basketball court

Hiring an Entire Person

Imagine you’re the coach of a winning basketball team. You’re doing pretty well but, you’ve lost a few games that you feel could have been won if your players hadn’t been out-rebounded. When it’s time to start scouting for the next season, you find yourself trying to decide between two players.

basketball players reachingThe first player is built like Shaq (the younger, leaner Shaq) and is a rebounding machine. Unfortunately, he shoots like Shaq at the free throw line (only from the field as well), slacks off on defense, and is rumored to be a diva in the locker room.

The second player is a great all-around recruit who has high stats in points, assists, AND steals, and is known to be a hard worker and generally well-liked guy. The only downside is that he’s built like Muggsy Bogues, and, unless you’re playing an exhibition game against a preschool team, is not likely to be pulling down any boards.

So, who do you draft? If you’re like me, you take the second player every time. It works this way in business too. You may find an area in which you feel your team is currently lacking and try to recruit to fill that specific gap. But that’s not always the best choice.

man makes basketball goalFirst, let’s discuss the reasons why you shouldn’t hire someone just to fills a skills gap. For starters, you may not need enough help in that particular area to fill an employee’s time. In a basketball game, there’s a lot more a player needs to do than just stand around under the goal, boxing out to get rebounds.

Or it could be that there’s too much of a need in one area, and one person can’t do it alone. Even if someone is the best rebounder in the world, if they’re the only one from their team under the net facing down five other guys, their chances of success go way down.

Finally, particularly in certain high-demand positions, an individual with a specialized skillset might not be the best fit for the team overall. They could bring an ego or simply have a personality that does not work well with your company culture. (Or they could be so lacking in other areas as to be a net drain on productivity.) In those cases, another player is a better option.

women reach for basketballSo now, let’s discuss how you can fill skills gaps in your company without making it a hyperfocus of your hiring. For starters, look at how you can train and improve the staff you already have. Rebounding stats go up when the entire team is fighting for position and going for the ball, even if no individual is a rebounding superstar.

Second, look at how other areas in which you’re stronger can be used to supplement the area of perceived weakness. To continue with our analogy, a team that struggles with offensive rebounding need not struggle so much if they improve their field goal percentage and make more of their shots on the first try.

Finally, remember that you cannot hire only part of a person; you have to take all of them, the good and the bad. Look for someone you are excited to have around for the long-term, who not only has a skillset that can be immediately useful, but for someone who can grow and develop within your company to become an indispensable MVP.


woman wearing face mask

Our Pandemic Story

This morning, I went to my first local Chamber of Commerce breakfast in over 18 months. The general attitude was as though we’d all just woken up from a collective coma: we were thrilled to see each other, but in a blur as to whatever had just passed over the last year. It was agreed that 2020 felt like a fever dream; it was interminable while we were going through it but now, is almost hard to remember.

I’m a big believer in studying the past to learn from it, and, though 2020 was hard, I don’t want to forget how it felt, nor the lessons from it. As we move through the summer of 2021, I feel like it’s time to share The Bookkeeper’s pandemic story.

Act I: Winter 2019 to Spring 2020

From the onset, we were blessed by a bit of prescience from Craig, our founder and my co-owner. We both knew that the economic bubble the country had been experiencing was due to burst and had taken precautions accordingly. However, as early as December of 2019, he was nervously following news about what was then termed the coronavirus. Not only was he convinced that it would prove to have more devastating effects than were being predicted at that time, but he called, accurately, that it had already spread from the Wuhan region prior to the instituted lockdowns. Many, myself included, thought he was probably overreacting or being a little paranoid, but he was proven right when it was identified in Europe and then later confirmed to have spread to the United States. Once we received confirmation in February of 2020 that it had spread to North Carolina, we made the decision to move all of our staff to full-time work-from-home in the beginning of March.

Though we were sure that remote work was the right decision, as everyone’s safety trumped any benefits to working in the office, it was a move that came with anxiety. We weren’t certain how people would do working from home, whether efficiency would be lost, or whether we’d lose the connection we enjoy with our staff. To our pleasant surprise, efficiency improved, and our people proved themselves as dedicated as we’d always hoped and liked to believe they were. It was an odd position to be in, to continue to thrive when we saw so many friends and clients struggling. Then, the CARES Act was passed, and things really blew open.

