What happens when clients don’t pay

I love clients. That is, clients who pay their bills. Admittedly, I once accidentally sent an invoice, even before the project started. Of course the client didn’t pay. I like to call this an exception. If the invoice is justified, then the client must pay. The full amount, on time.

In my years as an entrepreneur, I luckily had few clients who didn’t pay. Two times a client went bankrupt. I lost a few hundred euros. They lost their business, their house and everything they own. I feel sorry for them, and wish them well.

Grimmer, I will never forget a client who ordered a project, fully aware of the costs. And upon delivery, he simply did not pay. There were months of battle. We even went to court. But by then, his business was bankrupt. And so were we, almost. He started a new business as if nothing happened. It made me angry and sad, to have worked hard and with passion for him. In hindsight, he was nothing more than a thief. Not paying bills is a disgusting practice.

I have clients who do pay their bills, but always late. To me, this behavior is plain weird. I offer software as a service, on a subscription model, billed every single month. What reason could there be to stretch the 14 days payment term? Are you that strapped on cash? And if you’re doing that bad… you’re at the wrong address. I develop software, I am not a bank.

I have a client who actually negotiated a longer payment term. And he pays. Always. The full amount, on time. I love him. I like to emphasize negotiated. He asked for a longer payment term. He didn’t just take. Taking without asking is stealing, or at best, impolite.

When clients don’t pay, they need to be chased. I don’t like that. In the past I used to make phone calls and ask clients when they would pay. When it comes to excuses, companies can be as inventive as the average sixteen year old. Calls always end with some false promise. So I stopped calling. It’s not helpful, and it drains my energy.

Luckily, with a subscription model, there is a solution. For example, when I don’t pay my phone bill, the phone company disconnects me. I think that’s fair. So, I do the same. I disconnect clients who don’t pay their bill. In this way, they cannot use my software until they start paying again. I find it awful to disconnect clients, but at least the pain is shared.

Now, I have one client who doesn’t mind being disconnected. They don’t use the software, they don’t pay for it, and that’s exactly what they want. This seems clever, but to me, life doesn’t work that way. The monthly subscription fee is based on an agreed contract period. And that contract period must be served.

I feel that giving a client financial slack (e.g. letting them out of a contract or allowing longer payment terms) would be unfair. As self-serving as it may sound, this feeling of fairness is exactly the reason why I will not simply cancel a contract, and will to go to court. Especially when I see that other clients do make a effort to play by the agreed rules.


Why I quote fixed-price

When I propose a project to a client, I like to quote fixed-price. Whether it is for implementation services, or for software development.

There are exceptions of course. last week, I did some work that I billed by the hour. It was completely unsure how long I would need to complete the project. I promised the client to work with her for a day, and then we would see how far we got. Billing by the hour was the only way to go.

There are benefits to billing by the hour. There is no risk for me, since all hours are paid. And there is more flexibility for the client. From a sales point of view, It is also easier to ‘milk’ the client. Which is a tactic consultants use liberally. Luckily, I am not a consultant.

When a client asks me to do some work, it’s up to me to make an estimation. Rarely does a client have any idea how long a project will take. After doing the work I do for years, I at least had some practice estimating projects. Being the more experienced party, I feel responsible for making estimations, and setting predictions.

Apart from the soft touchy-feely moral reasons, I have a few practical reasons for quoting fixed-price. First of all, the client doesn’t care about hours, he wants his problem solved. And as long as the problem gets solved, the client is happy. This gives me the freedom to execute the task as I see fit. This is especially important when clients ask me to create enhancements to my software. This freedom, allows me to make additional product changes in the project’s slipstream, or implement the requirements in such a way that I can build on it later. This costs me more time, but the client doesn’t care.

When quoting fixed-price, I also set a fixed delivery date. This gives me complete freedom to work when I want, where I want. The client couldn’t care less if I work during the day or at night. From my office, my house, or a mountain cabin in Switzerland (yes, this happened).

