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Posted: March 28, 2011

The high price of a cheap bookkeeper

What they don't know is going to cost you

Marty Koenig and Susan Commins

Every small biz I've worked with has one thing in common: They aren't so good at keeping good books. I've looked at hundreds of companies and their books. It has simply never happened where I walk into a company and everything in their accounting/finance department is perfect. Not that perfection is the goal, but 99.9 percent of the time there are serious issues with the way they run the accounting functions.

Here's the problem: There are lots of people that call themselves bookkeepers or accountants, but most of them aren't very good. They may know how to enter data, reconcile accounts, do invoicing, etc., but there's so much more to managing business finances. Just because they say they're QuickBooks Certified, Peachtree Certified, whatever, does not mean they are an expert bookkeeper. Geez, I was QuickBooks Certified and you wouldn't want me as your bookkeeper.

Here's a story on a recent client whom I'll call POA. When I arrived as their part-time CFO, I dug into their books and their bookkeeping practices, workflows and data flows in and out of the accounting system. I looked at the "what goes where, when and why." I looked at how well they manage their cash cycle.

POA had five bookkeepers in three years. The current one then, I'll call her Sherry, was a contractor from a local CPA firm that offers small biz income taxes and bookkeeping services.

Both biz owners knew there was something wrong with the books. They had seen the reports every so often, but they kept wondering if the numbers were really true. They had no trust in the numbers. Neither did I!

The owners had continued to go along for several years, wondering about the numbers, and making spending and hiring decisions based on bad data. They believed that if they paid a bookkeeper $40.00 to $50.00 an hour, the bookkeeper should know what they're doing, especially if the bookkeeper was recommended by their CPA.

When I started with POA, I led meetings with the owners, meetings with Sherry the bookkeeper, meetings with the CPA firm, just to try and make sense out of the mess.

I spent some time trying to teach the bookkeeper how to put data into the right places, and why. I tried to teach her to go back and clean up the books. After some time, it was taking too long. I couldn't do my job as their part-time CFO and I just couldn't help the company by telling them the story behind the numbers. Nor could I craft for them the cash story of the future. I started looking for a more qualified bookkeeper.

After a bunch of phone interviews, I found one that I thought was competent. I didn't tell the owner what her hourly rate was, just that for the first month or two it would cost more to get the books cleaned up, and that it was not an option not to get that done. Then it would cost about the same as they had been paying, just with much faster work, and better quality, with a bookkeeper that knows what she is doing.

When I brought in Susan Commins from All About Accounting, LLC to meet my client, they recognized each other. Three years prior, the owner said he had interviewed her and liked her, but her hourly rate was too high. He had gone with someone else because she had a cheaper hourly rate.

Zoom forward three years, and guess what? That low hourly rate cost the company a bundle. Have you heard of negative return on investment? That's what POA had experienced. The money they had spent on bookkeepers over the years was like they threw money out the window. Sherry, and the "cheaper" bookkeepers before her, had made such a mess that it was now going to be very expensive and time-consuming to get things right.
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Marty Koenig is Founder and CEO of CxO To Go LLC. He loves what he does for a living, because he gets to work with so many great, world-changing people and help them succeed in their business. His team is dedicated to building financial, operational, strategic, technological excellence for small/mid size business owners and entrepreneurs. Marty has over 29 years of diversified experience in private and public companies, from startups and mid-size firms to multinational Fortune 30 companies including AT&T, General Electric, NCR Corporation and StorageTek. Marty performs in roles such as CFO, COO, COO and CIO for his private clients, and he has been nominated for Denver Business Journal 2011 CFO of the Year. Marty is an author, educator, and speaker. See his and his partner's recent books at Buchanan Publishing or visit www.cxotogo.com . Read his professional blog here. His private email is mkoenig@cxotogo.com.

