Nobody likes filling out timesheets, but there are a number of reasons why you should adopt and maintain this discipline right from the beginning of your enterprise.

It's obvious that an accounting system is important, not only due to the financial reporting requirements of the business, but also as a management tool.  Just as you want to keep track of where your money is going, it is extremely important to keep track of where your time is going.

In a service business in which you bill your customers for your time, a timesheet system is critical, but even if you're not billing based on time, determining the ROI for projects and other activities is an important management tool. 

If your business involves manufacturing, timesheet data will ultimately be necessary for determining your cost of sales, and is invaluable when embarking on LEAN. 

If your business involves government contracting, you may be obligated to have a timesheet system in place, and some small-business funding mechanisms, such as the SBIR/STTR programs, require very robust timekeeping mechanisms.  To obtain such funding, your business may further have to determine overhead, fringe, and G&A rates, and you'll want to have a solid history of employee time in order to be able to make these calculations.

For enterprises that have an R&D component, the R&D tax credit can be very advantageous.  Consider the timesheet system to be the necessary accounting to back-up your R&D costs.

Even if your business hasn't grown to the level where the above considerations are important, and even if you're the only employee, it is highly advisable to start using a timesheet system because the "freewheeling culture" is very hard to change once it is established.  If you keep the timesheet discipline yourself, and make it an inherent part of the job for all of your employees right from the start, then you have much better odds of cooperation.  Imposing a timesheet system on employees (or yourself) is much harder once the culture is established.

The good news is that there are a ton of great timesheet tools out there.  We use an online product called "actiTIME" which bills us quarterly and provides integration with our accounting software, as well as a mobile app with some useful features. 

Regardless of what tool you use, establishing a time tracking culture right from the beginning of your business will save you headaches down the road, provide useful business information, and position your business to operate professionally and efficiently.

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Comment by Steve Drevik on February 12, 2016 at 5:39pm

Our need for timesheets is very elementary (just hours worked vs. vacation vs. sick leave), as we don't have billable hours.   Reviewed ActiTime, it seems it's QB integration is more suited towards the latter.    We are tracking the former in a timesheet on Dropbox  :(  

Comment by Leonard Knight on January 13, 2016 at 12:00pm

Agreed! Accurate time tracking is critical for most businesses. I've learned from experience you need to be able to track employee time accurately and efficiently for billing, compensation, and to keep the FLSA out of your business. We've been using an app called Toggl and everyone seems to love it. We will be checking out actiTIME also! Thanks!

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