Obviously, when the quote is fixed-price, the specifications should also be fixed. There are three pitfalls with fixed specifications. First it is hard to be strict, but you must. Whenever the client wants to change the specifications, tell him it is not possible, or will costs more. This is hard to do, but an absolute necessity. Doing this serves your benefit, the relationship, and thus the client herself.

The second pitfall is the client’s (professional) maturity. When quoting fixed-price the risk is with me. Which is fine if I have a reasonable control over all the variables. The client is a big variable that I have very little control over. So it is best to eliminate the client by not having to rely on him. If the client has to give input, then facilitate for this in the quote. By raising the amount, that is.

The final pitfall can be easily circumvented. I have rarely seen a fixed-price quote work out well for large projects. Quoting fixed-price only works for a maximum of four days work. If the project is larger, quoting fixed-price is akin to Russian roulette. The solution is simple: break up the project in smaller chunks.

I am very happy with fixed-price quotes (as are my clients). Luckily for me the conditions are right. I have been doing this work for a while. Compared to the client I am the expert. I am fairly good at estimating. And the projects are always small.

Why I climb mountains

My hobby is mountaineering. In my spare time, I climb mountains.

The classic answer to why people climb mountains is a quote from the famous mountaineer George Mallory: “because they are there.”

I don’t climb mountains just because they are there. To me mountaineering gives a sense of accomplishment and mountaineering is fun.

Not everyone understands my hobby. Some only see suffering. And these skeptics are partially right. Suffering is an essential component of mountaineering.

To me, the challenge in mountaineering is to strike a balance between fun and suffering. Fun should outweigh suffering, and suffering should be temporary.

Like anyone, I don’t want to get injured, permanently disabled or killed. That is more suffering than fun. So much that suffering turns into harm.

Luckily our bodies and minds have evolved to protect us from harm. It lets us experience fear. Fear is a clever evolutionarily trick to keep us safe and alive.

Not all fear is justified. The main challenge in mountaineering is assessing whether the experienced fear is rational or not.

Irrational fear makes life boring. Or worse, it paradoxically instigates panic, which is downright dangerous.

Rational fear is helpful. It prompts us to lower risks or take precautions in case things go wrong. For example, by being extra careful, or adjusting our plans.

Distinguishing between rational and irrational fears is a skill that requires practice, but when mastered it is a life skill that transcends mountaineering.

I find that mountaineering makes life more fun in general. Whether it is in the mountains, in my private life or in business. That’s why I climb mountains.

I think Edmund Hillary, another famous mountaineer, was spot on when he said: “It is not the mountain we conquer, but ourselves.”

Do you dare to join me?

The six hurdles to having fun while running

Running is great. But! It took me three years from zero to running half marathons. These were my hurdles and how I overcame them.


Running hurts. No surprise here. When running, your legs endure more pressure than they are used to. Knees hurt, ankles hurt, pelvis hurt. Pain galore. One option is to give up, and conclude running is not for you. The good news is, that this pain is temporary. I’m not advocating to push through. Listen to your body, run less, walk more, run slower.

Everyone can run a few kilometers. You can even run a few times a week. The problem is, that your body can’t handle this stress a for weeks in a row. During running your body breaks down, and without enough time to recuperate, there comes a moment when your body has had enough. Without warning, all of a sudden something snaps, and you’re injured. Running is for the patient people. That’s probably why it took me a long time to get into it.

How I did it: I joined a running club. They had an excellent group for newbies like me. With proper warm-up & cool-down, training schedules, a fun trainer and to top it off: a masseuse.


My first run was an embarrassing 1.5 kilometer. Half way, I walked twice. Not good, not fun. Especially in comparison to a friend of mine who ran 5 kilometers out of the blue. I was not a couch potato. I would even say I was sporty.

