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.


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.


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.

marketing typewriter

Accounting Considerations for Marketing Agencies

Over the last several months, I’ve had the honor of serving as the Treasurer of Triangle AdFed. It’s a volunteer position, and a lot of work at times, but it’s given me the joy of getting to hang out with some of my favorite people: marketers.

Despite the fact that I’m in a typically uncreative industry, I do love the enthusiasm and energy of professional creatives, and I greatly admire their work. A good number of The Bookkeeper’s clients are marketing agencies or professionals, and I consider many of them close friends outside of work.

I learn so much from my marketing friends, and the only advice I can offer in-turn is related to their financial management. So, to kick off our series, I thought it would be fun to write an article about the things marketers need to take into consideration when viewing their accounting systems.


wallet with hundred dollar billsFew industries can be as volatile and unpredictable as marketing. Trends change, Google adjusts algorithms, and marketing clients don’t always recognize the back-end work that goes into their return-on-investment. Add in high costs and challenging margins, and marketing agencies can face cash-flow problems from month-to-month.

However, there are a few strategies which can be put into place to mitigate these issues. Cash-flow is really comprised of two main components: Accounts Receivable and Accounts Payable.

On the Accounts Receivable side, there are steps marketing agencies can take to keep money coming in. The first is to have a plan in place to handle delinquent client accounts. A documented series of steps for contacting clients with overdue balances can help separate the emotions from collections practices, and can help overcome the fear of “not wanting to make a client mad”. And, particularly when clients are slow-to-pay, it is good to examine not just the on-paper profitability of the client, but the cash profitability of the client. That’s because, in marketing, a large part of Accounts Payable is tied to client activity.

On the Accounts Payable side, marketers will often have high bills (for ad spend, website design, etc.) tied directly to client projects. Ideally, you would have a client paying for these costs directly, or paying for them in advance, to improve A/P cash-flow. However, in situations where that might not be feasible, it can be wise to utilize credit for some of those large purchases, and pay the balance off in-full from cash each month. This way, in the event of a non-paying client or other emergency, there is a bit of a “cash cushion” to sustain the business for fixed expenses such as rent and payroll. There is also no shame in partnering with vendors to find a monthly payment schedule which works for the regular flow of your business; so long as they know when to expect their payment, most vendors will be happy to accommodate your preferred payment date each month.


women at conference tablePayroll is so important because it is the one thing you can absolutely never be late on. If you have employees, they are the most valuable resource of your business. And marketing companies often walk a fine line in determining when to work with employees, and when to work with subcontractors.

Now, we know I can write an entire article on FLSA compliance, so I won’t bore you with reminders to pay employees as employees and vice-versa. However, for budgeting and expense-management purposes, choosing which type of worker to use can be a crucial part of a marketing agency’s growth.

Subcontractors typically come at a higher hourly rate, but can be used as often, or as sparingly, as is needed. Also, it’s easy to track client-specific costs when paying for work on a per-job basis.

Employees often come with a lower hourly rate, but they also come with employer tax liabilities, and might not be as motivated for high production efficiency if their hours are set. Also, if the market turns and sales drop, you can be put in the awkward position of having to cut hours and/or staff.

A good solution is to perform a break-even analysis of adding an additional employee vs. paying a subcontractor. You can use this to determine exactly how many hours of work necessitate additional part-time or full-time staff; you can also take into consideration such factors as production bonuses and/or commissions or profit-sharing for employees (to encourage strong work and efficiency).


calculating invoiceMany industries struggle with pricing, but marketing has come unique concerns. Many clients contract marketing agencies for both project and ongoing retainer work, and tracking the associated costs for those clients (and billing accordingly) can be a major challenge.

The first step is to clearly define the parameters of retainer hours and service projects, and to monitor those closely to prevent “scope creep”. This will help you to keep costs down, and will also help prevent large, unexpected bills for clients. For clients who are paying a flat monthly fee, either have a provision in the agreement for going over hours, or regularly review client hours to see whether a retainer needs to be increased.