Act II: Summer 2020 to Spring 2021

gavelI am the sort of person who addresses anxiety through research. I’ve had my share of health struggles, and am probably a nightmare patient for my tendency to do things like watch video of surgeries I’m scheduled for. However, this proved useful when the CARES Act was passed. It was rushed through (understandably so), and I knew that it would be chaos to maneuver. I decided that the only way to make sense of the thing was to read every line of it, and I did. I quickly realized that disseminating information to clients on a case-by-case basis wouldn’t be the most efficient use of my time (particularly while I was slammed), so I started a Facebook group where I would put out videos summarizing portions of the act as I read them, helpful links for grant programs, or anything else people might find useful. This grew quickly, as business owners really seemed to be craving guidance and information during this time.

At the same time, there was endless work to be done in helping clients with all of these new programs. I filled out EIDL applications for months, going from the initial form, which was a technological nightmare and took about 13 hours, to the newest and most-streamlined version (with a PDF drag-and-drop version that lasted roughly 2 days in-between). I lost count of how many PPP applications I assisted clients with, and every bank had a different format. (I did over a dozen with BB&T alone.) Then there were other local programs, the short-lived Main Street Lending Program through the US Treasury and, later, PPP forgiveness and Employee Retention Credits.

video meetingAll the while, we turned away new business clients who were calling only for help with the various CARES Act programs, as I was working 70+ hours per week and barely had enough time to help established clients. I hated to say no to people, but we had to prioritize those who were already with us, as there just wasn’t enough time to help everyone. Eventually, we got through the worst of the rush, but had to hire additional staff, which added a level of complication as we attempted to train new bookkeepers partly remote and partly in-person. In order to avoid working in a cramped office environment, we worked from Craig’s house, where we could spread out but still be physically present in one space. We all became very adept with Zoom and Google Hangouts and, to help our new folks integrate with our veterans, did many virtual teambuilding events, like screenshared party games and a virtual Christmas party, where we sent the staff GrubHub gift cards and worked through a murder mystery dinner over Zoom. It didn’t replace the real thing, but it kept us sane and cohesive.

Though this time was chaotic and stressful, it was also an inspiring time to be in small business. There was a true feeling of us all being in this together, and connections felt more genuine (even if they couldn’t be face-to-face). When someone asked how you were doing they really meant it. And if you asked someone how they were doing, you got an honest answer. That’s something I hope we don’t lose.

Act III: Summer 2021

group putting hands in togetherAs I mentioned in the beginning, we’re now adjusting to coming out of the COVID-dominated era and embracing the “new normal." We grew all throughout 2020 and continue to grow. (2020 was our highest revenue year, and 2021 is somehow up 20% over that.) In addition to the bookkeeping staff who came on, we’ve added a practice manager.

More than that, we’re meeting people in-person again. We’re doing live networking and catching up with friends for long overdue lunch dates. Though our staff is welcome to continue working from home, our office is reopened for when anyone needs to meet with clients or just get away for a bit to focus.

There is a bit of survivor’s guilt that comes with being a business that thrived during the pandemic. So many people were so negatively affected that it’s hard to celebrate personal success. But, when people have come through something like this together, celebration is necessary.

This Friday, we’re having our first in-person team event in over 18 months. We’re having a pool party, and many of our staff will be meeting each other face-to-face for the first time. COVID still exists, and the world may never be exactly the same, but we’re looking forward to the steps we’re taking to leave this era behind us.


falling man

Facing Your Fears, at Your Pace

Entrepreneurs like to embrace an aura of fearlessness. However, humans possess the ability to fear because it is a useful emotion. Fear helped us avoid lightning, and sabretooth tigers, and that same instinct exists within us today, and can help us avoid modern dangers (like human predators).

The problem comes when the fear instinct attaches itself to something which cannot literally hurt us, but which may "only" carry the risk of psychological harm. (Even then, the harm is likely overstated in our minds.)

sad man with head in handsThe instinct may exhibit itself as a fear of public speaking, or firing an employee, or submitting a sales proposal. These are all things that, in general, entrepreneurs need to be able to do. We need to be able to talk to strangers, or rid ourselves of problem staff, or ask clients to hire us. These things are necessary for the well-being of our business. Our fear instinct is actively working against our financial survival.

Of course, being entrepreneurs and, by nature, often people of extremes, our subculture has encouraged us to take a disproportionate response. We are told to "live fearlessly" and to "step outside our comfort zone". The narrative envisions the wallflower inventor wiping off their sweaty palms, calming their shaking voice, and pitching in front of the "Shark Tank" investors for millions of dollars.

sad face drawingI believe that our comfort zone exists for a reason. Often, within our comfort zone is where we work best and most efficiently, and it should be where we spend the majority of our workday: doing what we do best, and what we're comfortable with. The comfort zone is only a problem when it is restricting.