People who play soccer, or other running related sports have an advantage. I played recreational volleyball with some 50 year olds, and went to the climbing gym twice a week. Getting to 5 kilometer took me three whole months. I am actually fine with that. Not being able to run far is ok. Running is an endurance sport. You need to build up endurance slowly. If you have never played chess before, you will lose every game too. Same principle.

How I did it: I got a copy of Evy’s Start to Run (similar to C25K). This running program has audio motivation and music at the right pace. I printed the training schedule and taped it to the refrigerator door.


There is a lot of debate about shoes. Some even promote run bare foot. Although the consensus is, that bare-foot-running is only for the more experienced runners. And even they need to start over again: taking it slow, like a beginner.

So many people, so many feet, so many running styles. The right shoes supports you the right way. And this can only be tested by actually running. Not in the store. If you buy one pair a year, it is virtually impossible to buy the right shoes without expert advice. The difference between the right and the sort-of right shoe can be the difference between pain and no pain. Trust the experts and keep in mind that the experts know everything about the average feet, but nothing about your particular feet.

How I did it: I always go to a proper running store with experts and have my running analyzed on video. I had my feet measured, and got a special inner sole. Since then, I run injury free.


Once you get to that magical 5 kilometers, it’s time to go further and faster. This however takes practice. And a boat load of it. Some people only run one 10 kilometer per week. Others need more practice, like two or three runs a week. Certainly when getting to 10k, or going for 15k. Running consumes a lot of time. Three to five hours a week, easily. Apart from that, running for 1,5 hours can be really boring.

Running needs to fit your schedule. For parents with young children, or worker bees with demanding jobs, training can be hard to fit in. The great thing however is, that running is very flexible. You only need yourself, your running shoes, and a shower afterwards. If you want, you can make it work!

How I did it: I use RunKeeper to track my runs. I compare them with previous runs, and get motivated by my friends. Fortunately my girlfriend is a runner too, so in the weekend we do the long runs together.


I have friends who run more than an hour on merely a cup of coffee. I can’t. When running long distances I meet the man with the hammer. And he hits me hard. I get cranky, want to stop running, go home, and eat hamburgers for the remainder of the day. For proof, ask my girlfriend. While running, the body consumes energy. So you need to stock up before the run. And replenish: after, but also during. The effects of adding energy while running can be dramatic.

Eating something fat before running can also be dramatic. Shoot me an email if you wish to hear some gore stories. To cut a long story short: no fat right before of after a run. They giving you pain in the side of your body.

How I did it: I am experimenting a lot with food: pre, during and post. During long runs, I bring supplements from a brand called SIS. I plan long runs along water taps.


In my grandfather’s days, running was easy. You just ran. Perhaps you looked at the church clock to check your time, but that’s it. Nowadays, that’s hopelessly detached from our digital life. We ‘need’ to bring a phone, headset, water belts, supplements, heart rate monitor, watch, reflective clothing, and what more. All this gear is not necessary of course. And as a matter of fact, it gets in your way.

That being said, it is great fun to track your run on a GPS, and add the measurements of a heart rate monitor to RunKeeper. The reflective shirt is a must when running in the dark. And here we go. We turned our run into a happening.

How I did it: I got a good tight fitting pair of running pants (long and short), with pockets to hold my phone and supplements, and a reflective t-shirt to wear over my running sweater. I don’t wear a vest.

Work when I am most productive

This blog post is also posted on lisettesutherland.com as a guest post. Lisette specializes in work-life fusion.

Some days I am super productive. I can work for 12 hours straight, whilst keeping quality and spirit up. Yes, I will be dog tired, but I consider these days to be good days.

Today is not a good day. Today I can’t get anything done. I’m looking at my computer and all I see is a blur of characters, lines and rectangles. Apart from efficiency, I know the quality of my work will suck. Today, I give up.

Some days are more productive than others. In the past, when I worked 9 to 5, I pushed through. Those were my productive hours. Dictated and enforced by the organization that I was part of. Today, I accept that not all days are good days. Productivity can only be summoned to a certain degree.

