the high cost of incompentent business bookkeeping

8/11/2019 The High Cost of Incompentent Business Bookkeeping

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The High Cost of Incompetent

Bookkeepers

An Executive White Pa

Marty Koenig and

Susan Commins

All About Accounting LLC

and CxO To Go LLC

July 2012


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Copyright 2012 by CxO To Go LLC and All About Accounting LLC. All Rights reserved

Published by Buchanan Publishing LLC, Denver, Colorado

No Part of this publication may be reproduced, stored in a retrieval system, or transmitted inany form or by any means, electronic, mechanical, photocopying, recording, scanning, orotherwise, except as permitted under Section 107 or 108 of the 1976 United Sates CopyrightAct, without either the prior written permission of the Publisher. Requests to the Publisher forpermission should be addressed to Buchanan Publishing LLC, 7047 S. Picadilly Street, Aurora,CO 80016, or email [email protected].

Limit of Liability / Disclaimer of Warranty: While the publisher and author have used their bestefforts in preparing this book, they make no representations or warranties with respect to theaccuracy or completeness of the contents of this book and specifically disclaim any implied

warranties of merchantability or fitness for a particular purpose. No warranty may be createdor extended by sales representative or written sales materials. The advice and strategiescontained herein may not be suitable for you situation. Neither the publisher nor author shallbe liable for any loss of profit or any commercial damages, including but not limited to special,incidental consequential or other damages.

The High Cost of Incompetent Bookkeepers by Marty Koenig and Susan Commins is licensedunder aCreative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

Printed in the United States of America

www.BuchananPublishing.com

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HOW MUCH DOES IT COST TO HIRE

INCOMPETENT BOOKKEEPERS?By Susan Commins and Marty Koenig

As the CFO, COO or CIO/CTO for small biz

companies in Colorado I've seen it all.

When business owners call Marty, its not

because they're feeling great. They call

because they need advice and action on

things they aren't sure how to deal with.

Even with an "entrepreneur's ego," the

smartest ones realize they don't have all

the answers. They're walking a tightrope

every day with their company. There are only a handful of problems where

they believe outside help is useful:

1. They want more time with their families and friends.

2. They want more money to do things with their family and friends.

3. They want to sell their company some day and get a big check so they

can start their next business, travel, or go sit on the beach near a golf

course with their friends and family.

4. They want to achieve something great and need a little help from

experts who do it every day.

Every issue you have as a business owner can be included in those four

points. Running a successful business requires that you take care of

fundamentals. Keeping a close eye on your business accounting is very

important -- even if you hate working with numbers. The numbers tell a

story. If you don't know the story of your business every week and every


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month, then you're guessing. And you'll guess wrong. Looking at your

company's checking account balance every day won't give you the story.

If you are a "skimmer" and only pay attention to the numbers when there is

a problem, it's simply too late. I've heard owners say:

"I have plenty of money in the account, so everything is fine."

"I get paid every month, so what's the problem?"

"My cash flow seems fine."

"We're paying the bills and getting new customers, I don't need to dig into the

numbers, besides I hate numbers."

"My brother's high school daughter does our bookkeeping and does a great

job."

"How hard can bookkeeping be, you just enter data."

"I don't care about job profitability, we're making money hand over fist."

The small biz owner can cause serious damage when they believe

"skimming" and skimping on the books is OK...

Damage to their company and personal finances.

Damage with the IRS.

Damage to their customers, lenders or investors

Damage to their suppliers and employees.

Damage to their friends and families.

Yes, they damage the very things they went into business for in the firstplace.

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


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everything in their accounting/finance department is perfect. Not that

perfection is the goal, but 99.9% 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 theirpart-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 5 bookkeepers in three years. The

current one then, I'll call her Sherry, was a

contractor from a local CPA firm that offerssmall 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.


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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 notto 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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POA 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 weresuspect)....a tell-tale sign the business didnthave 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 POA, bringing Susan in to clean up the books and continue the

bookkeeping was a life-saver for POA 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. 100% of the businesses

that hire me after theyve used less expensive bookkeepers, including

bookkeepers referred by their CPAs, have nothing but a mess on their

hands and need their books to be cleaned up.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 owners inabilityto 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.


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At a minimum, it cost POA over $20,000.00 just for the clean up over a

period of 1 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 andLines 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 1

year period. Because the main product vendors 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

werent entered correctly,which directly impacted cash flow. There was no

way anybody could verify how much was really owed to their biggestvendor.

The prior bookkeepers also werent 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 incorrectlyanother 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


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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. Doyou 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 in order for their

tax returns to be prepared.

