three doors

Accounting Technological Changes: Fear, Abuse, or Embrace?

At my first job (as an accounting intern for a midsized corporation), we ran reports in Excel and did manual daily bank reconciliations. When I got to college, my accounting practice sets were on paper ledgers; it was a thrill to go to my part-time job in a CPA’s office where the original version of QuickBooks Pro was available for me to use. 5 years ago, when I left my job as a Budget Officer with the North Carolina state government, we were finally upgrading our accounting software out of DOS.

Needless to say, I love and appreciate all of the new accounting technologies available today.
However, as the industry changes, so must those of us within it change and improve, or risk being left behind. Firms tend to fall into one of three categories when facing these changes.

Those who fear change.

retro computerSadly, I have found that roughly half of the CPAs and tax preparers with whom I interact are highly resistant to new technologies, with the majority of them refusing to use cloud-based accounting software in any sense. I am frequently told, “I learned on desktop, and that’s what I’m comfortable with.” Having a preference and continuing to use desktop is fine, of course; many businesses are still on desktop accounting solutions, and it is still the best option for many businesses. But by refusing to work with other software packages, these professionals are either a) closing themselves off from a large portion of the market or b) forcing their clients into a solution which might not work best for them.

Cloud-based accounting allows multiple professionals (tax preparer, bookkeeper, and client) to work in the same set of books simultaneously, without the need to transfer a file back-and-forth. It also allows the client to perform some of the lower-level accounting tasks that might be more efficient for them to do (i.e., invoicing), without the need to outsource it and pay more unnecessarily. By refusing to adapt, either due to fear or stubbornness, the accounting professional is doing their client a disservice, and costing them more money. Over time, they will also cost themselves business, as more and more clients move to newer softwares.

Those who abuse change.

on phone while drinking coffeeAccounting programs have come a long way, but there is still a real need for a high level of professional oversight. Sadly, there has been a push in the accounting world towards “100% automation” and “a business which runs itself”. While the work certainly has gotten easier (or at least, less manual), trusting the machines to do everything, without your involvement, is still a recipe for disaster.

Take, for example, the integrated bankfeed in QuickBooks Online. This is a very nifty feature that allows bank accounts and credit cards to feed directly into the accounting software and be added from there, greatly speeding things up from the manual entry of days past, and helping to ensure that transactions are not missed. It also has some additional interesting functions, such as machine-learning that allows the software to recognize bank descriptions and default transactions to how they were last entered, and a “rules” feature that allows a user to program certain descriptions to default to certain transactions.

90% of the time it works very well, which is what makes the 10% of the time it doesn’t work so disastrous.

For example, the feature that recognizes and assigns transactions based on the bank’s description of the transaction is a nightmare when it comes to assigning checks. Let’s say you write a check to a subcontractor, and assign it correctly in QuickBooks. The next time a check comes through the bankfeed, it will automatically default to that subcontractor. If the person assigning it is not paying attention, multiple checks can be assigned to one individual or business, throwing off the financials, future 1099s, etc.

Bankfeed rules can cause similar problems, as there is an option to create rules which add transactions to the ledger automatically, bypassing human review. We never use this option at The Bookkeeper, but we have seen companies do so. Again, this can be disastrous on those rare occasions where the computer algorithm makes a mistake.

New technologies can only be trusted to work up to a point; overreliance on them is inexcusable when it results in results in inaccuracies in the financials.

Those who embrace change.

smiling while on computerOne of the things that makes me very proud of our company is how we have integrated new technologies in ways that better serve our clients, without using them as a substitute for genuine human oversight and customer interaction.

Things like cloud accounting, app integrations, bankfeed rules, and the like have allowed us to serve a greater number of clients more efficiently. It’s also allowed us to work with clients who might not have yet been able to afford a fully outsourced solution, by training them on some of the tasks which have been made easier by improvements in software.

However, we have no fear of being replaced by technology. In fact, new technologies have freed us up from manual tasks so we can focus on the part of the work we really love; working directly with clients on analyzing their financials, examining the market, making plans for improvement, and educating business owners on best courses of action for their companies.