There are 168 hours in a week, and I choose to work 45 of them. I could work 9 to 6, and hope that these will be my most productive moments. I think this approach is dogmatic and just not good enough. My drive and passion forbids me to work when I cannot be efficient and effective.

As a business owner, nobody cares when I work. I am paid for the value I produce, not the hours I put in. I know I am most productive in the morning and the evening, on Mondays and on Sundays. These are the hours I should work, and maximize flexibility during the remainder of the week.

I realize that I am in a fortunate position. I have the opportunity to design my work around my lifestyle and peak productive moments. I like it. It’s liberating and recommended.

Epilog: after writing this, I went for a reinvigorating bike ride. A change of scenery worked wonders. Today became a good day.

Selling software products for “free”

Every software product needs a sales price: the amount of money the customer pays for its use. Which price is right obviously depends on the product and the market. Customers are willing to pay good money for decent products and services. Good products can therefore be ridiculously expensive. But maybe “free of charge” is the right price for your product in your market.

Having a sales price of zero is admittedly weird. But offering your product for free, removes a great hurdle for prospective customer. Zero takes the costs out of the equation. Making your product free to use, is the single best way to grow your customer base. Free may even be the best sales price you could have.

There are three reason why software companies offer their products free of charge: land grabs, multi sided business model and freemium.

Companies undertake a land grab when there is a significant benefit to being the largest vendor in the market. Time to market is priority number one. Twitter is a good example. Twitter rather raises money from shareholders than charging customers. By making the Twitter service free and showing only a limited number of ads, they remove friction for the users, and grow their user base fast. Charging users would inhibit growth of the network, thus lowering the net worth of the company. Companies that attempt a land grab assume that once they have won the land grab, they will somehow find a way to monetize their accumulated user base.

Google is an example of the multisided business model. The company does not charge users for the use of their products. Google’s argumentation is the same as Twitter’s. Asking money for every search would quickly lead users to alternative search engines (maybe even to Microsoft’s Bing). Instead, Google makes money from third parties who sell services and products to the primary users. They do this through sponsored search results. Facebook, another typical example, bluntly sells the customer data at its back door. In the multisided business model the user is not the customer, it’s the product being sold.

Lastly freemium is a popular model, with LinkedIn as a famous example. Anyone can join the professional networking site for free. For heavy users, LinkedIn offers a paid premium version. Hence the name: free + premium = freemium. The freemium model operates on the assumption that a portion of the users will upgrade to a paid version. This is also the model’s pitfall: failing to get users to upgrade. Getting the model right is tricky. On the one hand you want to offer useful features for free, while still having even more useful features available that users will pay for.

In a B2B market, free may not be the right price at all. Land grabs are not common, and companies obviously hate it when you sell their information. The freemium model is most suitable. Perhaps selling a small product for an extremely low price, while promoting your more profitable flagship product may work very well for you.

Software is dead, long live software

The software industry is a dynamic industry. Even the definition of software is dynamic. The software that we know today is different from the software of 15 years ago. In the past years a number of events happened that have changed the industry, like the definitive fall of Windows PC software, open source software, and the cloud. It is my opinion that these events have lead us, software developers, to the start of a very prosperous time.

Software on the Windows PC is dead

At the start of my programming career in 1997, I developed software that runs on a desktop PC. Needless to say that Microsoft dominated that market, and as such I quickly became part of the Microsoft eco system. My alignment with Microsoft did not last long. Towards the end of the millennium, everyone who could, moved to the internet, as fast as their legs could carry them. Java was the coolest kid on the block, and almost unavoidably I got sucked into the slipstream as well. The dot-com bubble ended the internet party too soon. But one prediction was clear: Windows PC software would become a thing of the past. There was only one problem. No one had a viable alternative to Windows, yet.

Unbelievably, it would take another seven years before the Windows PC got it’s final blow. In 2007, Apple introduced the iPhone. Soon after, different companies jumped in and created smart phones and tablet in all forms and sizes. Being fed up with Microsoft Windows, these companies developed their own operating systems, most notably iOS and Android. The new operating systems on tablets and smart phones clearly mark the end of the Windows PC monopoly.

