Since my post of July 16th has convinced you to let go of your bookkeeping and outsource it to a bookkeeper, the next question arises is to Who Do I Hire?
Although good bookkeeping is fundamental to the success of a business, unfortunately in Canada it is an unregulated industry. What does that mean? Basically it means that there is no certification or accreditation or degree that is required to call yourself a bookkeeper. Any individual can walk into a Staples Store , purchase a version of QuickBooks or Simply Accounting, and then walk over to the Staples Copy Centre, print off some business cards, and they are now a bookkeeper. Yep, that’s it. They can now come to you and tell you that they can look after one of the most important areas of your business for you, and you will pay them to do so!
It is a thought that terrifies me completely. In my years in the industry, I’ve been stunned by what I’ve seen that passes as bookkeeping. Some of it has been glorified data entry, but a lot of what I’ve seen hasn’t even been correct! We’ve often been retained by clients, just to clean up their books when CRA comes knocking at their door. Both QuickBooks and Simply Accounting are powerful accounting software programs for the $300 – $1200 you have to spend to use it. But the output is only as good as the input, and for every transaction that has to be entered, there are probably 3 or 4 different ways to enter the data. But unless you enter the data in a certain way into the software, you will not be able to use the multitude of reports available to slice and dice that data into useful information to run your business.
So what should you look for?
Here are some obvious red flags to start with.
- How many adjusting entries do you get at the end of the year from your accountant? This is the list of entries which your accountant asks your bookkeeper to enter after they have done their review. If you are receiving multiple pages, with large numbers, it should be a red flag for you. These are typically corrections made to entries that have been posted by your bookkeeper throughout the year, but haven’t been entered correctly. You should typically receive 5 or less entries, and they should be related, to tax, shareholder loans or management fees, dividends, amortization/depreciation and deferred revenue. Anything else is usually a correction of something that wasn’t entered correctly?
- Are your entries being entered through the modules of QuickBooks, or does everything get entered in as a journal entry? This is one of the biggest and most easy to spot problems. If the information is all going in through journal entries, you have eliminated about 75% of the features in QuickBooks or Simply Accounting already.
- Run your balance sheet –
- Do you see any negatives other than possibly in your Retained Earnings or Net Income lines? If so, those accounts need to be looked at.
- GST/HST payable – is there more than one account capturing this information – in QuickBooks there should only be a single GST/HST payable account. In Simply Accounting, you should only have three accounts – GST/HST Collected, GST/HST Paid and then a total of those two accounts.
- Run your income statement or profit and loss statement:
- Is your list of accounts extensive and runs across more than two pages?
- Does your statement have a Cost of Goods/Services Section and then a Gross Profit Total? (Some businesses will not require this, but the majority will)
- Are your accounts grouped with subtotals to provide you with at a glance information, or do you have to manually add up numbers in order to get the useful information you need?
- Are there any negatives on this report, and if so, why?
Those are just a few, very easy, things to look at to see if your bookkeeper is entering things correctly. There are many more indicators, which I’ll cover in more detail in future blog posts. It’s not meant to scare you, but as the bookkeeping is such a fundamental part of your business, it is important that the numbers you are looking at are accurate, especially if you are using these numbers to make business decisions.
And don’t be discouraged if finance, bookkeeping and accounting don’t come naturally to you! If bookkeeping feels way out of your comfort zone, you may want to consider hiring a bookkeeper to come in once a month or a few times a year, depending on your volume. It’s probably worth the cost for you to stay focused on what you do best and not get overly distracted or bogged down with the bookkeeping. But I do strongly recommend that you stay involved. Ask your bookkeeper to generate the Income Statement and Balance Sheet each time they visit. Make sure you carefully review it with them and ask questions. Every once in a while, I come across a client who doesn’t want to know anything about their bookkeeping, and I promise you, it’s never a good situation. It usually means that the business owner is not making informed decisions, and as such, the finances can easily fall to the wayside. So having a bookkeeper alone is not the solution; make sure you have a bookkeeper that you work closely with.
Absolutely agree! Stay involved so that you understand what is happening. There are lots of online resources to help you understand your financial statements, or questions to ask your bookkeeper.
If there’s one thing I’m bad at in this whole freelancing business it’s bookkeeping. I mean, I’m a writer — and frankly, one of the things that draws me to writing is that it’s not bookkeeping. If you’re a writer, a designer, or even a coder, chances are you were drawn by the possibility of putting words, images, and code together in creative ways, not by the prospect of meticulously recording financial transactions.
And if you were to ask me to design a brochure or code a website I’d be exactly the same way! I don’t know why business owners or freelancers assume that we have to know how to do everything ourselves. If we buy a car and it needs to be fixed, we certainly don’t try and do it ourselves, but hire someone who can 🙂
What are some of the small business bookkeeping accounts QuickBooks sets up automatically?
I’m assuming that you are asking about the Chart of Accounts that QuickBooks sets up? There are some standard ones for the Balance Sheet such as bank accounts, accounts receivable, accounts payable, GST/HST payable, retained earnings etc. However, most of the accounts which are set up by QuickBooks are determined by the industry you select during the setup phase of the software. The great thing about QuickBooks is the ability to customize the account structure fairly easily. So choose the industry that is closest to yours and then you can modify the account structure to things that you want to be able to track in your business.
Outsourcing your bookkeeping, allows a professional to look over your expense and profit centers to determine where you may be able to see improvements in your business. A good bookkeeper can then competently organize and present the data so you can make the changes needed to improve your efficiency. A professional bookkeepers detailed reports can free your mind to focus on the more important aspects of the business.
Thanks for the comment. And you are absolutely right! The key to the whole equation though, is that you have a “good bookkeeper”.