Is It Time For a New Inventory System?

December is the time of year when everyone starts thinking about changes for the upcoming new year. For companies, that often means analyzing their current systems and thinking of what they want to improve.

One area in which we’ve seen a large number of clients update their processes this year is in inventory management. Many companies began selling more online during the pandemic, and quickly found that their old inventory systems couldn’t keep up. Those clients turned to us for guidance on the best solutions for those issues.

As we’ve worked through helping clients select, implement, and troubleshoot new inventory systems, we’ve encountered several questions, and have made a number of observations, which we would like to share.

Question #1: How do I know it’s time for a new system?

Unfortunately, many companies do not feel the need to begin the search for a new inventory software until an error has been identified. In the accounting systems world, errors are like cockroaches: if you see one, you probably have one hundred.

Errors can occur for a number of reasons, but, in essence, will always boil down to a failing of either man, machine, or both. Machine errors occur when outdated systems fail to integrate appropriately, or when data stops populating in a timely manner. Human error is simple mistakes, often due to manual mis-keys, or rushing. But often, it’s some combination of both. One common issue is that an outdated software no longer provides the functionality required, so the people using it create a manual “workaround”, that is subject to human fallibility.

Errors often coincide with another sign that it’s time for a system update: the current system takes too much time. It’s too finicky, not automated enough, and requires too many man-hours. These outdated systems may have a cheaper price tag, but cost too much in lost productivity (or having to pay accountants to fix the problems they cause).

Finally, it’s a clear sign that it’s time to update your inventory system when it is costing you revenue. If you can’t quote a customer because you aren’t sure if you have the job materials, or if you fail to fulfill an order on-time because product is missing, you can be certain your inventory needs to be updated.

Question #2: How do I choose a system?

Clients will sometimes ask us, “Which inventory system do you recommend?” While it’s true that there a few we work with more frequently than others, no one system is best for every company. Even businesses in the same industry can have very different needs and priorities, necessitating different software options.

A good first step is to establish your priorities in selecting an inventory software. It’s not guaranteed that you will get all of the features and functionality you want (especially if you have a limited price range), so it’s good to know what bells-and-whistles are “must-haves” versus “nice-to-haves”. It’s also crucial to ensure that any software you pick accounts for the people who will be using it; a Cadillac ERP is useless if it’s too complex for any of the end users to understand.

You also have to determine whether you are looking for a short-term solution that will build upon your current systems, or something scalable that will replace current systems and be used indefinitely. For example, many companies will purchase highly-modular inventory software packages that can integrate with their accounting software, and have additional features unlocked over time. Other companies may select an all-inclusive program with high start-up costs, but that should suit all of their needs in perpetuity. This is where cost becomes a huge factor.

In analyzing multiple system options, it’s important to calculate the ROI on each one. In making this calculation on a software option, it’s important to not only weigh it against the cost of any systems it might be replacing, but to also consider labor hours saved, potential revenue gained, loss prevention, etc. You might even be able to incorporate functions you had not considered. (For example, a trades inventory software might come with scheduling applications which can save dispatch time, or improve marketing.)

Of course, once a new system is selected, the project is only beginning.

Question #3: How do I get started with a new system?

Implementation is the toughest, most frustrating part of any software project. There are almost always unforeseen challenges, and it is often a highly iterative process of testing different types of transactions, seeing what errors are thrown, and making adjustments, just to test again. However, there are steps you can take from the onset to minimize the pain of systems transition.

Your first step is to establish your transition “team”: this is a mix of the system’s end users, both internal and external, and any consultants or experts who are helping you along the way. It’s good to clarify each team members role and duties early on, to avoid duplication of efforts or tasks being missed.

Once you have pulled your team together, you’ll want to schedule out milestones for your transition project, as well as touchpoint meetings. This will keep everyone focused, and will help prevent you from losing momentum. Too often companies purchase expensive new softwares without a clear implementation deadline in place, and end up letting them sit unused, while everyone continues to work in the old, more familiar software.

In putting together your transition timeline, you’ll also want to consider how long of an overlap window you want with the old system. Overlap windows, where both systems operate concurrently, not only make the transition smoother (because you’re not trying to cut off one system at the same time you begin a new one), but also help provide a data backup in the (nigh inevitable) event the new system needs some troubleshooting once it goes live.

After you’ve been active in the new system for a while, it’s also good to have established check-ins to be sure that everything is remaining accurate, and that there aren’t any “behind the scenes” problems to be addressed. Then, you can work in confidence in your new, updated inventory program.