Microsoft’s stubborn belief in the PC is illustrated by Microsoft CEO Steve Ballmer who could not refrain from making snarly remarks on the now wildly popular iPhone. Microsoft maybe arrogant, and slow, but I would never call them stupid. They too realize that the days of the Windows PC are over.

Nowadays even Microsoft, the archetype software company, is moving away from software to products and services. The Windows PC may never die, but Microsoft’s move is a clear statement. Locally installed software, the kind that I started with, the kind that traditionally comes to mind when thinking of ‘software’, is dead.

Open source hype has halted

After the dot-com bubble I skeptically witnessed the rise of open source software. This is software created by developers who, upon completion, freely share the software’s source code. By doing so they reduce the monetary value of the software to zero. As a result, open source business models completely rely on the sales of complementary services, like installation and support.

Open source software was hyped and demanded until (roughly) 2009, when the popularity rather abruptly halted. Again, it was the smart phone that changed the landscape.

Apple’s introduction of the iPhone and the AppStore was revolutionary. People camped in front of Apple’s store for days, literally. As amazing as these product are, there is one caveat. The iPhone and AppStore exist in an extremely closed eco system, but no one cared. Open source was no longer everyone’s darling, apps were the next big thing.

Apart from a decline in demand for open source software, the economic recession did not help the open source movement. In less prosperous times, developers seem less altruistic and less willing to spend time for free. It is also hard to find enthusiastic programmers to develop software for a particular niche market. Open source is great for developing platforms or libraries that other developers can use, but fails to deliver specific value to end users.

Open source software will always remain relevant, but the hype is over.

Long live software in the cloud

The future of software is neither the Windows PC nor open source. As concluded during the dot-com bubble, the future of software is in the internet. SalesForce was one of the first software companies that successfully offered their product exclusively via the internet, in the cloud. Their slogan ‘No software’ summarizes the proposition brilliantly. No installation, no updates, no management and no worries. This new era in software is extremely good news for software vendors.

Software is delivered in a web browser and via apps on multiple devices. Vendors are no longer locked into a certain eco system, like I started with Windows in the 90’s. Even better, with the decline of Windows, the file system has disappeared. This means that the user’s data is stored (and sometimes even owned) by the vendor. Software vendors are in an excellent position to bind users to their eco systems. As a side note: the irony of this particular vendor lock in is absolutely not lost on me.

The role of open source software has also changed. Software vendors, who create software for a particular niche, have no incentive to make their software open source. Open source is no longer a threat, but actually useful. Underlying platforms are all open source, meaning free to use however anyone wants without any costs.

Last but not least, vendors finally have a way to immediately stops software piracy. They can tightly regulate who can and cannot use their software. This allows for a fair and steady stream of subscription revenue.

Users as well as businesses don’t mind, they love it.

What every entrepreneur should know about bookkeeping

Let me kick off this article by stating its conclusion: Bookkeeping is simply so important, that it must be done right. And doing the books a little wrong is still that: wrong. If you don’t know enough about bookkeeping, leave it to someone who does.

Basically bookkeeping is important for two reasons. Reason one is the taxman, banks, investors and the like. In short: other people. They want to know how you are doing by using objective quantifiable data. The second reason is you, as an entrepreneur. In Good to Great, author Jim Collins states that to survive, a business owner must confront the brutal facts. Good bookkeeping gives you exactly that: brutal facts. Entrepreneurship can be a costly hobby. It is really easy to make mistakes, and lose, instead of make, money. By knowing reality, you can make an informed decision where to take your business next.

Bookkeeping is a well-documented ancient discipline. And to no surprise, there is plenty of software that can help you. The problem is that vendors advertise their software as ‘easy to use’, so ‘you can do it yourself’. It is true that conceptually, bookkeeping is not that hard. It consist of two parts: first you record financial facts and then you create various financial reports. Don’t be fooled, the devil is in the details.