And even as computers get better at aggregating and analyzing data from various sources, they will never be able to replace a human connection. A machine may recognize that retail rent prices are better a zip code over, but we can understand that a client wants their storefront in walking distance of their child’s school. Or, it might make more sense, by the numbers, for a business to adjust hours seasonally, to save money in the slow periods. But a person can recognize when an owner wants to keep his employees at full-time wages, even if it means a little less money in their own pocket. And the more that computers can handle the data entry, or “number-crunching” aspects of our job, the more we can focus on solving these more complicated, human problems.

Technological changes are unavoidable. But from where we sit, that’s not a bad thing.


You Better Reconcile

When we meet with new clients, one of the first things we like to determine is how recently their books have been reconciled to the bank accounts. Sometimes, (rarely), the books have been reconciled to the prior month. Sometimes it's been a few months, or a few years. Sometimes a bank reconciliation has never been performed, and the client's not really even sure what that means.

Since "knowing is half the battle", I'm going to explain what a reconciliation is, the basics of how it's performed, and why it's important.

What's a monthly bank reconciliation?


To clarify, there are many types of reconciliations, for bank accounts, credit cards, petty cash, inventory, sub-ledgers, etc. For this article, we're referring to bank reconciliations. A bank reconciliation is like balancing your checkbook, for your business. Most accounting software programs now come with a reconciliation tool (instead of the spreadsheets we used in the days of yore). Since it is the most popular accounting software in small business, I'll be referencing the QuickBooks reconciliation tool.

 

How is a reconciliation performed?


First, you need to see when the account was most recently reconciled, and then obtain a copy of the bank or credit card statement for the following month. Second, after ensuring that the prior month's ending balance matches the following month's beginning balance, you'll note the statement's ending date and ending balance.

From there, you go line-by-line through that month's transactions, matching each one to its equivalent entry in your accounting software, to make sure that all transactions are properly entered and that your cash balance in the software matches the balance in the bank, for the same ending date.

 

That sounds very time-consuming and tedious. Why would anyone want to do that?


Monthly bank reconciliations are a very useful tool for ensuring accuracy in your books. They can:

Show you what's missing. Sometimes, transactions do not make it into the books, either because they did not download correctly, or weren't manually entered. If a transaction is on the bank statement but not in the software, you know it needs to be added. Also, sometimes there will be things recorded in the software which aren't on the bank statement. These could be inaccuracies, or it could be something like checks which have not yet cleared the bank. If there's a large number of uncleared checks, it's helpful to know that, for cash-flow purposes.

Show you what's duplicated. If you have a large number of uncleared checks, particularly if some of them are months-old, it could mean that an expense was added without being matched to the written check, and was therefore duplicated. The same thing can happen with income. I once found where a new client's prior-year annual sales were overstated by about $50,000, due to deposits not being matched to previously-recorded payments. The uncleared payments showed up on the reconciliation report, and helped the client avoid overpaying on his taxes.

"Lock down" errors to one period. If your books were accurately reconciled last month, and something is wrong on this month's bank reconciliation, you only have to go through about the last 30 days to find the error. If your books have not been reconciled in a long time, or ever, it's going to be a lot more work to find where the inaccuracy occurred.

Maybe accounting professionals are a little weird, but many of us even find bank reconciliations to be fun (or, at least very satisfying when accurately completed). If you're having trouble with your bank reconciliations, if you need help learning how to perform them, if something looks wrong but you're not sure what, or if you're just sick of doing them and want to pass the job off to someone else, contact us. We happily provide a free 1-hour initial consult to answer your questions.


BoJack Pop Vinyl

What to Look for in Hiring a Bookkeeper

As your business grows, you will reach a point where you need to seriously consider hiring a bookkeeper. Unfortunately, bookkeeping is still a very un-regulated industry. Anyone can market his or herself as a bookkeeper, and it can be very difficult to sort the wheat from the chaff.

 

Obviously, your needs will be very specific to your company. However, there are a few basic things you can look out for to help you make the best decision in hiring a bookkeeper.

 

Look for certifications AND references.

Some people are very good at test-taking, and can certifications easily in an afternoon. (For instance, some lower-level QuickBooks certifications can be very easy to obtain with a minimal amount of studying.) But if they are difficult to work with, or don't do a great job of taking care of clients' books, they will likely not have many positive references available.