Another caveat for business ownersif you send a mess to your CPA to

prepare your income tax returns at the end of the year, your CPA will need

to clean up that mess first which can be very expensive!

That is what happened to POA. There was no way POAs owners could getaccurate financial information, not for their own understanding of how

their business was doing, nor for any potential interested buyers of their

business or to get their income tax returns done correctly. Their frustration

level was extremely high when Marty brought me in to clean up the books.

Here is what every business owner needs to know when hiring a

bookkeeper:

1.

Most messes that have been created by previous incompetentbookkeepers CAN NOT be cleaned up. Every successive

incompetent bookkeeper just adds their own mess on top of the

prior bookkeepers, compounding the chaos in the books. A

bookkeeper that understands this will set up a new company file

from a date certain and bring over balances, etc., in order to have


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a clean file in which to work. It is only a waste of time and money

to try and clean up the old mess.

2.

A business owner should always question the bookkeeper and

check references during the interview process. Here are some

very important questions to ask:

a. Do you reconcile the books to the bank statements every

month? What happens if you find discrepancies?

b. Do you provide monthly financial statements to the business

owner? Are they accurate?

c.

Are you familiar with the reporting capabilities of QuickBooks(or the accounting software being used)?

The same questions should be asked of the bookkeepers

references:

a. Does your bookkeeper reconcile the books to the bank

statements every month and what do they do if they find discrepancies?

b. Are you receiving monthly financial statements and do theylook accurate?

c. Are you receiving other important reports from your

bookkeeper and do they look accurate to you?

Here are some traits to look for when hiring a business bookkeeper that will

save a lot of money and keep costs under control.

1. Detail oriented;

2. Very organized;

3. Speed;


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4. Must understand accounting concepts sees and

understands the big picture of the business - not just a data entry

person;

5. Must understand how to use the full functionality of theaccounting software package including entering A/P, A/R, entering

deposits correctly, Payroll, etc.;

6. Needs to know how to get the pertinent reports for the

business and understand them in order to help the business owner

understand them.

Are you going to be a responsible business owner so you understand the

financial management of your business? If you say, "I don't want to know,"

then you've got a hobby and you will always have

chaos in your books. The combination of a good CFO

and a competent bookkeeper will provide you with a

greater ROI and significantly reduce the stress of

creating a successful business that will last for years

and/or will increase the value to a potential buyer.

Accurate financial statements, which need to be reviewed monthly and be

completely accurate, will help business owners get a handle on their

business, tell them where they need to cut costs, show them how they can

grow their business and educates them as to what their business is doing.

Financial statements tell the Story of the Business -where it is at and where

it needs to go, so the owner can understand their business and use the

information to be successful. Bank lenders and investors expect you to

understand what's going on in your business.

Here is what every business owner needs to know when hiring a CFO:

1. Are they just a number cruncher who appears socially awkward, or are

they clearly a people person with proven leadership skills and someone

that people want to follow?


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2. How technical and systems oriented are they? If they don't know what

IM is, or aren't comfortable in information technology, find someone else.

3. Are they strategic and visionary? Many CFOs stuck in the number

cruncher mentality find it difficult to visualize the big picture, and look

strategically at the business. This makes it hard for them to be a trusted

advisor to the owner/CEO if they can't see the forest through the trees.

4. Do they have broad industry experience? If they've spend their entire

career in a few industries, they can have a myopic view of the world. Find

one that's worked in at least half-dozen industries, that way they bring

experience that may not have been applied to your industry giving your

company a competitive advantage.

Take a look at a previous cobizmag.com article for more details:

http://www.cobizmag.com/articles/six-key-questions-to-ask-before-hiring-

a-cfo-part-1/

When you don't have a good bookkeeper and a good CFO, there is an

exponential increase in costs. You can see that for a smaller company, it

costs less to take care of things. That's because there aren't as many

transactions and the complexity is typically less.

RELATIVE COSTS:

Company

Revenue

Books

Cleanup

Fix Accounting

Process

Fix CPA's

Work (Taxes)

Company Value

Before Accting

Fixes

Company Value

After Accting Fixes

$250K - $1M $ $ $ $ $$$

$1M - $5M $$$ $$$$ $$ $ $$$$

$5M - $20M $$$$$ $$$$$$ $$$$$$ $$ $$$$$$

$20M+ $$$$$$$$ $$$$$$$$$ $$$$$$$$ $$$ $$$$$$$$

From the chart above, you can see that as your company grows, it becomes

more costly and time consuming to get the books right. And when you do,
http://www.cobizmag.com/articles/six-key-questions-to-ask-before-hiring-a-cfo-part-1/http://www.cobizmag.com/articles/six-key-questions-to-ask-before-hiring-a-cfo-part-1/http://www.cobizmag.com/articles/six-key-questions-to-ask-before-hiring-a-cfo-part-1/http://www.cobizmag.com/articles/six-key-questions-to-ask-before-hiring-a-cfo-part-1/http://www.cobizmag.com/articles/six-key-questions-to-ask-before-hiring-a-cfo-part-1/


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your accounting people can provide you with the true story of the business.

