employees to keep timesheets?" That's a good question, but like all good questions the answer is "it depends."

1. Is time the best thing to measure? In other words is time invested directly related to sales?
   
   If there is a direct correlation between time spent and sales timesheets are necessary in the same way a bill of materials is necessary. Without a timesheet you won't know what went into the product or job and you won't know how much revenue should be invoiced. A law firm that bills by the hour is a good example. Without timesheets they don't know what to bill their clients.
   



2. If time isn't directly related to revenue does it have anything to do with your costs?"
   
   Sometimes the amount of time going into a project doesn't have anything to do with revenue, but it has an awful lot to do with your costs. Take the example of a law firm that works on a contingency basis. Often the fee for legal services is 30% of any award or settlement. It doesn't matter whether the case takes two days or two weeks or two months. The amount of revenue is fixed at 30%. But costs for all the paralegals, attorneys and other staff (whether salaried or hourly) are based on actual time spent. So in this case the tracking of the firm's largest cost may necessitate the keeping of timesheets.
   



3. If time is not directly related to revenue and not directly related to costs timesheets may be a waste of time."
   
   This is often the case in agriculture. When a farm hires labor for harvesting they pay on the basis of the amount harvested (so much per bushel, per pound, etc). The amount of time it takes to harvest the crop is not tied directly to the farm's revenues or costs. So it's doubtful you'll ever see the pickers lining up to punch a time clock.
   

The question of whether or not to keep timesheets is a good one. As my client said "We hate extra paperwork." Before you go through the routine make sure that the information you are collecting actually has some usefulness in your business.

Why Small Companies will Win in this Economy (Link)

"Why Small Companies Will Win in this Economy" from Peter Bregman is just what you need on a Monday. There are companies who are capitalizing on other's tough times, and this article gives some good insight into why the smaller competitors are having the big boys for lunch.

What's funny is that this is just one more piece of insight that plays out no matter how the economy is doing, but it seems to only get press when bigger companies are on the ropes. Relationships matter and smaller companies are often better positioned to deliver the experience customers want when it comes to personal attention.

Back of the envelope financials

When I interview prospective clients there are a few key figures that I am looking for. Specifically I want to know the following for the current year (projected), last year and two years ago. Figures need to be provided to the nearest one thousand dollars.

1. Revenues
   


2. Cost of goods sold
   


3. Gross margin
   


4. Overhead, sales and general administrative costs
   


5. Net income before tax and net margin before tax
   

Within the two minutes it takes to write these figures on the back of a napkin I gain insight into revenue trends, benchmarking within the industry, break even costs, and market position.

But more important, I get to understand whether I am working with someone who understands the need to measure results or someone looking for a magic pill to make things better. My experience has been that business owners and managers who do not know these numbers by memory fail to measure all of the other things that can make a difference in their business. Drucker said, "If it gets measured it gets done." I find this to be a great litmus test to determine who you may be inviting to work with you.

Let your feet do the talking. Negotiation 101

It's often said that you won't win a negotiation unless you're willing to walk away. I'm struck, however, that the only times I see this born out in my own experience is when I'm not really negotiating, I actually AM walking away. Case in point:

I signed up for a free trial of a popular online meeting application. I used it several times, but I found a competing program I liked better so I cancelled the trial. Today they offered me a 20% discount to come back and re-activate my account.

This also happened years ago when a client asked me to evaluate a popular real estate investing program that seemed too good to be true. I ordered the materials for about $200, spent a few hours going through them, and decided it was a waste of money. I called to take advantage of their money back guarantee and the sales person on the phone offered to let me keep the program for $50. That's a 75% discount!

So here's the moral of the story.

1. If you're not at least asking for discounts you're leaving money on the table, for everything from that new pair of jeans to your web hosting.



2. Walk away. Most of the time you can come back later anyway.



3. Don't take advantage. If you've already agreed to something don't go back later and ask for a price cut. This shows bad faith and it's the quickest way to sour a relationship. Everyone expects negotiation at the beginning of the deal, but if you try to change the terms after everyone is committed you're using people. That kind of stuff has a funny way of coming back to bite you later.

3 Reasons Why Saying “Thank You” to Customers is Important