Some bookkeepers are very social and, at least on the surface, can impress clients. (Or, at the very least, they're good at getting friends and family to provide them with references.) However, if they do not have the accounting knowledge and technical skills necessary, they won't be good bookkeepers.

When seeking help, prioritize bookkeepers who have both certifications and a significant amount of references. Beyond client reviews, also look for reviews from partnering businesses, such as CPA firms. A good CPA appreciates working on financials that have been prepared by a good bookkeeper.

You can also ask your potential bookkeeper for references from current or prior clients in a business similar to yours.

 

Check their business registration.

Most legitimate bookkeeping firms will have officially registered their company. Depending on their state of registry, you can look up such information as how they are structured, how long they have been in business, their company officers, whether they have every faced dissolution, etc. (In North Carolina, where we're based, you can check the Secretary of State website for business registrations.)

There's nothing wrong with hiring a newer company, but you might want to consider a bookkeeping firm which has been in business for a few years, first. You can also look at things like whether they have a physical office space, or if the company ownership has changed hands multiple times. (And if they have been administratively dissolved in the past, consider it a major red flag.)

 

Heed the red flags.

There's a great quote from the show Bojack Horseman which goes, "When you look at someone through rose-colored glasses, all the red flags just look like flags."

Considering the high importance of your bookkeeping being done accurately, you do not want to ignore any red flags in your search for a bookkeeper. Being slow to respond, having little web presence, or being too eager to jump into working with you can all be red flags. If they are setting off your alarm bells during the initial search, consider how much worse things can become once you have hired them.

Ask about their experience with companies like yours, and with services you might need (such as their systems for managing payroll, sales tax, etc.).  Ask about their policies on client communication, and how they prioritize time-sensitive tasks. Most importantly, particularly if they are a 1-person shop, ask about their plans for who can back them up on your account in the event of an emergency, where they might be unexpectedly unavailable.

 

Make sure THEY ask YOU good questions.

A few months ago, we met a prospective client for a free 1-hour consultation. She was upfront about the fact that she had scheduled interviews with other bookkeepers, and would be following up with us later. A few weeks later she let me know she would like to hire us. Her reason for choosing us, over other companies was, "You actually asked me questions and looked at my system. You were the only one who did that."

Be leery of a bookkeeper who swears they can handle your business financials without first establishing exactly what that entails. Not every client is a good fit for every bookkeeper (and vice versa). We maintain friendly relationships with our local competitors, so we have a good alternative to offer when we meet with a prospect and realize they would not be a good fit for us. Likewise, our competition sends us referrals, as well.

In your initial meeting with your potential bookkeeper, make sure they are trying to learn about your business, and not just sell you on theirs.

 

Find someone who understands accounting beyond record-keeping.

There is a misconception that a great bookkeeper is just someone with exceptional data entry and organizational skills. However, there is a lot that a real bookkeeper can do to help save money on taxes, identify areas of risk, or even improve profitability. Something as simple as how an owner's cash contribution to the company is recorded can have a massive effect on tax liability. A good bookkeeper can also locate missing accounts receivable, or locate credit balances with vendors. There's so much more to it than entering transactions from the bank feed.

 

Hiring a bookkeeper is one of the most important decisions you will make for your business. Be sure to take your time and be intentional in your search.


If all taxes were abolished tomorrow, you would still need a bookkeeper.

From about January to April, every finance professional's primary focus (or at least primary source of frustration) is taxes: getting ready for taxes, doing taxes, answering so (so) many questions about taxes. However, there is a whole lot more to bookkeeping than making sure your financials are tax-worthy.

If the world hit a big reset button tomorrow and taxes were simultaneously, globally eradicated, a lot of professions would go away. There would be no tax preparers, of course, but also significantly reduced need for financial advisors (why bother with tax shelters?), and payroll companies (can't I just hand my employees whatever I'd like to pay them?).

But you would still need a bookkeeper.

You would still need to track not only your income and expenses, but also who owed you money, and to whom you owed money. You would still have loans to track, and need to break out the amortized interest from the repayments. You would still need to know how much your assets were worth, and how much your company as a whole was worth.

There are so many things a good bookkeeper can do for you that are relevant not only at tax time, but throughout the year and over the whole life of your business.