In a business, a lot of financial facts happen: stuff is purchased and sold, invoices are received and sent, wages and taxes are paid, loans are received and paid off. And in the end, you, as a business owner, take money out of the business to feed yourself (and your family). These are all examples of financial facts that need to be recorded meticulously. Recording financial facts is not something you want to do in a hurry, or when you are stressed. If there are not enough hours in the week, then you will not find the time to properly sit down and do what needs to be done diligently.

The financial facts form the basis for your reports. The most famous one is the Balance sheet, followed closely by the Profit and Loss Statement. The point of this article is not to explain what these are. I leave that to Wikipedia, or better: a formal training course. If these terms appear foreign to you, then this is a good indication that you should not do your own bookkeeping. Even if you know what they are, but have a hard time understanding them, then do yourself a favor and leave the books to someone who does. Reports can only produce accurate data if the financial facts are recorded correctly. And trust me, most bookkeeping software makes it is extremely easy to do it wrong. Especially if bookkeeping is not your strong point.

As a business owner it is hard to delegate work. But think about it. The financial facts are the foundation of your company, and reports allow you to confront your brutal facts. They are simply too important to screw up. Hence, the one thing that every entrepreneur must know about bookkeeping: if bookkeeping is not your forte: don’t hesitate and hand it over!

Involved, Engaged, Enchanted

I am the owner of a small software business. And as any small business owner I have three priorities. My first priority is money. The second is money. And finally, there is money. Invoices need to be paid, salaries have to be transferred and the world needs to go round. Money, money, money is my mantra. This article is about getting money, but first I have to introduce my girlfriend, Lisette Sutherland, and her business. She works on some interesting stuff that puts the money worries in a very nice perspective.

Lisette works mostly with charities, nonprofits and NGOs. In other words: organizations that rely heavily on volunteers. To facilitate the great work that these volunteers do, organizations deploy private Facebook-like software where volunteers can meet, manage projects and work together. The big question when deploying these communities is always: How do we create a place where great things can happen? After working on this challenge for many years, Lisette has become somewhat of an authority on the subject. And for this article I am building on one of her ideas. Read her blog here.

During her research Lisette concluded that community members go through three distinct stages. In the first stage people sign up and browse around. In the second stage people start posting updates, upload documents and generally really use the software. The third stage is the most interesting one. This is the stage where people love the software so much that they evangelize and encourage others to sign up as well. These three stages are coined: Involved, Engaged, Enchanted. Written in capitals to signify their importance.

Although the idea of ‘Involved, Engaged, Enchanted’ initially transpired from working with online communities, we wondered if it could be applied broader. Could we map the stages to other types of software implementations? Or (even bolder) to any type of business? We conclude that this is indeed possible, and more importantly that ‘Involved, Engaged, Enchanted’ feeds directly into the company’s sales process. The small business owner in me got excited!

As a software company, our business model is simple: develop software, sell it and send a monthly invoice. This may sound like easy money, but let me assure you: we experience spectacular, as well as point-blank depressing weeks. Our reality is as harsh as any business. And, as in any business, our clients are situated in varying states of happiness. Our client’s delight ranges from absolutely exhilarated to ‘not even using the software (yet).’ This latter state that is downright dangerous. We, as well as organizations deploying an online community, face the same questions: How do we motivate people to start using our software? How do we help people get up-and-running? How do we excite people so much that they tell others? Or: How do we get people Involved, Engaged, Enchanted?

We use the following definitions for ‘Involved, Engaged, Enchanted’. Organizations are involved when they commit to the software, that is when they sign up for a subscription. Engaged means the customer is happily using our software and OK with paying our invoices. Note that I don’t assume that customers are paying happily. That would be silly. Paying bills makes no one happy. The point is, that there are no objections to prolonging subscriptions. Enchantment is more fuzzy, but crucial to any business. For a conclusive definition I turned to Guy Kawasaki, who wrote a whole book on the topic. He states that enchantment leads to a ‘voluntary and long-lasting support that is mutually beneficial.’ Fuzzy stuff indeed. For now I am OK with not over analyzing love.

