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Patrick Siegman
Level 1

What’s the best way to track and bill my time as a small business owner, including tracking the cost of my time?

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:

  1. 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?
  2. 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?
  3. 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!

2 Comments 2
Catherine_B
QuickBooks Team

What’s the best way to track and bill my time as a small business owner, including tracking the cost of my time?

It's good to see you in the Community, Patrick.  

 

Thanks for the detailed information about your questions and I'm here to walk you from it. The setup of your customers, projects, and service items are correct.   

 

You can use the Time Tracking feature to track and bill customers for the number of hours consumed in a project or activity. When you create a time activity, you have the option to select the service they worked on. Once you marked them as Billable and selected the customer or project's name, you'll see all billable time ready to be included when you create their invoices.   

 

We can check your Time Tracking settings to include the service item:

 

  1. Go to the Gear icon and select Account and settings.
  2. Under the Advanced menu, select Time Tracking.
  3. Toggle Add Service field to timesheets.
  4. Click Save and then Done.

After that, you can enter billable time through the Single Activity Time Sheet and the Weekly Time Sheet. Once you select the item, the Billable rate posted is the sales price of the service item. 

 

Pay rates, cost rates, and billable rates impact profitability. To know more about these types of rates and when to use them, you can refer to this article: What are pay rates, cost rates, and billable rates?.  

 

The option to edit the cost rate at once is unavailable. You'll have to open each time activity, from there you can update each rate. 

 

I'm attaching these articles that will help you through the process of tracking billable time: 

You can also consult an accountant that will guide you with the best option on where to enter the rates for us not to mess up your books.    

 

Please don't hesitate to leave a reply below if you need more help. You take care always! 

Fiat Lux - ASIA
Level 15

What’s the best way to track and bill my time as a small business owner, including tracking the cost of my time?

@Patrick Siegman 

If you are the only user, explore this app to integrate with your QBO and utilize the starter plan for free.

http:// try.hbstf.co/32nwNr

 

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