Take some time, away from tax season, to take a look at your financials and discuss them with your bookkeeping professional. Getting the best possible tax return is important, but there's so much more you can be using your financial data for.


Staying (Financially) Fit Over the Holidays

With Halloween only 12 days away, we are officially in the holiday season. This is my favorite time of year, and I understand the temptation to let work slide as I give into the distraction of Thanksgiving, Christmas, and vacation.

But holiday season coincides with year-end and, for businesses, this needs to be a time of focus. Just as it's easy to undo months of dedicated diet and exercise with the wild abandon of the holidays, it's easy to let your business financials slip at the time when you really need them at their peak.

Here are a few common bookkeeping issues we see in Q4 year after year, and how to avoid them.

Missing Deductible Expenses

Christmas GiftsThe holidays are a great time to let loose and be more sociable with co-workers, clients, and referral partners. But just as you lose count of how many calories you're taking in, you can lose track of the money you're spending. Not only can this result in overspending, of course, but you can also be missing out on deductible expenses that will save you money in just a few months at tax time.

Perhaps you're planning an office Christmas party for your staff. Not only would those expenses be deductible, even food purchased for a potluck, but any staff appreciation gifts you'd like to hand out, as well. The same goes for client or vendor appreciation gifts. (If you have someone external doing your books, be sure they're asking about purchases for things like massage gift cards and fruit baskets, and recording them as business expenses, not draw activity.)

Many networking groups hold a special holiday party. Not only would any food and drink you purchase for that be deductible, but also mileage to the event. If you're having trouble keeping up with your mileage, something as simple as a mileage log (free to download here) in your vehicle or as sophisticated as an app can do wonders to help you track that.

Whatever you do, be sure you're keeping proper record of your business expenses, even while you party it up.

Falling Behind on Bookkeeping

Christmas TravelBetween parties, travel, and employees being out sick from all the germs they picked up partying and travelling, it's easy for certain tasks to get a bit behind in the later part of the year. However, bookkeeping is not like cleaning the house; you can't just plan to catch it all up at once. If I don't clean my house for a month, it's not that much more difficult, proportionately, than if it's not cleaned for a week. Bookkeeping doesn't work that way. If your bookkeeping takes four hours a month and you fall three months' behind, you now have twelve hours worth of bookkeeping to do. (And finding twelve hours for a task you like is difficult enough; imagine trying to find half an entire day to dedicate to a task you dislike.)

Many business owners who find themselves in the position of staring down months of untouched financials make the decision to get some outside help, just to catch things up. The problem is that they're in good company. Beginning in November, professional bookkeepers get very busy with new clients who are hoping to get their books cleaned up for year-end. Not only is there an influx of new clients, but existing clients continue to need service, and we're busy getting all of their year-end documents ready as well. Many of my friends who work solo or operate smaller firms do not take on any new work during this time of the year.

If you aren't certain that you'll be able to keep up with your financials on your own during the holiday season, begin seeking assistance now, before you get too busy.

Not Preparing for Next Year

(NOTE: If you are one of those people who files an extension out of habit, this is for you.)

Get Fit NowYou may not realize it, but there is a lot you can be doing right now to get ready for next year's tax season.

Just like you don't have to wait to make a New Year's resolution to start getting fit, you don't have to wait for January 1st to start getting your books in shape for tax season. For starters, you can be preparing for the January payroll reporting rush. In the chaos of year-end, many business owners forget that 1099s and W-2s are due at the end of January, and not in April. To prepare, you can be sure that you have W-9s, W-4s, and any required state tax documents on hand now, instead of trying to get them from workers later. (This is especially true of 1099 contractors, as they may work for you for a much shorter season and can be harder to track down later.)

If you have been using an outsourced payroll system, be checking now to ensure that the payroll reports in your financials match those provided by the vendor. Sometimes errors do occur, and you will need to alert the payroll company right away if their totals are incorrect. (Like bookkeepers, they are getting very busy this time of year, too.)

You want to check to make sure that your sub-ledger totals, such as your Accounts Receivable and Accounts Payable, match your General Ledger balances. You also want to be sure that you are up-to-date on any reconciliations.

Finally, it's a good idea to take some additional tax-sheltering steps. For example, if you had a good year and are cash-basis, consider making a large business purchase in December instead of January, to reduce your taxable income. Or maybe you have not been paying enough into your withholdings or your quarterly estimated self-employment taxes, and need to increase those in December. There are many options available to you, but you need to act now.