My proposal then is that, instead of leaving our comfort zone, we expand it.

Visualize your comfort zone not as a chalk-lined circle which you can easily step out of via sheer will, but as a protective bubble. If you gently push the walls of that bubble, you can stretch it in any direction which you choose, while still remaining safely inside.

woman giving presentationFor practical purposes, this means, for example, starting with a Toastmasters Club visit before you agree to speak in front of a large auditorium. If you've never had the displeasure of leading a termination meeting with a non-performing staff member, start with leading employee performance reviews. Practice your sales proposal on a friend before you present it to a prospective client.

Don't feel pressured to be "fearless"; just start making yourself more comfortable with small steps. You'll still reach your goal, but will avoid the pain and risks which your fear exists to protect you from.


women look at notebooks

"How to Run Your Small Business Like a Large Company" by Dave Baldwin

We've all seen them, those entrepreneurs with the seeming ability to work magic. We’ve all heard the legends about the founders of multimillion-dollar empires who started with a $1,000 loan in a basement. These stories seem far removed from reality, especially for business owners who grind away at building their dreams, only to hit brick wall after brick wall years or decades into building a small business. We hear this question from time to time: how do the successful ones do it? What’s their secret? What is everyone else missing?

There’s good news and bad news. Bad news first: there is no silver bullet, no “big reveal” and no shortcut. In reality, successful startups are years in the making, and there’s no substitute for persistence and discipline. The good news: most small businesses are, indeed, missing a key ingredient, and when you add that ingredient, real success begins to feel achievable, often for the first time in the life of a fledgling business.

Here’s the big secret: build your company like you’re going to sell it.

If you don’t want to sell your business, that’s fine. Aside from the fact that you will have to retire at some point, there is an imperative and critical need to prepare every small business for the possibility of eventual sale, regardless of your exit strategy. There is a fundamental shift in the mindset and daily habits of an entrepreneur who is building a business to sell -- as contrasted with the business owner with the goal of surviving and paying the bills. This key distinction is the single difference between businesses that grow and businesses that stay small.

What if I don’t have the money?

Spending money you don’t have is not necessary to build and grow a healthy business. Some types of businesses require significant startup funding, such as real estate developers and technology companies, but a budding entrepreneur with no startup cash can bootstrap a new company from scratch. To set up your company for long-term success, three roles are needed from the outset: human resources, legal and accounting. You can think of these as “seats” to fill in your organization chart.

These are not “someday” considerations to start thinking about when a company is “‘big enough to afford that.” They are needed immediately - if you are serious about building a great company.

HR systemsHuman Resources

No small business can afford an HR director, but neither can a small business afford to hire the wrong people -- or hire the right people incorrectly. In the beginning, the owner wears all of the hats, but as soon as revenue starts to flow, a sense of being overwhelmed can quickly set in. This is the first area where small businesses miss the mark, by hiring whomever they can find quickly and cheaply. Maybe it’s the next-door neighbor’s kid, or a nephew who just graduated from college and is working a fast-food job. The results predictably range from “tolerable” to “disaster.” Outsourced human resources services are available for every stage of a growing business, and it’s never too early to start thinking about this.

Legal

You might be great at what you do, but if you can’t scale it, your business will never get off the ground.

IP development is the cornerstone of building a scalable business. Every big company became big because they built something proprietary. That begins with your processes and formulas, everything unique about the way your company does what it does. Without IP, a business isn’t a business. It’s a self-employed individual working a collection of part-time jobs. Every business needs an attorney to legally protect the lifeblood of their enterprise. Not to mention the number of legal risks that can put a small company out of business in one fell swoop if necessary legal protection is missing.

Business attorneys used to be cost-prohibitive for small businesses, but not any more. Over the last decade, legal services have sprung up, catering to the needs of startup businesses with lean budgets. And we’re not talking about Legal Zoom here. You need the expertise of an attorney to ask the questions you don’t know to ask.

growing money from dirtAccounting

At the risk of sounding shamelessly self-promoting, you can’t build a business without an accounting system, and there’s a lot more to it than buying a Quickbooks subscription and connecting your bank accounts. Businesses that stay small usually think about bookkeeping once a year, when taxes are due. But accounting is about much more than just taxes. It’s about having a clear picture of your current business reality. You can’t make good decisions based on vague data, feelings or guesswork. Sadly, that’s exactly what a lot of business owners do, whether they admit it or not.

