What’s the best way to track and bill my time as a small business owner, including tracking the cost of my time on each project, each proposal, and on overhead and volunteer activities?
I am a sole proprietor, but I expect to add employees in the future. I work as a transportation planner, providing consulting services to public and private sector clients. Usually, I charge by the hour. I sometimes have to charge different billing rates for my time on different consulting projects (e.g., most current projects are at $250/hour, one old contract must remain at $225/hour). I have a QuickBooks Plus subscription. I use the Time Tracking feature in QBO to track my hours, not a separate program. Instead of taking a regular salary, I take occasional draws from the business.
To track my time (both billable and nonbillable hours) I set myself up as a Vendor.
I set up the following Accounts related to the business owner (me) in the Chart of Accounts:
- Owner’s Investment: type is Equity. For cash I put into the business when I started it.
- Owed to Owner: for business expenses mistakenly billed to my personal credit card.
- Owner’s Pay & Personal Expenses: type is Equity. For tracking my occasional owners’ draws and reimbursing expenses mistakenly billed to my personal credit card.
I set up the following Customers:
- One customer account for each paying customer (e.g., City of…) or prospective customer to whom I’ve submitted a proposal.
- Overhead: for tracking nonbillable, non-proposal time on accounting, IT, etc.
- Volunteer: for tracking pro-bono consulting hours given away to various organizations.
I set up the following Projects:
- Four projects assigned to my “Overhead” customer: Accounting, IT, Marketing, and “Other Overhead”.
- One project for each contract signed with a paying customer.
- One project for each proposal sent to a current or prospective customer.
- Several projects for pro bono efforts, which are assigned to my “Volunteer” customer.
I set up four services under Products and Services:
- Principal Hours: this has a sales price/rate of $250. My current typical billing rate.
- Principal Hours – $225: this has a sales price/rate of $225. An old 2017 billing rate still in use.
- Proposal Hours: this has a sales price/rate of $0. For tracking non-billable hours required to win a project.
- Unbillable: this has a sales price/rate of $0. For tracking all other non-proposal, non-billable hours.
Under Purchasing Information, I haven’t checked the “I purchase this product/service from a vendor.” box for any of these services, so these services aren’t automatically linked to my time entries as a Vendor. I thought this would avoid creating accounting problems, since I don’t actually pay myself a fixed rate for every hour worked. However, this also means that when I look at the Overview and Time Activity for each of my Projects, my hourly time cost is listed as $0.
So far, my approach seems to be working pretty well. Assigning expenses to customers and projects has worked fine. Invoicing has been okay. My tax preparation firm has no problems with the QBO reports I send them each year. However, I do have these questions:
- For purposes of tracking project profitability, and proposal and overhead costs, I’d like to assign a cost of $70 per hour to all of my hours (both billable and nonbillable). However, I don’t want to introduce accounting problems (e.g., in reports that I share with my tax prep firm). What’s the best way to do this? Do I just enter $70 in the “Cost rate” box under Vendor Information for the Vendor I created to track my time; and then edit each of my Services by (a) checking the “I purchase this product/service from a vendor.” box for each Service, and (b) assigning myself as the Preferred Vendor for each Service?
- Even if the approach I describe Question #1 is a good way to assign a cost to my hours, I understand it will only apply to future time entries. Is there a way I can batch edit all of my existing time entries to change the cost rate from $0 to $70?
- Should I modify my approach in other ways? Can I simplify it without losing useful insights into my business and how I spend my time?
Any help appreciated!
