Warning – this article will likely be irrelevant to you even if you have an admin person maintaining your books if you do not have any current concerns around:
- Cashflow and whether you can afford strategic costs
- How long it is taking to collect your customer payments
- The speed or accuracy of your financial reports
- You don’t see value in having a financial expert know the details of your company’s financial performance
- How much you are paying your tax account
However, if you have any of the above-mentioned concerns read on and see if we can get some lightbulbs to illuminate on some insights that can help with your current bookkeeping approach.
As business leaders, we all want to maximise our team’s productivity and value. One common strategy for doing this in small companies is to appoint an admin to be the company bookkeeper. It seems to make sense because bookkeeping is not often a full-time position and they are paid less an hour than what a typical bookkeeping service would charge. Although these two dynamics are true it is only part of an important and far-reaching bookkeeping equation.
There are three additional dynamics that need to be taken into consideration when calculating the true cost of your current bookkeeping strategy:
- This discipline required to input the data correctly.
This isn’t about whether the admin can enter data quickly – that is assumed. It is whether they know both what they are entering as it relates to accounting rules and how to do so in a way that provides clear and accurate financial reporting. Accounts Payable and Receivables are easy to enter information into. But doing so in a way that doesn’t create accounting year end clean-up costs and problem free financials is a different matter.
- The skill required to run down issues that aren’t accurate.
The fundamental bookkeeping problem is that accurate bookkeeping includes more than AR’s, AP and Payroll. It also requires ‘Management Accounting’ capabilities. This can be thought of as the activities required to accurately close out the bookings at the end of the month. This is the often overlooked and misunderstood discipline of identifying and solving for any abnormalities that show up in the books during the month. When this activity is done correctly the financial data is far more accurate and the amount of clean-up required downstream should be nearly eliminated.
- The experience to understand the business details within financial reports.
It is easy to generate financial reports these days. The issue is whether they are trusted and understood. It is sadly normal to hear business leaders talk around inaccurate numbers or the need to “wing it.” It is possible to understand your Gross Profit on a job or product. It isn’t necessary to look at a general Gross Profit number and need to estimate numerous assumptions about timing and costs. This only seems to be required because the fundamental bookkeeping knowledge and disciplines are often not held by a typical admin staff.
Bookkeeping is a fundamental process for all small businesses. The challenge is that getting it 80% right creates significant downstream problems that don’t directly point back to the bookkeeping activities making it hard to diagnose. Getting bookkeeping right up front is far more cost effective than dealing later with all of the potentially soul crushing issues around cashflow and tax problems.
We hope this article has provided some ideas on how to address any current bookkeeping challenges you may have and please provide us ideas on what issues you’d like to hear more specific solution strategies for.