We’re Not Business Coaches

I’ve written before about the role of a CFO versus an accounting manager, but have found that there is still a good bit of confusion surrounding what an outsourced CFO/accounting consultant does. The major misconception is that we offer business coaching. In order to clarify how that is not what we do, I thought it might be helpful to expound upon the differences.


Coaching is directed toward an individual, often a company owner or higher-level executive. Financial consulting is based on the needs of the company as an entity. While a business coach might direct an owner to how they might discover their personal passion, and build a company around that, a business consultant would view the areas of profitability for the company, and help devise a plan for focusing toward the best area of ROI, while still serving a diversified client base. Someone struggling to define their personal vision would make a better client for a business coach, than for a consultant.



Financial consulting is based in quantitative data. We do work in forecasting, with margin for error, but all analysis of future possibilities comes from what is quantifiably measurable in the present. Business coaching can be based around more nebulous information, and be more aspirational in pursuing goals. Financial consulting can be used to deal with a moving target, as opposed to aiming for a destined endpoint.


Though we love our clients and are always willing to lend a sympathetic ear, we recognize that we are not trained therapists. (I do feel like we should at least get an honorary license for talking hundreds of people through PPP applications, however.) We want what’s best for our clients, and sometimes that means having to have difficult conversations. Our role is not to be a cheerleader, but an arbiter of fact-based truth. If a client is dead-set on a given business path regardless of the data, and is seeking encouragement only, they are not a good candidate for our consulting.


In short, via our consulting services, we seek to assist a business owner in improving their company. We do not endeavor to improve the performance of the business owner his or her/self.


The Four Pillars of a Financial System

Every business has, whether by intention or default, a financial system. In a “default” financial system, the movement of money just…happens. Bills might be tracked on a notepad, customer invoices are saved on a spreadsheet, and the accounting is just something the tax preparer does with the bank statements at the end of the year, wholly unaffiliated with anything else going on in the business. The chaos that results from these default systems leads to owners out-of-the-loop on their own companies’ financials, and has caused the shuttering of more than one small business.
Building a solid business financial system requires focus, planning, and four crucial pillars: software, workers, processes, and product.


An accounting software is necessary for a solid financial system, but does not have to be pricey nor extravagant. It is easy for SMBs to rack up hundreds in monthly subscriptions by trying to find a software, or combination of softwares, that will automate every aspect of their business. Though automation has come a long way, it is inevitable that some work will have to be done by a human.
It is most important to find a software that meets the needs of the business while simultaneously producing accurate financial reports. Choosing a software is too long a process to cover here, but there are a few guidelines to keep in mind:

  • Does this program meet double-entry accounting standards?
  • Does it save me time, or create more effort?
  • Will one software cover everything, or will other softwares be needed? Can they be successfully integrated?
  • Can everyone working in this program learn to use it accurately and effectively?
  • Will everyone working in this program use it?

As you can see, those utilizing the system are as important as the system itself.


In speaking of workers, I am not referencing general employees but rather all those, internal and external, who are operating in the space of the business’s financial system. This could include the business owner, a W-2 admin, a tax preparer, or an outsourced consultant. In developing the system, practical considerations have to be made regarding the ability and willingness of those expected to work within it. One software might be flashier than another, but too complicated to learn alongside keeping up with other work duties. Or, a business owner might be interested in highly granular data regarding their supplies inventory, but it would be impractical to ask for a daily count of individual nails.

Like other aspects of the system, the workers may shift from time to time. A business who relied on an in-house admin to fulfill bookkeeping tasks may choose to outsource those duties as they grow, or to find a CPA who can better meet their needs as a scaling operation, versus a smaller “mom and pop” shop. Regardless of who currently performs the work, it is important that everyone’s tasks are clearly outlined and delineated. This is where processes come into play.


Documented processes are vital to any business operation, and financial operations are no exception. It is important to have processes well-recorded not only to ensure that things run smoothly, but also to protect the company’s fiscal assets. A messy financial structure is one that is vulnerable to embezzlement and mismanagement of funds. In developing processes, consider the following:

  • What individual is responsible for which tasks? Are duties separated to prevent misbehavior? (For example, requiring a second approval to add a new vendor to the bill-pay system.)
  • Which tasks are dependent on each other?
  • What are the deadlines for each task, and how do they affect subsequent dependent tasks? (For example, what if reimbursement receipts aren’t submitted prior to the payroll run?)
  • How can natural consequences be utilized in order to ensure that tasks are met with accuracy and timeliness? (Ex. If reimbursement receipts are not submitted on-time, they will not be paid out until the next payroll run.)