There are three distinct types of accounting: tax accounting, financial accounting, and operational or managerial accounting.

Tax Accounting

Tax accounting is what most are familiar with: planning for taxes, minimizing tax liability, staying compliant with tax laws, and ensuring there are no ugly surprises at the end of the year. Financial accounting is reporting data to outside entities, such as prospective investors or lenders who need to gauge the viability of your business. Current investors typically require quarterly reports to keep a pulse on the health of a business. In these cases, you want to show a limited view of your financials. Operational or managerial accounting is critical for the day-to-day management of a business. It consists of many different components, and here is a bird’s eye view of a few areas common to every type of business.

Key Performance Indicators (KPIs), when they are designed correctly, provide an objective real-time view of how well a business is performing and can also serve as leading signals of trouble brewing. For instance, if sales increase by 20% from one quarter to the next, but payroll expenses by increase by 50% during that same period, that might indicate that efficiency has dropped or that the business has over-hired. But there’s a further complication: how does one measure sales revenue? That question is more complicated than it might seem, and it relates to an important concept called “revenue recognition.”

chartsRevenue Recognition

Revenue recognition is an important concept for a business owner to understand. A business is said to ”recognize” revenue at certain times. For instance, a business might “recognize” revenue when it makes a sale and sends the invoice (accrual accounting), or it might “recognize” revenue when it collects the actual payment (cash accounting). Taxes can be filed using either method, but a business has to pick one and stick with it. For management purposes, however, accounting software packages can produce reports using either method, and both views are useful for different types of decisions.

Further complicating matters, many businesses do not have useful ways of looking at their expenses. For instance, if you operate a service-based business, do you know how much it costs you to deliver a service? Is that cost broken down into labor and materials costs? If you purchase supplies that are shared between different jobs, do you have an accurate view of how much is used from one job to the next? (Hint: if your answer is “I have a good feel for it,” then we as accountants would take that as a “no.”) Expenses are “recognized” just like revenue. Cash- and accrual-basis reports are often both necessary to view a full picture of where your business is making money (or losing money).


We’ve really just scratched the surface here, but the basic idea is that you can (and MUST) learn all of these areas of management if you want to build a business that grows and thrives. If it sounds like a lot of work, that’s because it is! But the concepts in this article are examples of the areas where successful business owners educate themselves continually.

No matter how brilliant you are in your craft, no matter how delicious a cupcake you can bake, you cannot build an enduring business unless you become literate and competent in the core disciplines of business management. There is no substitute, no other option and no shortcut.

Sound like too much? It’s really not that bad; we promise. Give us a call if you’d like to hop on the phone and discuss what this means for your business (or business idea).


Dave Baldwin is an integral part of The Bookkeeper staff experienced in marketing and management consulting. His own entrepreneurial journey was spurred on by a desire to help introverted entrepreneurs succeed in business.


mother and father and two sons holding hands walking

When You’re too Small for FMLA

Per the US Department of Labor, “The Family and Medical Leave Act (FMLA) provides certain employees with up to 12 weeks of unpaid, job-protected leave per year. It also requires that their group health benefits be maintained during the leave…FMLA applies to all public agencies, all public and private elementary and secondary schools, and companies with 50 or more employees.”

Of course, most of us in the small business world, by definition, have less than 50 employees. However, we still have employees who get sick, or have kids, or have other reasons for which they need to take family and medical leave. And most employers (who are good employers), want to find a way to take care of their most valuable asset – their employees – even if it’s not strictly mandated by federal law.

So, business owners are left with a balancing act, to protect their staff and keep them happy, but to not cost too much in money and productivity. To assist, we have put together this list of FLMA alternatives which small businesses might utilize.

mother crouching to look at son with a smilePaid Time Off

This is the easiest, as it’s something many businesses already have in place. Instead of designating what time off might be used for, have a clear policy (in writing), that describes how PTO is earned, how much each employee receives, and how much notice is required (if possible) for it to be put into use. Some employers like to separate “sick leave”, “vacation leave”, “personal leave”, etc. However, requiring proof, such as a doctor’s note, that leave used was sick leave is tricky, and can get into privacy issues. Also, there might be other, very personal things, for which a person might need to use leave and would not want to provide a note (a court hearing for an adoption, or fertility treatments). Having a generous PTO policy is easier to track, and allows employees the freedom to use time off as they see fit.