It is also important to have a clear definition of what clients you want to serve. There is a fine line to walk in pricing competitively and remaining profitable; recognizing that you can’t serve every client model and identifying your target market can help you walk that line.

Because marketing is such a large field, there are many other niche problems which can arise. (For example, 1099s for inf marketing, or currency conversion for international marketing.) So for marketers in particular, it’s important to work with finance professionals who understand your company and its unique needs fully. Don’t be shy about asking your bookkeeper, tax preparer, or CFO how they would address some of these issues.

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.

calendar on desk

Getting Ready for Year-End Starts Now

You may be lamenting the fact that stores already have Halloween decorations out but, here at The Bookkeeper, we are already preparing for year-end.

In an effort to help our clients (and everyone else) get ready, we’re putting out a list of things you can start doing now to ensure a smooth first quarter and segue into tax season.

Hire a tax preparer.

reviewing documentsIf you don’t already have a CPA or EA lined up for your year-end taxes, start interviewing now. They will get very busy by the end of the year, and the good ones tend to fill up on clients quickly. (If you need a referral for a good tax preparer, we are happy to provide some!)


Get last year’s records handy.

bindersIf you are using a new tax preparer, they will likely want to see a copy of your prior year tax returns. If available, a copy of your balance sheet from the end of the prior year will be helpful, as well.




Check your sub-ledgers.

magnifying glassIf you have a copy of your balance sheet handy, it’s a good idea to go ahead and take a look at your sub-ledgers, your Accounts Payable and Accounts Receivable. It may be that interest hasn’t been properly recorded on some of your loans, and that you are missing out on a deductible expense there. Or, if you are accrual-basis and have receivables outstanding, you want to either follow up on those clients for payment, or write off any unrecoverable invoices, so you aren’t liable for taxes on income which you’ll never receive.



Review uncleared transactions and amortizable expenses.

reviewing documents

If you are filing accrual-basis, you will also want to be sure you have a record of checks which were written but have not cleared the bank, as these expenses should be deductible in the same calendar year they were incurred.

Also, if you have any assets on the books for prepaid expenses, be sure those were expensed properly throughout the year, so they will lower your taxable income.


Prepare your 1099 list.

wrist watchYou will be liable for filing 1099s for any non-incorporated service provider to whom you have paid over $600 in cash receipts within the calendar year. To file 1099s, you will need a W-9 from each vendor fulfilling that criteria, and a total of how much you paid them this year.

What’s worse is that 1099s are actually due not at tax time, but at the end of January, and the penalties for late or missing 1099s are stiff. So start gathering that information now!


Start your payroll reconciliations.

writing in notebookIf you have staff, or yourself, on payroll via an outsourced service, it’s a good idea to review the reports on a quarterly basis, to make sure that what you have in your set of financials matches the payroll provider’s records. You want to also ensure that any taxes they have taken on the responsibility of paying have been paid in a timely fashion.

W-2 corrections take time, and you can be liable if W-2s are late. If there’s an issue in your payroll reporting, it’s best to locate it before year-end, when the payroll companies will be at their busiest.

Finally, don’t forget that any bonuses you plan to pay employees around the holidays are treated as W-2 earnings, and should be run through regular payroll.


Pay your quarterly estimated self-employment taxes.

time moneyPaying in on a quarterly basis is a good way to avoid a massive tax bill the following spring. But be aware, the next due date is only 9 days from now, on September 15th!





Make sure you’re not missing anything.

puzzleBe certain there’s a record of any business expenses you might have paid out of personal accounts, and that any transactions which have been uncategorized to this point are properly allocated. And if you find that it’s been an unexpectedly successful year and you need to lower your taxable income, (particularly if you’re cash-basis), you might want to consider going ahead and paying for some of your typical January expenses earlier, in December before the year ends.