If the workers are utilizing the software appropriately, and are following processes, you will receive a timely and accurate financial product.


The financial documents resulting from your system’s work are your product. As we’ve previously discussed, this shouldn’t be just your end-of-year Balance Sheet and Profit & Loss Statement for tax filing. You should receive and analyze financials on, at minimum, a monthly balance. Reviewing the financials while they are fresh allows you to make timelier and more relevant business decisions. Beyond the standard financials, developing KPIs, and the appropriate reports with which to track them, is crucial as well. One company facing cash-flow issues might want to examine Average Days to Pay on customers, as well as their monthly Statement of Cash-Flows. Another company might want to review profitability within one division of their organization. Much like the rest of the financial system, this product can also evolve over time.

Developing a financial system can be a daunting task, but help is available. If you would like better structure within your financial system, but aren’t sure where to start, contact us for a free consultation.

man holds papers

What Does a CFO Do?

If you asked the average person what a CEO does, they can probably give you a fairly detailed answer, somewhere between the truth and the truth as influenced by pop culture. CEOs are visionaries who run companies by giving presentations and going to board meetings.

By contrast, if you ask what a CFO does, the answer you might get is, “Shred documents.” CFOs rarely get famous, and it’s even more rarely for good reasons. But CFOs do serve real, legal, purposes. So we seek today to answer the question: What does a CFO do?


sign papers

CFO vs. Accounting Manager

It might help to start by clarifying what a CFO does not do. Though a CFO is, by definition, the Chief Financial Officer of a company, their role is not the same of that as an Accounting Manager. An Accounting Manager directs the accounting department and ensures accuracy and timeliness of company financials, as well as making sure the day-to-day accounting operations run smoothly. In contrast, the CFO is responsible for the financial health of the company, as well as leading its financial direction. To put it in simple terms, if the power gets shut off because someone forgot to pay the bill, it’s the Accounting Manager’s fault. If the power gets shut off because the company can’t afford to pay the bill, it’s the CFO’s problem.


How Do Big Companies Use CFOs?group looks at laptop

A CFO’s role is to develop and implement the financial strategy of an organization. They not only analyze the present financial position, but develop projections and forecasts for where the company is headed. If an accountant is a historian, the CFO is a futurist.

Beyond analysis of the basic company financials, they develop KPIs to track financial health, and are a key figure in making financial decisions, such as issuance of shares. In publicly-held companies, the CFO also ensures that regulations are being met and obligations to shareholders fulfilled.


women look at laptopWhat Can a Small Company Do?

Per, as of March 29th, 2022 the average CFO in the United States makes $412,529 per year. This is an expense that is not an option for many small-to-midsized businesses. Many small business owners choose to cover those duties solo, though some choose to outsource the work to a fractional CFO.

An outsourced CFO can help with obvious needs, like pursuing financing from lenders or investors, or special reporting required for grants and government contracts. However, they can also help with everything else the big companies get: budgets, pricing strategies, expansion planning, etc. The trick is in finding a good outsourced CFO.


collaborate at workWhat Makes a Good Outsourced CFO?

Projects die when there’s a lack of focus, and that includes financial projects. A good CFO consultant will help determine what CFO services are needed, in what order, and the timeline for their implementation and overlap. (Since the CFO is not a full-time employee, and human capital in a smaller company is more limited as well, it’s impossible to start all projects desired all at once.)

The good CFO will not just assist with the higher-level thought exercises, the analysis of data already collected, but will also help with practical implementation. A company who is outsourcing CFO work may also not yet have an Accounting Manager, and the CFO consultant can help fill in those gaps, and be sure that financial systems are well-developed and running smoothly. Since the CFO cannot provide good analysis without good data, it benefits all for the books to be clean and timely.

Most importantly, a good CFO will exhibit flexibility in working with a client, not trying to sell a set package of services, but developing plans unique to that company’s needs. A sales bonus plan doesn’t necessarily help a company with receivables issues, nor should a company with poor cash-flow focus on immediate expansion. A good CFO will be dynamic, instead of taking a one-size-fits-all approach, and will be honest with the client, even when they don’t want to hear it.

And, of course, they won’t rely on the paper shredder to cover up financial crimes.

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.