alarm clockFlex Hours

Obviously, certain industries do not lend themselves well to flex time. (It would be hard to staff a restaurant or construction site where anyone could come and go as they please without notice.) However, in certain businesses, where the majority of the day is not customer-facing and communication typically occurs via email (i.e. programming), it can be helpful to let staff set their own schedule. This way, they can leave for appointments without as great a loss of productivity. However, it is important that team members still be considerate of each other and, for purposes of connecting and collaboration, keep each other apprised of when they will be in-office or available.

sitting on bed working on laptopWork-From-Home

Working from home temporarily or part-time can be a great way to keep an employee who needs time away for medical or family leave somewhat connected with the office. This way, they do not suffer the loss of income associated with a lengthy leave, and the business does not suffer the loss of productivity which comes with having a key person completely unavailable.

doctor writing on a clipboardFMLA Compliance

All FLMA really means is that you keep an employee’s position open while they are out on extended leave. Even if you are not large enough to be legally required to do so, it’s not a bad idea. The gap can be filled with temporary help and, in fact, using a temp-to-hire person can be a great way to fill in (in case your employee chooses not to come back from leave).

 

Having an employee need to take substantial time away from work can be stressful on everyone. However, flexibility and collaboration can ensure that your business needs are covered, and that your employees feel secure in their position with you. Whatever your plan, be sure to have it documented in writing, and reviewed by an employment attorney or HR specialist.


sparkler in front of american flag

Rebellion vs. Revolution

My favorite retelling of the Revolutionary War comes from the musical “Hamilton”. In it, the titular main character bravely fights for independence, but also muses about what freedom will mean for the colonies, and how they will structure their country and face their economic woes. After serving under General Washington, he goes on to become the first Secretary of the Treasury and to put into place systems and structures which are still integral parts of our government today.

I believe that this can parallel the experience many people go through when they leave employment to found their own companies. There are those who fight valiantly for independence, but fail to plan for a replacement system. There are others who are more cautious and plan so carefully that they never take that first step to leave the security of their current situation. (You could say they “throw away their shot”.) Success is found by those who can both dare to leave the harbor, but who also know where they’re sailing.

Rebellion vs. Revolution

american flagThe word “rebellion” brings to mind images of sullen teenagers, instinctively acting out against their status quo. For a disgruntled employee dreaming of business ownership, it can be chafing against inane workplace rules, or simply longing to leave the 9 to 5. However, it’s not enough to know you are displeased with your current situation; you have to have a vision of what you want to replace it with.

We’ve met plenty of people whom have a lofty dream of how they envision business ownership. (For some disastrous examples, see our article “Living a Lie: The Mistakes that Make Entrepreneurs Go Broke”.) We even had one would-be business owner tell us, “Oh, I don’t want to work. I’m going to hire other people to do the work, and then I’ll just travel or something.” Needless to say, that plan didn’t work out.

statue of libertyThe successful businesses are those whose owners have the spirit of revolution. It’s not just that they’re unhappy with their lot, but they clearly see how it, and their own small slice of their particular industry, could be better. These are the people who desire to “build a better mousetrap” with their company, and who aren’t afraid to put in the work to do so. We have successful clients who have invented new products or medical processes, but we also have those who have succeeded by coming up with ideas for local entertainment, or who have simply found a way to be the most effective attorney, or marketer, or even HVAC person in their field. And none of them are afraid of work; in fact, the most successful all embody attitudes of continuous improvement, both in themselves and in their companies.

If this 4th of July you find yourself pondering the plunge toward business ownership, examine where that desire is coming from. If you’re ready to start a revolution in your industry and in your life, build a plan for where you hope that path takes you, and a vision of what it looks like when you’ll get there.


graduation

I guess this is growing up.

I always find the end of May a bittersweet period, with its focus on graduations and plans for the fleeting summer. It's a time of celebrating the crossing of an arbitrary boundary we have created between "child" and "grown-up". And, with The Bookkeeper having just celebrated our sixth year in March, I've been thinking a lot about what growing up means for a company.

What I've found is that, much like how many adults will confess to still really not feeling like grown-ups, I think it's hard to pin down exactly what being "grown up" means for a company. However, there are a few things I keep coming back to.

1. You know who you are.

business woman shaking handsFor most teens, a major source of anxiety is whether or not people like them. Often they are either chasing popularity, or trying to conspicuously prove they don't want it. Many new business owners start the same way. In the interest of making connections and gaining customers, they try to be everything to everyone. But comfort and maturity comes with knowing the work you like doing, what you do well, and focusing on being the best you can at that.

