Thomas Joseph

Monday, 22 July 2002 09:56

Numbers nightmare

Today, more and more entrepreneurs seek to increase their chances for success by carefully scrutinizing each function they choose to handle in-house. As a result, many are discovering that the best approach to financial record keeping may be to let someone else deal with it.

Think about it. What merits the attention of you and your staff? Developing an internal expertise in bookkeeping? This is not quite as strategically important as increasing revenue or improving customer service. Time and money spent on bookkeeping will be, at best, invisible or, at worst, a drain on precious resources.

Based on what I’ve encountered working with hundreds of small businesses and nonprofit organizations, here are five tips to effectively utilize professional financial services and keep your company focused on growth.

1. Honestly evaluate your accounting and computer skills.

Most entrepreneurs hope that “user friendly” accounting software will make up for their inexperience. Don’t believe the hype. Learning and operating these systems often requires a significant investment of time. If the result is that you wind up with an electronic “shoebox,” not only are you not properly utilizing the technology, you may be creating unnecessary work for your accountant. You might find that the fastest, easiest and most foolproof method for basic accounting is a low-tech “peg board” system.

2. Keep it simple.

If you decide to implement an accounting software package, start by mastering the basics. Identify specific goals before you move onto the software’s more complex capabilities. A job-costing system won’t provide you with any valuable information if you can’t balance your checkbook. As you implement more features, make sure the value of the information gained justifies the time invested to get it.

3. Contract with a payroll service and use all the bells and whistles.

If you can’t see using a payroll service to merely “cut a few paychecks,” look more closely at the value proposition. Primarily, a payroll service is an insurance program in which the service assumes responsibility for the collection and payment of payroll taxes. If anything goes wrong, it’s S.E.P. (somebody else’s problem).

Payroll services handle direct deposit, 401(k) and other benefits functions that employees expect from employers. Viewed this way, cutting paychecks is only a small part of what a payroll service can do for you.

4. Make good use of your CPA firm.

If your business is not transaction intensive, it may make sense to have an accounting firm do your bookkeeping on a monthly, quarterly or yearly basis. As your company grows more complex, you will need to involve your CPA firm in the evolution of the accounting function.

Companies today often engage CPAs to act as their chief financial officers in lieu of hiring controllers or other high level executives. This practice is becoming more prevalent, leaving companies that outsource with fewer accounting personnel to manage.

5. Consider a modular approach to outsourcing.

As your requirements grow, keep in mind that accounting systems don’t have to be all or nothing. You may find that it’s just not possible to outsource a particular component of your accounting.

But that doesn’t mean you can’t use services to pay your bills, do routine accounting, perform collections or automate your billing. Minimize what you have to do internally. By minimizing or eliminating staff, you not only save on salaries, but also on time spent recruiting, training and supervising.

The key to bookkeeping is to find the system or combination of systems that works for your business. Avoid the temptation to copy what someone else is doing. Look at your own business and carefully and honestly evaluate your needs.

That’s the first step to implementing a bookkeeping system that gives you the information and freedom you need to focus on growing you business.

Thomas S. Joseph is president of Bookminders Inc., a North Side-based provider of automated bookkeeping solutions for companies. He will speak about bookkeeping at the Entrepreneur’s Growth Conference June 3 at Duquesne University. Reach him at (412) 323-2665.

Monday, 22 July 2002 09:44

Who’s counting the money?

As the demands of your business grow, you’ll inevitably face important decisions about staffing and managing your accounting department.

And because accounting requires a broad range of skills, addressing all of them can prove tricky.

Many business owners make the mistake of giving one person two levels of responsibility, such as a controller/bookkeeper. The problem with this is that you can wind up with an overqualified and overpaid controller spending an inordinate amount on straightforward bookkeeping tasks. Expecting a bookkeeper to serve as a controller can result in more serious problems.

So how do you build an effective accounting function for your business? First, you must understand the accounting skills your business requires. Next, you need to evaluate the options for addressing these requirements on an ongoing basis — whether by internal staff or outside vendors.

Understanding the skills

Here are four common accounting titles, with descriptions of their usual areas of responsibility:

Bookkeeper — Performs routine accounting tasks, such as posting bills, writing checks, making deposits and preparing invoices.

Staff accountant — Manages the reconciliation of accounts, posting of journal entries and production of monthly statements.

Controller — Oversees the systems and procedures necessary to maintain the checks and balances on accounting processes. This professional typically manages staff and oversees information systems.

Chief financial officer — Maintains a strategic understanding of the business and is responsible for financial planning and cash flow management.

Most business owners act as the controller or CFO during the early stages of growing their businesses. As revenue increases and time becomes more precious, they hire someone to take away the burden of managing the accounting, as well as other administrative responsibilities.

But a competent controller or CFO, who can command a salary of $60,000 to $100,000, may be beyond the budget of many growing businesses.

The options

In evaluating solutions, many business owners and top executives look at whom they need instead of what they need. As a result, they tend to overlook several sensible and workable solutions that can eliminate or minimize the need to hire additional management staff.

Consider the following possibilities:

Get your accounting firm more involved. Your CPA may be able to take a more active role in budgeting, planning and complex accounting transactions. Since these may only need to be addressed a few times a year, it might be more cost effective to use your CPA than to hire a full-time controller or CFO.

Outsource. Services now specialize in a multitude of accounting functions, including payroll, bookkeeping, billing and collections. Outsourcing means fewer people and less technology to manage, which eliminates some of the duties of a controller or CFO.

Hire part-time controllers and CFOs. The number of professionals offering these services continues to grow. From the consultant’s perspective, working with a multitude of clients is the best way to leverage experience. This is also attractive to those who would prefer to pay a premium for a few days of consulting than to hire a full-time person who might prove to be overqualified, underutilized or unduly expensive.

Change your hiring strategy. If your strength isn’t accounting and you need to hire a manager, consider adding a line manager with financial skills instead of a controller or CFO. Companies that outsource their accounting often can assign financial duties to a qualified operations or sales manager. Under this arrangement, the organization is better served by having a person who spends the majority of his or her time building revenue or servicing customers.

In the tight labor market, your business can’t afford staffing mistakes in accounting. The best hiring decision you make may be the one you avoid.

By closely evaluating all of your of your options, you can arrive at the right accounting solution for your business.

Thomas S. Joseph is president and CEO of Bookminders Inc., which provides specialized bookkeeping and other computer-driven accounting services. Reach him at (412) 323-2665.