Then you will look and act like a real business, which makes your company

worth more when you go to sell it or leave it to your heirs.

Conclusion:

After hiring a competent bookkeeper, we were successful dialing in to near

perfection the whole accounting process. As their part-time CFO, I could do

my job much better and provide extreme value to them. We were able to

help the POA business owners see and understand the story of the

business. They didn't have to spend hours and hours a week with their

noses in the books, keeping them from spending time growing their

business. Together, Susan and I optimized it all - from forecasting andongoing cash flow projection and budgeting to managing debt, accounts

payable/receivable. Helping POA keep their spending on track with the

budget also allowed them to hire new people as needed. They didn't have

to guess whether they could afford to or not.

The results of POA finally having a good bookkeeper and CFO speak for

themselves:

Compound Annual Growth Rate = 50.5%

EBITDA Multiple upon selling POA in Feb. 2011 = 19.1%

Return on their investment in great bookkeeping and CFO help = 583%

The real world is not the businesses that make headlines like Facebook and

Twitter, or the other social web companies that get valued at billions for

doing and producing almost nothing. The real businesses of today are made

up by you and us - the other 27 million small bizowners. As business owners, we are the ones that

create 80% of net gain in employment. We are the

ones that own 99% of all businesses in the US. We

don't make the headlines. But, we want to grow to


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where a company or investors will buy our businesses for a nice amount

some day. Not for billions, but millions would suffice. That way we can build

our next big thing or spend more time and money with our friends and

families. That's our version of success, and it starts with a great CFO and acompetent bookkeeper.


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Selected Testimonials:

The work we did together is priceless for me as Marty had me think twice on important matters, he also asked

the right and tougher questions to make sure I knew what I wanted. As an extra to all the work we did

together, I learned a lot from his past experiences simply by having hours long discussion on different topics

such as financing options, the way to structure the company, how to approach the market, and much, much

more.

I definitely plan on working with Marty from now on with this venture as well as the next ones I will eventually

create. I strongly recommend him to any entrepreneur as he adds a lot of value to a company. ~ Martin

Bittner, CEO of Elements. Quebec, Canada

"Thank you so much! We were running our company by the seat of the pants. Thanks to CxO To Go, we got a

$600K revolving credit facility and are able to grow at higher velocity so we can sell in a couple years for the

maximum possible." ~ Mark Boyle , CEOPrimo Products, Denver

I have been a CPA for 23 years and as such have a lot of experience with QuickBooks, bookkeepers and

business accounting/finance. Susan Commins' speed and accuracy make her a BARGAIN! Yes, there all kinds of

supposed QuickBooks experts, but I have yet to encounter any that are as quick, comprehensive andaccurate as Susan. Her knowledge of the QuickBooks software, her understanding of business accounting

processes, her attention to detail and her energy level, allow her to quickly and efficiently produce the

financial information you need to run a successful business. I have referred my clients to All About Accounting

LLC and would not hesitate to do so in the future. I highly recommend AAA to any business using QuickBooks.

~ R. Neal Kohtz C.P.A. - M.T.Kohtz & CO. CPA, LLC

Susan Commins is an excellent bookkeeper for any business. She is extremely punctual and accomplishes an

extraordinary amount of work in just a few hours. She has a sound understanding of accounting, and is

responsive to the needs of any owner. She is capable of accomplishing her work without direct supervision,

and is equally effective in a variety of work settings. Her efforts resulted in reduced expenses and increased

revenues improving my company's bottom line by $100,000. I highly recommend Susan Commins of All About

Accounting LLC. ~ Jim Smith, President, Redstone Venture Partners, Inc. dba CareFirst EMS


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Authors:

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. Marty is an author, educator, and speaker. See his fiverr.com

gigs atwww.fiverr.com/users/bizgrowthcoach.See his and his partner's

recent books atBuchanan Publishingor visitwww.cxotogo.comand

www.crowdfundenergy.com.Read his professional blog atmartykoenig.com.

His private email [email protected].

Call 888.745.8516

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 isAllAboutAccounting.net.Call 303.471.1007
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