Fortunately, you still have some time to make the most of your holiday season. Stay on top of your books as you go, and you will have a restful and relaxing January (at least compared to everyone who didn't put in the work during December). If you need help, we are always available.


Digging into Profitability

If you're paying even the tiniest bit of attention to your books, you are familiar with your Profit & Loss statement: namely, how much you are making or losing over a period of time (whether monthly, quarterly, annually, etc.). It's possible that you have broken out your income and expenses to great detail, but there is still additional information you could be missing out on.

There are methods by which you can measure the profitability of different segments of your business, depending on your industry and the composition of your company. That can allow you to focus on the most profitable aspects of your business, while identifying areas for growth. Here are some of the most common ways we dig deeper into profitability on behalf of our clients.

Job-Costingjob-costing

Job-costing is great for businesses who tend to work with a small handful of clients at a time, where the projects are long-term and clients aren't necessarily repeat customers. Job-costing is typically associated with construction, but can also be applicable for service-based industries that work on projects, such as large-scale marketing or software integration firms. In job-costing, each expense and revenue deposit is connected to a specific job, and P&Ls can be run by job, in addition to being run for the company as a whole.

Location-Based

Sometimes a company's business occurs in more than one place. Obviously, there are businesses such as dental practices, who have multiple offices. If those are managed independently, it makes sense to want to know the profitability of not just the practice overall, but of each individual location.

Location-based profitability tracking also works very well in the retail and service sectors. Anywhere one business has more than one location, they should be tracking how much money is location is making (or losing) for them. Additional education or possibly replacement might be necessary for General Managers who are not pulling their weight.

restaurantsFirms with Partners

Sometimes there are businesses in which multiple individuals work within one location, but functionally act as separate business entities. In some law firms, for example, partners operate within the same space cooperatively, but it is still valuable to see who is bringing in the most revenue for the firm, and where expenses are being allocated. There are also certain health clinics or spas where multiple partners may offer complimentary services, and it is vital to track the revenues from each avenue.

Class-Tracking

Some companies have what are really multiple businesses operating as one. For instance, a farm might sell directly to restaurants in one area, sell to grocers in another, and operate a produce stand from which the public may purchase directly. Assigning a class to each transaction (again, both revenue and expenses), can allow the farmer to see the profitability of each segment. Class-tracking is also great when selling both directly and for resale, as sales tax is only applicable on certain sales.

General Rulesclass-tracking

If you decide to implement additional levels of profitability tracking within your business, it is vital that you follow a few basic rules.
1.) Be consistent. Have an assignation for every transaction, every time. Otherwise, your data is inaccurate, and therefore, meaningless. (And it's been a waste of your time to do the tracking you have done.)
2.) Have clarity. Know exactly what your system will be for assigning transactions and have it written out, for either yourself or your bookkeeper. Make sure everyone who touches your financials is on the same page with the system.
3.) Be timely. We are always proponents of keeping financials up-to-date. However, this gets even more crucial when you need the additional level of detail required for profitability break-outs.

If you are interested in what profitability tracking might look like for your company, contact us for a free consult. We are happy to go over your financials and suggest ideas for growth and improvement.


Weird Dog Habits

Your Accountant's Weird Habits - Explained

If you have a pet in your family, maybe you've seen those articles purporting to explain why your dog spins in a circle before lying down, or why your cat would rather drink from the faucet than a water dish. To many people, there is a creature even more alien and perplexing than any animal: the finance professional.

Your bookkeeper or tax professional might say or do things that don't make a lot of sense to you. Some of their actions might seem flat-out contradictory. But, as with any exotic species, there is a reason behind all of it.

I want to break down a few of the most commonly complained-about behaviors, along with the explanations behind them (with the assistance of cat pictures).

 

First annoying habit: My accountant keeps nagging me to get organized.

Your bookkeeper wants you to have a system for tracking open customer balances, or wants you to keep all your expense reports in one place. It's frustrating, because the whole reason you're paying them is for them to "keep up with that stuff".

So why do they do it?

