A commodity is a basic good that is interchangeable with other goods of the same type. For example, silver is a commodity. That is not to say silver does not has value. However, if you were in the silver market, you would not care if you got it from Vendor A or Vendor B. Why? Because silver is silver. The raw material is interchangeable. One example of a commodity in business is bookkeeping.
Over the past several years, bookkeeping has turned into a commodity for most business owners. Some bookkeepers try to differentiate themselves by saying they will close your books faster. Some may try to pitch different technology solutions. But, at the end of the day the value you are getting is the same – reconciled accounting data.
Services like Xero and QuickBooks make virtual bookkeeping seemingly easier. Business owners, who are always looking for ways to save money, are now turning more and more to doing their bookkeeping themselves.
A recent study conducted by Intuit found that 40% of small business owners consider themselves to be financially illiterate. At the same time, 81% of them are doing their business’ finances themselves.
Problems with Businesses and Bookkeeping
The Best Use of Your Time
Those of us with kids have used the phrase, “Is that the best use of your time?” It’s funny how critical most of us are about how our kids or others spend their time. However, sometimes we should look in the mirror.
As a business owner, you only have so many hours in the day (and night). Odds are, you didn’t get into business to do accounting. You most likely bring some unique and valuable skills to your business. Maybe you’re great at sales, marketing, or making widgets. You have probably learned the skills of managing a team.
With so many things to do in your business, why are you spending your time doing something that you are not good at? Why are you not capitalizing as much as you can on the skills that you have the drive your business’s success?
Virtual Bookkeepers are Completing a Task, Not Adding Value
Before starting my own business, I was a business consultant and auditor for a large regional firm in Colorado. I had clients that had both internal and external bookkeepers. I became very familiar with the extent of services most bookkeepers offered.
Most business owners did not speak highly or lowly of their bookkeepers. They didn’t speak of them at all. I would ask them business questions based on their financial statements, and they would often reply with “I don’t know”. It dawned on me that bookkeeping was a check the box type of task for most business owners.
At Krieger Analytics, we offer “enhanced bookkeeping”. I believe that merely reconciling your books each month provides no real value. The real value is in the reporting and analytics that come next.
Some think this is more of a CFO oriented task. I argue that it is the only way for bookkeepers to provide value to their clients.
The QuickBooks Dilemma
QuickBooks is an excellent tool for business owners. Most agree, it is estimated that of those business owners that use the software, over 75% of them use QuickBooks. Over the past ten years, Intuit has built a very robust online version of their software that keeps getting enhanced all of the time.
The software has vastly increased accountants’ productivity. In fact, 56% of accountants say that technology has increased their productivity. It has also added some false confidence to business owners that doing their own books is relatively easy.
However, there are some downsides to QuickBooks becoming easier. More and more business owners are starting to do their books. More people are calling themselves bookkeepers. All of them are relying on the software to guide them.
Most of the books I have seen require significant adjustments. These are adjustments that only seasoned accountants can recognize and make. Without these, the books are incredibly inaccurate. While QuickBooks is a great tool, it has convinced a lot of people they are bookkeepers.
A Cautionary Tale
This February, I took over a client that purchased a e-commerce business and had been doing their books for over 14 months. The client was incredibly intelligent. He was one of the better salespeople I had ever encountered and has a laser focus on who his customers were. However, the books were a mess.
The owner admitted to me that he was having trouble setting his prices because he could not see what the actual margin was. That is why I was initially brought in. Sure enough, reconciliations were a mess, expenses were miscoded, and there was no way his financial reports were of any use to him. Upon my review, I could see he had overpaid his taxes by $30,000 the previous year.
Consider this – a study by the Treasury Inspector General for Tax Administration found that, on average, small companies overpaid their taxes by $11,638. In a survey by Clutch, 30% of small business owners believe they overpay their taxes.
In order to have an error of $11,638, a business would have to have an income statement that is off by $40,000. Thinking of making business decisions all year based on financial statements that were off by $40,000.
How Virtual Bookkeeping Should Work
Bookkeeping can’t be a commodity to your business. If it is, either you or your current virtual bookkeeper isn’t generating the value that you deserve.
For bookkeeping to work, you should be able to answer “yes” to all of these questions:
- Do I get timely reports and information to make business decisions?
- Is the financial information from my bookkeeping able to correlate to operational data?
- Do my financial reports make sense?
- Am I making business decisions based on the financial reports that I am getting?
- Do I feel like my financial records are accurate?
If you answered yes to all of those questions, GREAT! That means you are getting true value from the accounting and bookkeeping function of your business. If not, then you are most likely losing money and value.
We always tell clients, a useful accounting resource won’t cost your business a dime. In the example above, we found an additional $30,000 in tax savings. The average small business is overpaying their taxes by $11,638.
The money savings can often be secondary to the strategy and financial clarity that a business owner gains. Being able to make business decisions with useful data often leads to better performance.
At Krieger Analytics, we offer enhanced bookkeeping. We believe that bookkeeping should include reporting that adds value to your business. While accurate books are essential, so is sitting with our clients regularly to review reports and discuss strategy. This is an excellent bridge to our outsourced CFO services when a business owner is ready.
Whichever solution you decide to go with, make sure you are getting value. In all areas of your business, if a process is not generating value then you should question whether to continue it. Bookkeeping is no different.
My name is Matt Krieger, and I am the founder of Krieger Analytics, a CFO advisory partner for small businesses and franchisors. I am also the owner and franchisor of a concept called Monkey Bizness, in Denver, Colorado.
As a small business owner with a background in finance and strategy, I realized the benefits that a CFO could bring to smaller organizations. Most franchisors and small business owners don’t have a need (or budget) for a full-time CFO. To better fit my clients, Krieger Analytics is a part-time resource. While most think of CFO’s being involved in finance and accounting (we are), I am also involved in much more. I partner with my clients by coaching them on strategy, gaining clarity on their business, building efficient and effective processes, and making confident business decisions. Conversations are free, so don’t hesitate to reach out to me at [email protected].