Ask for help, if you need it.

hands in togetherIf you’re finding that you don’t have an up-to-date set of books, and you’re feeling overwhelmed, don’t be afraid to ask for help. If you’re already behind, the last thing you want to worry about is catching up your books over the holidays. We’re here to take that off your plate so you can focus on the things that matter most to you at this time of year.

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.

Guest Post: Neal Isaacs, "Advice on Accountants (for what it's worth)"

VR Business BrokersToday's guest post is from Neal Isaacs. Neal Isaacs, MBA, CBI is a Business Broker and the owner of VR Business Brokers of the Triangle, located in Raleigh, NC. He writes about business and helps business owners discover their exit options. Call (919) 628-0571 or email [email protected] for your free consultation. Learn more at http://www.vrbiztriangle.com/.




As a business broker, I answer a lot of questions about how to sell a business.  One of my FAQs that I share with all business owners planning to sell is about the total cost to sell a business.  

People don’t think about costs in selling a business.  The first question people always think is “How much can I get?” but the truth is:


It’s not how much you make, but how much you keep that matters.


So how much will you keep?  What will be left depends on how much it costs to sell a business, as well as your tax treatment on what you get.  Costs toTall Buildings sell a business, if you don’t consider paying off your debts, are primarily professional fees. Consider the investment in a business broker, as most business sellers are doing it for the first time, and the sale of a business is a complicated and convoluted transaction, and consider the costs of a business attorney.


You’ll also want to consider the costs of a accountant.  Chances are sellers are already using these advisors, but there may be some additional costs for updating or adjusting P&L statements.  

Depending on your time frame for the sale of your business, there may be more that can be done from an accounting perspective to increase the value of your business from a buyer’s perspective.  Let’s consider:


How Far?

The “look-back” period for the sale of a business is normally three years, but some buyers will ask for five.  If you’re planning to sell your business in the next couple of years, it’s wise to communicate this fact to your accountant, and to start working with a business broker.  Preparing and highlighting the best financial aspects of your business is something a good business broker can help you with in conjunction with your accountant.


The fact of the matter is, running a business to sell is different than running a business to support a lifestyle.  The IRS has a lot of rules that your accountant will know and guide you on regarding how much you’ll have to pay in taxes, but a good accountant will also know how to protect you from paying too much tax in a legal and ethical manner.


How Much?

Cash money
It may sound obvious, but don’t be afraid to ask an accountant how much they charge, or at least to give you a range of what to expect.  Different accountants charge different prices for similar work because they have different costs to run their businesses, and they bring different experience to each opportunity, so interview your prospective accountant to learn if they are bringing the right skill and experiential sets that you need.  


Do We Fit?


When picking an accountant, it’s good to ask them about what their client base looks like.  You’re accountant will know exactly how much money you have, and the size of your business eventually, so consider being up front with them in your first meeting if for no other reason than to ask them if your business resembles their current book of business.  If your business is an outlier, they may simply not be reviewing the tax code and regulations related to the needs of your business.


Too Much?


I have seen one person pay $400/hour for financial due diligence on a deal for buyer representation, and it was way too much.  The CPA on the buyer’s side was more than willing to ask questions and go down paths that were not germane to the deal at hand, in part because he was being paid by the hour, and in part because his client hired him to investigate, and he was used to investigating very complicated businesses.  This was not a complicated business, and in my opinion this buyer brought a cannon to a knife fight (and paid for it).


Whether you’re a buyer or a seller, picking the right accountant, or even upgrading to the right accountant, can pay for itself.  Especially after the sale, when you have to deal with the financial repercussions of capital gains (this is another great question to ask your accountant early if you’re a seller).

If you need help choosing or interviewing an accountant in preparing for the sale of your business, I can help.  Email me at [email protected] and I’m happy to share some questions that you could ask an accountant that you’re considering hiring.

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.