For starters, good bookkeeping relies on complete information. (A balance sheet showing $1M in the bank doesn't mean much if there's a $995K liability that got left off.) Unless you have an in-house accounting staff, your bookkeeper is relying on you to get that information to them. A good organizational system ensures that all of the information is getting to who needs it.

Furthermore, most accountants charge based on time expended, and though good accounting can be had at a good value, it's still not cheap. Paying your accounting service to dig through files and hunt down info is a waste of their time and your money.

Accountant Cat 1
Accountant Cat is tired of looking for your payroll reports.

 

Speaking of "time", my accountant freaks out if I don't get certain information to them right away. What's the rush?

Certain items, particularly related to tax filings, can incur massive penalties if late. Your accountant needs the information in advance of those deadlines, to record it and check for accuracy. (Inaccurate filings can also, of course,  result in penalties.)

If your accountant is pestering you to get information to them quickly, it's because they are trying to keep you out of trouble and save you money.

Accountant Cat 2
Accountant Cat on April 10th, waiting on you for info.

 

Since we're already talking about taxes...Why does my accountant try to make me spend money I don't want to spend? For instance, why do I have to treat certain workers as W-2 employees, instead of paying them as contractors?

Because worker classification is a big deal. Not paying employees correctly can result in audits, fines, and even lawsuits. Your accountant is being a stickler about the rules because they don't want you to get sued.

Accountant Cat 3
Accountant Cat, finding out you're paying your 9-5 office assistant as a 1099 contractor.

 

Still talking taxes...Why does my accountant say I can't take this cool deduction I found? I saw online that I can expense my home office/car payment/pet kinkajou/etc.

Present blog excluded, internet advice is no substitute for real, professional guidance. Though you'll seeing many articles claiming that you can write off an entire car payment, or take a "home office" deduction, the actual guidelines surrounding those items have specific criteria which must be met. Unfortunately, small businesses, particularly those which are sole proprietorships, are frequent targets for audits. Taking excessive, unqualified deductions puts you at an even greater risk. If you trust your tax professional, trust that they will advise you of deductions for which you do qualify. (If you are not happy with your current tax professional, we can recommend some.)

Accountant Cat 4
Accountant Cat has some bad news about that great deduction you found...

 

So I have to spend extra on employees, but can't take any of the fun deductions. And now I'm being told that I need to watch my spending on meals, and look at ROI for things like advertising. Is my bookkeeper just a kill-joy?

No, they just don't want you to go broke. Going bankrupt isn't just bad for you; it also means you can't pay your vendors (like your bookkeeper). So they have a vested interest in keeping you solvent.

Because, no matter what your business, one thing we all have in common is that we like to get paid.

Accountant Cat 5
Accountant Cat could lighten up if you'd stick to a budget.

bookkeeper desk

What does a bookkeeper do?

"So, what do you do?" It's one of the first questions we ask upon meeting someone. My usual answer is "bookkeeping and fractional CFO". The typical response to that is, "Okay...and what does that mean?"

Most people have a general understanding of bookkeeping is, but fractional CFO is a murkier concept. Essentially, we act as an "outsourced" CFO (Chief Financial Officer) for companies too small to have their own. Offering this service is one of the primary ways we distinguish ourselves from most bookkeepers.

However, there are several differences between what a standard bookkeeper does, and what we do.

bookkeeping month-endA bookkeeper offers monthly reconciliations at an hourly rate. The process most bookkeepers use is to, at the end of the month, have their clients bring a stack of financial documents, such as bank statements, receipts, pay stubs, etc. The bookkeeper then uses that information to make entries and perform a reconciliation. This takes time, and their clients will usually receive that past month's financial statements about midway through the following month. Once the month's work is completed, the client receives an invoice for the hours worked. Depending on how busy that month was, this bill fluctuates.

The Bookkeeper offers bi-weekly reconciliations at a monthly rate. Instead of waiting until month-end, we enter information downloaded from the client's bank accounts every few days, so their financials stay more current. This prevents a long clean-up process at the end of the month, and allows us to complete the monthly financial statements more quickly. Furthermore, we offer our ongoing clients a monthly flat rate, so there are never any surprises on the bill (even when the month was a busy one).