I like the way the concept concisely expresses the three challenges that a company faces: How to sell? How to deliver? How to sell again? I particularly like the strong customer focus. It helps define the customer journey, and where customers stagnate on their journey. To me the concept presents a treasure trove of questions and opportunities. Ultimately ‘Involved, Engaged, Enchanted’ guides to better relationships with customers and therefore help grow new business.

Analyzing how time is spent in the company

Most, if not all, companies track the hours that employees work. The principal reason for this, is to calculate wages. Worked hours translate to a pay slip. The second obvious reason lies on the other end of the financial process: invoicing. A worked hour converts to an invoiced hour which generates income. Further, most companies register project related hours, to see if costs are on par with budgets. In this article I dive into reason number four: business analysis. With the turn of the new year, this is a good moment to reflect on your business. And if you registered all worked hours, you are sitting on a dataset which will provide some nice insights into last year’s busy activities.

The analysis of worked hours has two main purposes. The first purpose is to gain understanding of how time is spent, and to see if the proportion of time spent can or should be changed. The second purpose is to answer the question of how to divide work amongst staff, and if it is feasible to hire new personnel, especially specialists. But let’s lay some ground work first.

Most importantly, it is good to look at which hours should be recorded. I propose registering all business related hours. And I mean this in a liberal way. Literally: register all the hours that affect business. Some examples to illustrate. Did you contemplate a new product idea on a raining Sunday afternoon? Register the hours! Travelling to a client? Register the hours! Went on vacation? Register the hours. Been sick? Register the hours! Went to a networking event? Register the hours.

Although the ‘registering all hours’ rule seems simple, the devil is in the detail. There are three exceptions that need some discussion: commuting, learning and partying. Let’s say a normal commute from home to work takes thirty minutes. No business regards these hours as work time, and nor do I. But consider a sales person who leaves home in the morning to visit a client. Where (and when) does his work day start? Does it start when he leaves home, or when he arrives at his client? This is not at all clear cut. And it gets worse. The same problem presents itself learning and partying. When taking a course with formal classes, would that be a business or private matter? It depends. Does the business insist on the course, or is the person expected to keep learning as part of his career? How about reading a book? Or reading this article while sitting in the smallest room in the house. That’s a good way to work while minding your own business. The same argument can be made for partying, as in: social events, networking events and formal business dinners. I have been to a few too many of these, and I know from experience that the entertainment and business value go hand in hand.

The arguments for tracking hours for commuting, learning and partying has two sides. The main argument in favor of tracking is for the sake of statistics and analysis. If you want to analyze data, it needs to be there, so all hours must be registered. It is good practice to split time, and consider one portion as private and track the other as work. The portion size should be representative, so that the statistics are meaningful. On the other hand, the argument against tracking these hours is compelling. They essentially come down to employee benefits. Regarding time as work leads naturally to the expectation that those hours will also be paid. Wages will go up and that is not be the intention of the employer. Especially when the ‘registering all hours’ rule is applied literally and lavishly. When making decisions about the split between private and work it is good to balance the arguments of the analyst and the employer.

Finally a remark for business owners: you should also track all your worked hours. All of them. Consider yourself, at least in this regard, as a normal worker. The reason for doing so is most eminent when valuating the company. The questions here will be: what happens when the owner disappears? Who takes over the role? And how many hours do they put in? Or to put it bluntly, the business owner is not a mythical person who stands outside the organization. The hours they put in the business matter as much as the hours that regular employees put in. It is paramount to not treat owner-hours in any special way.

At this point we are tracking as many hours as possible so we know how much time is spent on work. That means, that we can calculate the revenue and profit per hour and a few more things. But in all honesty, the total number of hours on its own is rather useless. It gets interesting when we not only know how much total time is spent, but also when we know how we spent it. We need to divide hours into categories.