 

 

2. You choose who you surround yourself with.

man and woman talking on sidewalkWhen you're younger, your friendships, though dear, form generally through default. Your best friends are the kids in your class or neighborhood, or with whom you play on a team or share some activity. When you first start a company and enter the social world of small business, you run into the same people over-and-over at networking functions, morning meetings, etc. Over time, you identify which of those people with whom you feel a real connection, and develop some great friendships. But at the beginning, you'll make a lot of coffee appointments with people who don't have your best interests at heart. Sometimes you'll even know that going into the meeting, but you'll feel too "new" to shoot anyone down. As you grow up, you learn to recognize the people with whom you want to spend your precious time, and you won't feel hesitant to prioritize your calendar accordingly.

 

3. You're unashamed to let your childish side show.

child with finger paint on handsYoung people go through a period where they are ashamed to play and then, at some point in adulthood (if they're lucky), they rediscover the joy in acting like a kid. In your business, it's important to keep that playful joy and remember why you love working for yourself. (We didn't escape corporate to create corporate.) This doesn't mean being reckless or irresponsible; it just means letting go enough to embrace the fun that comes with being a business owner. This can be something as simple as realizing it's a beautiful day and you've got no afternoon meetings, so you leave the office to hit a few miles of trail (me). Or, it can be something as big as taking your entire team and all their families to the beach for a weekend (Craig). The point is that, without falling into the trap of anything as contrived as "team-building", you find ways to enjoy the work, and the flexibility the work gives you.

Of course, just like a graduating high school senior who thinks they're grown, I might have no idea what I'm talking about. When The Bookkeeper is 10 years old, or 20 years old, or, should I live to see it, 50 years old, I might look back and laugh at my own youthful naivete. All I can do for now is look forward to what I'll know then.


handshake

Accounting Considerations for Attorneys

Attorneys are known for their attention to detail (and for being litigious), so they’re not someone whose books you want to mess up. Fortunately, we work with many attorneys, and have gained a lot of experience in identifying potential danger areas in their financials.

If you’re an attorney just starting out, keep the following items in mind.

Trust Accounting

lawyer taking a callThe bar requires you keep a record of your monthly three-way trust reconciliations, and a quarterly reconciliation report reviewed and signed by a lawyer. When a practice is small and the number of clients with trust balances is few, this can be a very simple process that can be done just on a standard form, using the bank statement and client records. However, as a firm grows, utilizing trust-specific software, such as Trustbooks or Clio, can greatly assist in ensuring accuracy of trust reconciliations and in decreasing the time involved each month.

Apart from the reconciliations themselves, it’s very important to ensure that you are following all regulations for maintaining client funds in trust. Like the majority of states, North Carolina requires that funds be held in an IOLTA account. It is the attorney’s responsibility to make sure that earned revenue is transferred from trust appropriately and that no commingling of funds is occurring. Additionally, even if a bank or financial institution offers an IOLTA and is on the list of approved institutions, the attorney is responsible for ensuring that bank fees and interest earned are being handled correctly by the bank. (We have actually seen instances where banks failed to separate interest out from IOLTA accounts.)

Be hyper-vigilant when you begin to receive client funds in trust, and ensure you have proper systems set up in advance.

Practice Management Software

pointing at laptop screenIf clients are not on retainer, billing and receiving payment can be a major challenge in a law firm. (Even if clients are on retainer, ensuring that hours do not exceed the retainer before it can be replenished can be an issue.) There are also the matters of tracking client costs, tracking billable time, and ensuring that any flat-rate services are not suffering from “scope-creep”. Again, early on, something like a spreadsheet may suffice. However, sooner rather than later, most attorneys benefit from utilizing a client management software with built-in features for time-tracking, billing, and managing client account balances.

Choosing the right software early on will save the headache of a conversion later. Something to consider is whether you want an all-encompassing accounting and practice management software (like PCLaw), or separate systems (like Xero for accounting and Clio for client management). If you have separate systems, it is also important to consider whether there is integration available between the softwares, and how that works. In some cases, integrations can actually cause more complications, and the systems are better kept separate.

Partner Compensation

dollar bills planted in soilAdditional points of tension can arise as you take on partners. The “eat what you kill” trend is growing among law firms, and can be a strong motivator for revenue generation, particularly in the short-term. However, long-term revenue can sometimes be lost in the pursuit of immediately billable fees, and the overall brand and health of the firm can suffer. Planning a revenue generation strategy that is motivational for all partners, but also supports the long-term goals of the firm, is a crucially-necessary early discussion.