Susan Commins, owner of All About Accounting LLC, is a recognized QuickBooks expert and a business management consultant that specializes in the financial management of businesses. Susan's business management experience includes 20+ years: first as a law firm administrator in Los Angeles, California, then as the owner of a law firm/business management consulting firm in Los Angeles and Sedona, Arizona, before relocating to Denver in 2005. Susan specializes in improving cash flow, cash management, and profitability for all types of businesses using QuickBooks as the financial management tool. She believes that "Smart Business Management through Smart Accounting" is what makes a business successful and profitable, especially in these difficult economic times. She creates all the reports that make it easy for business owners to make educated financial decisions to enhance profitability. Susan has been using QuickBooks since its genesis as DOS.1.0. Her website is www.AllAboutAccounting.net

 

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Readers Respond

Of course there's a lot of incompetent bookkeepers, and I'm sure that there are questions that can be asked to try to see if they are competent, but the details of business are often different. I'd be more interested in whether they care about the business. The basics of AR AND AP are of course important, but matching the two is a sort of an art imho. My bookie catches things bought and not sold, for which I dearly love her, but when she started she didn't know that. She really wanted to learn and she did. By John Wray on 2011 03 28
Unfortunately, there are so many incompetent bookkeepers charging for their services all over the country. Most business owners have no idea that the bookkeeper they have hired doesn't really understand what they're doing which ends up costing them a lot of money. There are some good questions to ask when interviewing for a bookkeeper which will be explained in the following articles. By Susan Commins on 2011 03 28
You nailed it with the cost/benefit idea. I can make more money for my business selling and monitoring operations, but even that is hard which leads to the next job: operations manager. I have fun calling my bookeeper anal, and she smiles because she KNOWS I am complimenting her. By John Wray on 2011 03 28
LOL John. As entrepreneurs, we have an ego and we have the need to be frugal. Its easy for us to think we can do what a good bookkeeper can do. Heck, I was certified as a Quickbooks Pro Advisor, and I don't even do my own bookkeeping. I've heard so many times, "Heck, how hard can that be?" QuickBooks and others like it make it seem so easy to biz owners. They tell you that you can do it yourself. For a while, you can. Until the biz owner grows to the point where the information becomes unusable to more people (banks, lenders, investors, to name a few) that require accuracy. When the biz owner realizes that he or she needs accuracy and the truth to make better business decisions, that's when they go get help. Its a cost/benefit and a risk/reward thing. Often the new help causes more troubles or compounds the issues in accounting and finance. It often increases the the cost and risks without the biz owner knowing it. When they wait too late to get help, it ends up costing way more than it should every month that goes by. BTW a good CFO and bookkeeper does not have to cost very much. The problem is how do you know? You don't until someone with competence looks into it. the subsequent parts of this article will teach you how to find a good bookkeeper. I've already written in @ColoradoBizMag about how to find a competent CFO, so I won't rehash that here. By Marty Koenig | CxO To Go on 2011 03 28
OH, I'm probably just arrogant enough to think that I COULD do what my bookeeper does, but I'm old enough to know that I wouldn't do it. By John Wray on 2011 03 28
Thanks for your comments, John and Diana. Keeping accurate score can drive the biz owner to engage more in finances. Because they get to see the truth - whether good or ugly. A good CFO acts as an interpreter of the numbers, to tell the real story behind the numbers that a good bookkeeper provides. Accounting and finance has its own language, and most biz owners did not get into business to become experts in that. They are the experts in their own craft and passion. If all they're getting is a couple reports here and there, or don't really know what you're looking at, then their biz is more of a hobby, not a real business. Our point is to let biz owners know that if they want a real business, this is a great way to start down that path. When a competent bookkeeper teams with a good CFO, the combination is powerful. When the astute biz owner decides to engage to the optimal level in the numbers, its proven they'll be more successful. See what happened to POA when Susan and I teamed up. I hope you'll read the results in the upcoming parts of this article. By Marty Koenig | CxO To Go on 2011 03 28
A good bookeeper is like a good right arm. By John Wray on 2011 03 28
Great article Marty! A prime example of why business need next-level oversight and need to be actively engaged in 'keeping score'. Accounting is the backbone to every business. Companies at the tipping point of the next level need a highly efficient process for minimizing efficiencies and maximizing profit. By Diana Murray on 2011 03 28
You're right on. I've always contended that a good bookeeper pays their own salary and I've always found that to be true By John Wray on 2011 03 28

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