The high price of a cheap bookkeeper: Part 2

A recent client had determined that they wanted to sell their company in a couple of years. That is one of the reasons they needed to get their books in order. Nobody is going to buy a company where it takes three weeks to prepare a balance sheet and income statement (and even then the numbers were suspect)….a tell-tale sign the business didn’t have their act together.

When your books are screwed up, your company isn’t an actual business, but looks and acts like a hobby. A buyer will more likely pay you a very small, and undervalued, amount, if anything, for your “hobby.” Fortunately for my client, which I’ll call POA, bringing in Susan Commins to clean up the books and continue the bookkeeping was a life-saver and helped make the business much more valuable to potential buyers. Her speed and her understanding of accounting concepts, as well as her QuickBooks proficiency, made her very cost-effective.

Susan is a QuickBooks expert who has been providing QuickBooks bookkeeping services to businesses for the past 20 years. Unfortunately, she found the story of POA a very common one.

“One-hundred percent of the businesses that hire me after they’ve used “less expensive” bookkeepers, including bookkeepers referred by their CPA’s, have nothing but a mess on their hands and need their books to be cleaned up,” she says.

The costs can be significant when you tally up the wasted money paid to the incompetent bookkeepers, the wasted time by those bookkeepers, the aggravation and frustration for the business owner’s inability to get accurate financial information, the costs of paying for the clean-up, to name just a few of the issues. If the company file is not setup correctly and the person doing the books is not trained properly from the get-go, the business is already at risk. Ever wonder why a large percentage of businesses don’t survive after five years? Everyone has an answer to that, but my answer is poor accounting and forecasting/budgeting for cash flow.

At a minimum, it cost POA over $20,000.00 just for the clean up over a period of 1 ½ years. Because POA was an online retailer, they purchased thousands of dollars of products from vendors and had thousands of dollars of credit card deposits every day. They also used several credit cards and Lines of Credit for their business. All of these transactions needed to be entered into their bookkeeping software, which was QuickBooks. Just getting the Accounts Payables cleaned up took many, many hours over a 1½ year period.

Because the main product vendor’s bookkeepers were also incompetent, the clean-up was much more complicated and expensive. Without an accurate A/P, bills were duplicated and paid twice, and credits weren’t entered correctly, which directly impacted cash flow. There was no way anybody could verify how much was really owed to their biggest vendor.

The prior bookkeepers also weren’t entering the deposits correctly. In addition, they were printing out hundreds of unnecessary pages (costing thousands of dollars in printer toner and paper) every week. The credit card balances and Lines of Credit balances were also incorrect and not paid timely, costing the business extra finance charges and late fees. Even their payroll had errors that caused their payroll taxes to be paid incorrectly – another potential costly situation since there are usually penalties assessed by the taxing authorities.

Unfortunately, many small biz owners don’t know the difference. They assume since they were referred to a bookkeeper by their CPA, or they have a great resume, or they are a relative, that they are competent. Here is just one example of a story that made my (Susan’s) blood boil: a CPA had met a QuickBooks bookkeeper through a highly regarded networking group but had never actually worked with her. Because the networking group had a requirement to provide a certain number of leads to others every single week, without doing any due diligence on her work, he took her at her word that she was a QuickBooks “expert.”

Not only did he eventually discover that she did not know what she was doing in QuickBooks after he had referred her to many clients, he never called those clients to tell them that this person was found to be incompetent. Do you think I’ll be referring any business to that CPA? If he can’t do some simple checking before he refers someone he doesn’t know…one that can do costly damage to a company…then he doesn’t get my referral. Nor should he get anyone else’s.

These small biz owners kept paying this referred bookkeeper until they realized this person had just compounded the mess and caused even more cleanup work. These clients then had to pay me to clean up their books for their tax returns to be prepared.
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Categories: Company Perspectives, Finance, Management & Leadership