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.