A bookkeeper moves on and makes assumptions. Most bookkeepers focus on one specific aspect of their business, which is just getting transactions entered. If they have an expense and aren't sure what it's for, it gets stuck into "Uncategorized Expense" for the client to figure out later. If they're entering payroll and see that a contractor really should be paid as a W-2 employee, they're just going to make the entry as it's presented to them and move on. They might make a mention of it to the client when they see them again in a few weeks but, in most cases, likely not.

Fractional CFOThe Bookkeeper pauses and asks questions. Our clients hear from us frequently. If something looks "off", or if there are improvements to be made, we'll bring it to the client's attention immediately. In one account, we identified a case of credit card fraud before the bank and client did, and were able to alert them to it. We also warn clients about potential cash flow issues, or when certain bills are due, to help prevent overdraft fees and other penalties.

A bookkeeper does exactly what the client asks. That's not a bad thing, at all. But most bookkeepers do only what the client asks, and nothing else.

The Bookkeeper proactively seeks out ways to improve our clients' financials. On our own time (again, without charging the client a cent more), we've done things like developing a new pricing strategy to propose to a client having issues with their retailers. We've identified overdue Accounts Receivable to find clients money, and we've saved clients money by negotiating better vendor contracts. We've used our connections with merchant card processors to save clients thousands in credit card processing fees. And we have done all these things without the client ever asking us to.

Money, it is said, is a vehicle.

Airport RunwayA bookkeeper is a mechanic. They do routine maintenance. If something breaks (and you notice it), you take it to them to get fixed. If something breaks and you don't notice it for a while, and the problems gets really big, when you take it to them to fix, you're going to end up with an expensive bill.

The Bookkeeper is a travel agent. We help you figure out where you want to go, and we get you there. Whether you drive, cruise, or fly, we are there for you at every step of the journey. And we work to help ensure that the trip is as enjoyable as the destination.

Of course, all of this is hard to sum up in a casual introduction. That is why we offer free 1-hour initial consultations, so we can get to know prospective clients and show them the differences we have to offer.

If you know someone whose business isn't going where they want it to go, before you send them to a bookkeeper, send them to The Bookkeeper.


Year in Review: Our clients' big wins in 2015

People tend to think of bookkeeping as a necessary evil. Your business has to have it, so just find someone who will do a decent job and whom you don't have to pay too much.

We beg to disagree.

We like to use our service to do more than just keep our clients' books clean. We like to go beyond balancing books to growing businesses. In that regard, 2015 was a very good year for us.

Today we want to showcase three clients who had big "wins" in the last 12 months.

Client #1: A Money-Saving Solution

One of our client's businesses was facing some difficulties staying profitable. Looking at the books, we found some areas where expenses were duplicated and some cases of fairly extreme overspending. We met with the owner and devised a plan to cut expenses. Once the plan went into effect, we were able to increase the bottom line by over $30,000 a month.

Of course...big deal, right? Everyone knows accountants are penny-pinching killjoys. Let's look at our second story, and see how we can help a client without forcing them to spend less.

Client #2: A Long-Denied Loan

A different client desperately desired a consolidation loan. He had gone to three different lenders, and been denied each time. He was getting nowhere in a hurry.

So, we took over.

First, we received authority to act on his behalf. Then we got to work, combing through his financials and organizing the data for presentation. Finally, we were able to present the information to the bank in the way we knew they wanted it. This time it was approved, and we were able to get our client a consolidation loan at one of the same institutions who had previously rejected him.

Thanks to those efforts, our client was able to consolidate his debt under one payment, and greatly improve his cash flow.

Still, that story isn't as great as...

Client #3: Money from Thin Air

Sometimes, something as simple as developing better procedures can make all the difference to a business. This was the case with a client who didn't have a good system in place for managing A/R.

Specifically, there was over $102,000 in receivables of which the owner was not even aware. (Some of the unpaid invoices were over two years old.)

When we discovered this large balance of aged receivables, we immediately began developing collections procedures, including a series of formalized letters to the debtors. Using the practices we put into place, over $30,000 has been collected within the last four months, with payments continuing to roll in.

To re-cap, that's money that the client did not even know existed.

These are just a few of our highlights from 2015. We can't wait to see what we do in 2016.