The first useful and pretty obvious category is sick leave: hours spent at home due to health issues. We calculate this against the total of all business hours. That last addition is crucial since we do not seek absolute, but relative numbers: percentages. And let’s complete the quest for preciseness: we want to compare. Comparisons can be: previous periods (“Sick leave has gone up!”), other companies (“We are doing better than others!”) or targets (“We are doing as expected.”). Making comparisons is not always possible. Maybe you just started tracking so no previous periods are available, maybe data from peers is not available or too expensive, or maybe you just have no idea what a realistic target could be. In that case, keep tracking until you accumulated historic data. Practice patience.

In total there are four semi-private categories: short-term sick leave, long-term sick leave, vacation days and special days off. Notice that I split sick leave in the categories short-term and long-term. The reason for doing this is two-fold. First, short-term sick leave is typically a precursor to long-term sick leave. Secondly, solving short and long-term sick leave requires a different approach. The cutoff point is typically two weeks. Absence also comes in two varieties. Both are pretty much beyond the control of the employer. The reason for tracking them separately is to keep count of the vacation days, which have a yearly fixed limit.

All further hours are categorized by their activity. Examples include: Administration, Sales, Manufacturing and Support. The breakdown of categories really depends on the business. But whatever your categories are, you will inevitably make a subdivision between activities in the primary processes and activities in the secondary or supporting processes.

Your breakdown of categories may therefore look like the following:

  • Semi-private hours
    • Sick leave
      • Short-term
      • Long-term
    • Vacation leave
      • Normal
      • Special
  • Work hours
    • Primary
      • Sales & Marketing
      • Manufacturing
      • Distribution
      • Support
    • Supporting
      • General Management
      • Finance & Administration

We have now come to a crucial point. A point that is admittedly hard to spot at first sight, and relates to those deviously hard to register hours: commuting, learning and partying. One may wonder if they deserve their own categories. The answer is a clear and decisive ‘No’. They are registered under the categories that they contribute to. Commuting to a client to fix a machine: Support. Learning about the new tax laws coming into effect: Finance & Administration. Visiting a networking event: Sales. It’s as simple as that. Notice also that the categories have no relation to individual projects. As said, that is useful for mapping reality to budgets, but is not needed for the sake of analysis.

When analyzing business hours the first big questions we want to answer is: what is it that we spent time on? With the category breakdown in mind, it is interesting to see what kind of ratios we can calculate. This is useful for challenging the status quo: we spend 25% of our time on Finance & Administration. Can this be less? Spending a quarter of the time on finances may seem way too much, but if the business at hand is banking, it may not even be enough. Perhaps more time should be spent in Manufacturing, to prevent time spent on Support? The verdict depends highly on the context. Further examples include:

  • Sick leave compared to all work hours
  • Hours spent in the supporting processes compared to the primary processes
  • Sales hours compared to primary
  • General Management compared to work hours

For small businesses or teams within larger organizations it is crucial to understand what work is actually done, and what expertise is required. The main task here is to determine whether there is enough work to hire extra people for a given activity (e.g. hiring a new sales person), or if it is possible to redistribute work amongst the current staff. Could we hire a full time sales person, instead of spreading sales related tasks between multiple team members? If we hire a sales person, do we have enough work for them?

Which questions are important and how to interpret the statistics depends really on your business. It is not always clear what you will learn when tracking and analyzing worked hours. In that way, diving into the data is a bit of an adventure and exploration to see what insights you may get. In conclusion, it is therefore good to recognize that it may be hard to motivate team members to be diligent. And let’s be realistic, no one likes entering time sheets. I advise to leverage any existing time registration practices that you currently have. As said at the start of this article, most businesses already have time tracking systems in place. If it is not for generating pay slips, it will be for invoicing or budgeting projects. Leverage these efforts and use this data as a starting point for analysis.