As with any other business, early planning and careful construction of internal financial systems will increase a law firm’s chances of success. Fortunately, most attorneys possess the focus and attention to detail to make those early decisions, and put the right structures in place. And if they need assistance, professionals like us are always available to help.


Accounting Considerations for Realtors

I’ve been housebound for nearly a week with the flu. While no one enjoys the flu, being stuck at home alone, when I already don’t feel well, is torture for an extrovert like me.

Of course, unless you already know Craig and I, most people don’t think of accountants as extroverts. No, the most famous extroverts of the small business world would probably be realtors.

But although realtors are known for being outgoing, high-energy, good-looking charmers, there is actually far more organization of paperwork and attention to detail involved in their job than most people realize. And though their bookkeeping can generally be fairly straightforward, there are always certain issues which can pop up to cause unexpected complications.

Needless to say, given our location in one of the most rapidly-growing metropolitan areas in the country, we work with a ton of realtors. Over the years, we’ve identified a few areas of their accounting which require a close eye.

Tracking Expenses

graph expensesThe real estate market giveth, and the real estate market taketh away. Few people can make money as quickly as a realtor in a booming economy. However, when times are slow, that fountain can dry up completely. That makes having a great system of tracking expenses of crucial importance.

Now, there are varying schools of thought on how one should go about paying for things but the argument largely boils down to: paper or plastic.

Since marketing and networking are two of the primary expenses in real estate, it can be easy to overspend, particularly as lunches, coffees, and referral fees add up. Those who study the psychology of spending advocate paying in cash or writing checks, as it has been proven that you spend less money doing so (because you physically observe the money leaving). However, cash and checks are an accounting nightmare.

Cash requires that you keep and organize receipts, which are prone to get lost, torn, smudged, or, in a best-case scenario, dumped in a box for your beleaguered accountant to sort through later.

Checks are not much better. For starters, realtors are busy people, and their handwriting reflects that. (I say this as someone whose own handwriting resembles an EKG readout.) It can be difficult for a bookkeeper to interpret to whom a check is made out (though you eventually learn how to translate your clients’ handwriting over time). Furthermore, both cash and checks come with 1099 implications (should the vendor meet the other criteria).

On the plastic side, debit and credit cards offer the benefit of easily tracking expenses, and cutting down on time and manual entry for bookkeeping purposes (without having to save stacks of receipts). Also, you get the benefit of avoiding the 1099 dilemma. However, for an undisciplined spender, swiping the card can be a far too easy, frequent reflex.

In my opinion, the best solution is to make use of debit cards, but to keep a close eye on your financial reports, and to analyze trends from month-to-month, so overspending can be corrected.

Paying Yourself

toy house and coinsAs we mentioned, the real estate market can be unpredictable, making it hard to pay your #1 employee (you). Many agents, particularly if they work independently, opt to structure their business as a sole proprietorship (sometimes with an LLC), and pay themselves only with Owner’s Draw. This works very well for simplicity’s sake, but you still have to pay quarterly estimated self-employment taxes (to avoid a hefty tax bill at filing). And these can be very hard to measure because, again, of the “estimated” part. Pay too little, and you’ll have to pay more at the end of the year. Pay too much, and you may be cash-poor until you get that tax return several months later (particularly if the housing market experiences a downturn).

To protect against this, some realtors establish an S-Corp and pay themselves as employees. This has the benefit of allowing you to pay in withholdings all year whenever you’re paid, and allows your salary to be treated as an expense of the company (as opposed to solely balance sheet activity). However, it does necessitate a payroll service (we strongly discourage filing your own payroll, for time and liability’s sake), and there is a balancing act in finding the right amount to pay yourself in salary as opposed to distributions (and different tax implications with both). It also means that, instead of a simple Schedule C, you’ll need a corporate return filed in addition to your personal return.

Generally, when your business begins to net roughly $50K per year, it’s wise to look into an S-Corp conversion.

Branching out in Real Estate

realtor giving keysProbably because so much “go-getter” spirit is required to succeed, most of the established realtors I know are entrepreneurs at heart. And since real estate is already in their blood, many try their hand at other areas of it, such as investment properties, property management, and land development.

The problem, of course, is that all of those have much more complicated accounting.

In particular, property management can be dangerous, as it involves trust accounts, and the strict rules which surround them. Not only must careful accounting be done to show proper revenue recognition and relief of trust liabilities, but the physical money itself can’t be left in interest-bearing accounts, nor co-mingled with other funds. (If you were to compare a real estate commission audit to a home inspection report, commingling of funds would be along the level of black mold.)