Ledger Nightmares: Entries only an accountant should make

One of my favorite holiday traditions is watching "The Nightmare Before Christmas". For those of you unfamiliar with the movie, here is the basic plot synopsis: The leader of Halloween Town takes an accidental visit to the land of Christmas and is so enchanted by all of it that he decides to give Santa the "year off" and take over in his place. The residents of Halloween Town are, needless to say, ill-suited for this task, and the results are hilarious and horrifying.

The problem is, they see just enough of Christmas to think they know how to emulate it, but they misunderstand the core concepts.

This is a frequent issue when non-accountants take on bookkeeping duties. Recording sales and expenses is one thing, but there are certain entries which really should be left to the professionals.

This week we're looking at the most frequently-confused accounting principles and discussing why it is better to not attempt these yourself.

Setting Up Chart of Accounts & Opening Balances

Though you would think bookkeeping would be simple with a clean slate, getting your company started can be one of the most complicated times, accounting-wise. (Okay, everything about starting a company is complicated.) There are legal and professional expenses, you must determine book value of any assets which you already have, and entering equity amounts can be difficult. (In particular, how you record money the owner contribues, whether as paid-in capital or a loan from the owner, can affect tax liability.)

When these issues are compounded by extra demands on the owner's time and focus (not to mention the learning curve associated with self-training on accounting software), you have a recipe for inaccuracies.

While you are setting up your business, get someone with experience to jump-start the accounting side of it.

Capital Expenditures

Expanding your business is an exciting time, particularly when you're investing in new locations. Whenever you are spending funds or assuming liability to obtain a physical asset which will be used for productive purposes for at least one year, that is a capital expenditure. Capital expenditures can be land, buildings, machinery, or even software upgrades (generally provided they meet a certain cost threshold).

For an amateur bookkeeper, capital expenditures might appear deceptively easy. Buying some land for a new plant site? Debit Land, credit Notes Payable, and expense whatever incidentals come up along the way, right?

Of course not! If it was that easy, everyone would do their own books.

If you record a capital expenditure like that, your book value will be off and when you calculate depreciation it will be inaccurate. (We'll get to depreciation and other contra-accounts later.)

Rather, when capital expenditures are recorded, you are also to include in the book value the net cost of getting the property ready for use. If the ground needed to be levelled, that cost would be included. Likewise, if there were salvageable materials present which were then sold, that gain would be used to reduce the book value. Certain legal and professional fees surrounding the sale may be included as well. It's all very interesting (but also very complicated for a layperson).

Referring to our example, what about that Note Payable? Assuming it's accruing interest, at year-end you'll need to make...

Adjusting Entries

Month-end and year-end adjusting entries are both necessary and a pain in the neck. There are several types of adjusting entries, such as adjustments for goods or services clients prepaid you for (Unearned Revenue), expensing those things for which you prepaid, recording accrued interest, etc.

One of the biggest dangers at year-end is recording adjustments to inventory. Even with consistent inventory tracking throughout the year, there are generally still adjustments to be made at year-end. Mistakes in inventory recording can result in over or understated COGS (Cost of Goods Sold) and inaccurate tax liability calculations. For reasons such as this, it's usually a good idea to have an accountant look at your year-end statements before preparing taxes. (Remember that many CPAs will simply prepare your taxes based on the statements you give them. For that reason, be sure you are hiring someone who will actually look for issues in the accounts themselves.)

Even if it's not a special occassion, such as making a major purchase or at year-end, there are still transactions that require bookkeeping assistance. Notably, any of those involving...

Contra Accounts

A contra account is one which is intended to have an opposite normal balance for that account classification. For instance, a sales discount is a contra revenue account, so it has a normal debit balance (whereas most revenue accounts have a normal credit balance).

Contra account entries have the potential to be very tricky, and the greatest offender for this is depreciation. Recording depreciation is essential for accurately estimating the current value of assets, but calculating it is a complicated process. First, life expectancy of the asset and salvage value must be computed. After that, straight-line depreciation is the simplest, but nowhere near as accurate as usage-based or the double-declining balance method. Finally, when the asset is finally sold or scrapped, the gain or loss must be calculated and recorded based on the present value. Of course, any errors can then negatively affect tax liability.

Long story short, any time you feel like you're getting in over your head, ask a professional. Trying to D-I-Y complicated accounting entries can turn your General Ledger into a horror story.