Accounting

I really shouldn’t say “tools” when I mean “people”. I used to work full time for a guy that constantly and openly referred to his employees as “bodies”. That used to irritate the #$%^ out of me, we are people! This “body” found better people to work hard for. Allow me to rephrase: Matching the right person/skill-set to the task of a small business’s accounting function. As an Freelance Accountant for small businesses, I have seen many ways of getting the books done. Here are the major variations:

1.) Owner or owner’s spouse does the bookkeeping and payroll themselves, someone else does the taxes.

2.) Secretary/receptionist employee doubles as the bookkeeper/payroll person, CPA does the tax returns, also the payroll quarterlies.

3.) CPA keeps the books for the owner and does the payroll and the tax returns.

I’ve seen these basic scenarios, jumbled around a bit, but that’s about the way it usually is configured. Now let’s look at what is bad about these methods, because they are not efficient, not cost effective and none of these usual methods produce good results!

Generally, receptionists and owner’s spouses are not trained accountants and do not know how to handle accounting’s sometimes tricky aspects. I don’t want to hurt any one’s feelings but it’s true. Doing everything with a non-paid spouse or a $8/hr. employee is like trying to bring down an elephant armed only with a BB gun. One of my accounting professors used to remind us that if accounting were easy, everybody could do it! Typically, the books are a mess by the time the CPA gets them and require a lot of adjusting and fixing. By mess, I mean there are lots of errors that have to be corrected, accounts don’t balance or reconcile, and account balances are way off. This can be very expensive! CPA’s charge between $100-$200 per hour. Also, the owner never really knows month-to-month how he/she is REALLY doing and is forced to gauge things by cash in the bank or “gut instinct”. Not good, and I see this situation ALL THE TIME. The owner is forced to have the CPA to clean up the books at $100-$200 per hour, or live with inaccurate information throughout the year.

Sometimes the owner does their own books. That is the worst thing they can do! That is not the owner’s job! In these cases, the owner “owns” a job, not a business. Can’t they find better things to do with their time an an owner? The owner who does everything themselves is likely a bit paranoid, a control type who will never grow beyond a one-person show. It is usually based on not trusting anyone else, but what a waste of their valuable time! I often hear of owners sitting there at 11:00 PM working on their books! Sorry, that’s foolish, they are wasting their energy. Their duty is to build the business, not be a clerk.

Sometimes the CPA handles everything or just the “heavy lifting” work, usually for a monthly flat fee of like $250-$500. That is like killing a fruit fly in your house with a sledge hammer! CPA’s are good, but also expensive, and they don’t like getting a mess handed to them.

The least expensive and best results are obtained for small business by having an employee as a clerk/receptionist type person who does strictly routine data entry; creating invoices, receipting in payments, entering bills and preparing checks only. Payroll should be outsourced to a payroll service. Why? Add up the costs of doing it yourself sometime- tax tables, software upgrades, checks, envelopes, the time it takes, IRS penalties, etc, you’ll see. Then have a freelance degreed accountant (not a CPA) work once a month to reconcile bank statements, balance the books, fix errors, make month-end adjusting entries, sit down and go over the monthly financial statements with the owner and explain everything going on in the business. Their rate is usually $25-$60 per hour, depending on experience and education. Another set of eyes looking at the financials, every month, making recommendations on saving money, is invaluable. Then at year-end, the CPA gets the year-end financials from the freelance accountant, reviews the books, gets any other info needed to do the taxes, books depreciation, and make a few closing entries. The most expensive person’s work (the CPA), is minimized. And yes, a CPA should do the taxes, their job is to keep up on all the constantly changing laws, no one else can do that as well.

A warning; NEVER allow the bookkeeper to sign checks, that IS the owner’s job! Also, when you get the checks to sign to pay bills, get the bills as well, so you can look at them and see who you are paying, and question ones that are unknown. Also, insist that bank statements come to you unopened, open them yourself and look through the cancelled checks for ones YOU did not sign. Don’t assume the bank is going to check this, they don’t anymore. Other things you can do yourself; make the bank deposits and you should be watching accounts receivables. In other words, you should be double-checking the clerk, not BEING the clerk.

The most expensive help is minimized without compromising quality, and the least expensive help is maximized without chewing up time and wasting money on getting errors fixed. The freelance accountant is watching over the clerk, the CPA is watching over them both. Fraud is a lot less likely in this arrangement. The CPA does what they do best- tax returns, with a minimum of adjusting first. Finally, the owner gets timely and accurate financials each month, which is the most important goal!

For more FREE information about small business budgeting, cash flow forecasting, and how to start looking forward in your business, visit http://www.10minpay.com/cf

Bruce P. Van Cleve owns 10 Minute Payroll, Inc, a business devoted to helping small businesses become efficient in their accounting and office systems to save money and minimize the “back office” work of a business.

Traditional bookkeeping can only tell you about the past. We can’t change the past. The only thing you can control is the future by the decisions you make in the present. Making good, informed decisions requires being armed with good information. This is neither hard to do nor is it expensive, you just need to get a plan and update it once a month. Supplement your accounting with a forward looking plan for profit.

Call Bruce Van Cleve at (814) 431-4212, email me at tenminpay@me.com or visit our website at http://www.10minpay.com/cf