Obviously, I don’t say this to imply you shouldn’t expand your portfolio of services. However, it’s very important to understand the financials of the business you’re building in advance of building it, so you can have everything set up ahead of time. That way, you can protect what you have already worked so hard to grow.


Some of the most caring, hard-working people I know are realtors, and, like all business owners, it’s so very important that their financials are managed well. If you know of a realtor who could use some of this advice, please feel free to share it with them. (After all, who doesn’t know at least ONE realtor?)


hard hats

Accounting Considerations for the Trades

The finances of trade services seem like they should be simple: You have a leaky faucet, you call a plumber, they fix it, you pay them. From the customer’s side, it appears an easy transaction. For small business owners in the trades, however it’s much more complicated.

As though ladder falls, electrical fires, and rusty nails weren’t enough to worry about, skilled tradespeople also face the dangers of Department of Revenue audits and high-volume aged receivables. So for our month of industry-focused accounting, we’re focusing week two on accounting considerations for those in the trades.

Concern #1: Getting paid.

construction workerPerforming a job, particularly if parts have to be purchased, can be a costly endeavor. If employees have to be paid for extra hours or extra help brought on, it can be even more expensive. So when customers don’t pay, you, the owner is severely put-out.

There are ways for business owners to protect themselves and prevent slow/no-payers. The first, most obvious step, is to take a deposit, at least enough to cover parts and materials that must be purchased. This way, even if the job is cancelled, you’re not stuck with the costs of materials you don’t need.

The second is to establish clear terms of invoicing and payment, and to make sure both sides understand and agree to them. This can be particularly important when doing commercial work, as businesses often have more rigid rules about how they are invoiced, how POs are issued, and how payments must be approved internally before being remitted.

The third is simply having a system in place by which you follow up on overdue invoices. We do accounts receivable work for some of our clients, and you would be amazed how much money can be collected by simply calling and reminding customers that a payment is overdue. Though there are exceptions, of course, most people do want to pay their bills in a timely matter, and are happy to make right on an overdue account.

Concern #2: Job-costing.

mechanicIn the prior entry, we referenced the costs associated with an individual job, such as labor and materials. However, there is also travel time to be considered, as well as overhead allocations (how you proportion out fixed costs to specific jobs). Though it can be a lot of work to set up an effective job-cost tracking system, the data it provides is invaluable for business planning and expansion purposes, and for determining profitability of different types of jobs, and for pricing strategy.

In particular, tracking mileage and other travel costs can help immensely in determining how jobs are scheduled efficiently. Fuel costs alone can be significantly reduced with more strategic scheduling, as well as labor costs associated with travel time. Even things such as travel to vendors with preferred pricing can be optimized. However, if that data is not being tracked, it can’t be studied nor put to use.

Concern #3: 1099s.

construction workersIt’s common in the trades, more than any other industry, to hire short-term help for only a single job or handful of jobs. Without proper preparation, this can be very dangerous for a business owner when it’s time to file 1099s. Essentially, the IRS requires that a 1099 be filed for every contract worker who received more than $600 in cash or check for services in a calendar year. (And there are steep penalties at both the state and federal level for failure to do so.)

To file a 1099, you have to have a W-9 from the worker. If you paid someone for a single job in February of the prior year, it can be hard to track that individual down several months later to get a W-9 (especially if they know it means you’re trying to report their income to the IRS). We strongly recommend collecting W-9s (and Certificates of Insurance, where applicable) from contractors prior to paying them.

Concern #4: Sales tax.

carpentryNorth Carolina Department of Revenue shook things up a few years ago in 2016 when they began requiring sales tax be collected on additional services. Under the change in law, sales tax is now charged on repair, maintenance, and installation of “tangible personal property”. This means that, for example, someone installing an HVAC unit would have to collect and remit sales tax on not only the unit, but on the installation service as well.

Where this becomes complicated is that the sales tax expansion does not apply to services on “real property” (i.e. homes or other buildings). However, to protect themselves, tradespeople performing services on real property should obtain Affidavits of Capital Improvement in order to confirm that sales tax is not applicable on each specific job. (This is particularly true for general contractors performing remodels, or their subcontractors.)


Because there is so much variability and “gray area” within financial accounting for the trades, we recommend you speak to your accounting professional regarding any questions you might have for your business’s unique situation. If you don’t have an accounting professional, we might be the right people for the job.

Contact us to schedule a free 1-hour consultation; we’re happy to answer your questions.