How the Right Bookkeeper can Help Your Small Business Take Off
It’s Review Time, but How Do I Review My Bookkeeper?
For the owner operated businesses under $10M that we tend to work with, this is an important question. Often the bookkeeper in these small companies is not full time, or even part of the “team.” Or, they may be part of the team for some other reason, but they do the books on the side – such as an administrative person who doubles as the bookkeeper.
What is the Purpose of the Bookkeeper?
Before we can review the bookkeeper, we have to understand their job and why they do it. We can agree that the purpose of the bookkeeper is to do the books, but let’s back up a minute – why do we do the books?
If your answer is something like, “to give them to the accountant so he/she can do my taxes,” then you’re leaving a lot of value on the table. While doing your books can be a simple regulatory move, something you’re forced to do by law, doing your books can also be a key piece of your strategy for growing the business and producing a healthy profit. When you begin with the attitude that the bookkeeper is only a necessary evil related to the whole tax thing there is little motivation to see the bookkeeper as a member of the team.
So the real question becomes, “Is your bookkeeper an essential part of your team?” They should be. When you see the bookkeeper as an essential part of the team, the idea of reviewing their performance takes on more meaning and importance. They are the ones who give you the data you need to run the business and to know where you stand with cash, expenses, profits, balance sheet ratios and trend lines.
But we find that many owner-operators have their own methods for figuring out the health of the business. We call this, “the bookkeeper workaround.” Maybe the owners keeps her own spreadsheet, or there are one or two reports they get weekly or monthly that they swear by. Whatever the method, it often does not require full financial statements. Usually, the bookkeeper is relegated to just producing a P&L or answering random financial questions as they occur to the owner. Occasionally the Balance Sheet becomes interesting. Rarely does the Cash Flow Statement get run and reviewed.
The result of not needing full financial statements is that by extension one feels that the bookkeeper is a sort of mystery position. As long as the owner can get questions answered when he or the bank or the IRS needs them, that’s about all they need. This is why bookkeeping is often done by someone with little training or by the owner themselves.
Of course you’re better off with a real bookkeeper, but what makes a “real” bookkeeper anyway? This is not an easy question to answer. This is not a regulated profession. Bookkeepers are not like CPAs. They do not have to pass an exam and they do not have to have letters after their name. There are some association certifications, like the American Institute of Professional Bookkeepers who grant a Certified Bookkeeping Designation to those who pass a test and have several years of experience. While this is certainly a mark of distinction, the CDP not yet a standard that many people are looking for.
At Giersch Group, we would define a real bookkeeper by the work they do. Unfortunately, it’s hard to tell how they’ll do just from an interview or two, but within three to six months, you should have a sense of their ability to do the key functions of a bookkeeper.
And the key function, the most essential definition of a bookkeeper for a serious business or nonprofit is this: someone who delivers a full financial package of accurate financial statements on an accrual basis in a timely fashion. This means that somewhere between the 10th and the 20th of the following month, you should receive either an electronic or printed copy of a full set of financial statements for the previous month, quarter end or year end. The package should contain:
- Beginning and Ending Balance Sheet for the period.
- Profit and Loss for the Period compared to budget or prior year or prior month.
- Cash Flow Statement for the Period.
It is worth noting that only if you have these statements are you able to perform the Four Way Test on the financials to confirm the integrity of the books and the reconciliation between the cash position of the company and the accrual representation of the Profit and Loss. To learn how to do the Four Way Test, see our article on the Cash Flow Statement referenced below or click here.
When these financials are delivered each month, they should come with some analysis, whether written or spoken, as to what is of note in this month’s financial package. They should help you know what you are looking at. A few key points they should make include:
- CASH: Since cash is king, they should make the cash position clear. If cash is tight they should have some ideas for how to cover shortfalls. Since you can only get credit when you don’t need it, they should be urging you to plan ahead. If cash is flush, then the question of investment should arise.
- REVENUE: Healthy businesses should show some sort of growth pattern. The monthly, quarterly and annual review should clarify growth trends.
- PROFIT: Since a business must make a profit to maintain and grow, they should have some comments on the profitability of the company. A percentage of revenue business model is helpful here.
- CAPITAL STRUCTURE: Since the Balance Sheet shows the real health of the company, they should be able to point out a few key Balance Sheet ratios worth noting. These will make clear the debt and equity position which essentially function as the capital structure of the company.
If you are serious about reviewing your bookkeeper, this outline of the monthly presentation with a review of these four pieces is a worthy goal to work toward together.
The Bookkeeper is a Partner in your Business
When you get around to reviewing your bookkeeper, it should be a two way conversation. Every review should contain a good amount of talking by the reviewee. At the very least, the reviewer should ask, “Is there anything you need from me?” You want to find out if your bookkeeper is getting enough information from you and your team to do their job properly.
When you begin to see the bookkeeper as a partner in your business, it makes sense that they need your input and your help to do their job right.
Summary
If your money is important to you, then the bookkeeper should be one of the most important roles on your team. Too often the bookkeeping is another hat given to an already busy employee. Sometimes that person is the owner-operator who is trying to do it all themselves. A good bookkeeper who can present timely, accurate financial package every month, with helpful commentary and discussion is one of the indispensable pieces of building a great business that lasts.
Questions for Consideration:
- Do you review your bookkeeper annually?
- Have you thought through the expectations you have for your bookkeeper?
- Do you see your bookkeeper as a partner in growing your business? Why or why not?
Contact our Milwaukee bookkeeping and accounting firm for a free consultation.
