Year-end whiplash:

Often when we look at client’s financial trends we see huge profits or losses in the year-end month. “the Year-end whiplash effect.” Typically, the accountant does all the year-end and “clean-up” entries to client’s books in the month of December (for sole proprietorship's) and at fiscal year-end for corporations. It costs business owners money because they really don’t know their true YTD profit/loss until after the year is closed– not to mention the large bill from the accountant for their time trying to make sense out of the numbers.

Solution:

To the greatest extent possible, ensure that entries are matched to the time period in which they occurred. A good bookkeeper will know how to deal with accruals as well as entries that track things like the varying interest portion of loans or mortgages.

 

Open door for fraud:

We’re surprised how many owners give their bookkeepers cart blanche access to their bank accounts, including the ability to write online checks and make purchases on their behalf. While this may be a great convenience for the owner, it is also a huge risk which could cost them thousands or hundreds of thousands of dollars in losses.

Solution:

1. Simple steps like limiting access, opening and reviewing all bank statements for unusual transactions and separating duties are ways the business owner can protect themselves and their companies.

2. Develop a relationship with your bookkeeper that supports the level of trust that open access requires. It’s worth it!

 

Monkey-in-the middle:

You know the scenario—you have an accountant and a bookkeeper. The accountant has questions and you have to go to the bookkeeper for answers. Or, worse, they have some serious differences of opinions on how you should handle a type of transaction leaving you to figure out who is right. Where’s the profit drain in all of this? You are stuck in the middle, spending your time away from the business, and the CPA and bookkeeper are running up bills while they debate.

Solution:

Hire a bookkeeper who knows his or her role. He or she will have a commitment to maintaining an accurate and proper set of books and working in harmony with your accountant.

 

Flat financials:

Every financial transaction is rich with data, but few bookkeepers know how to extract it. Without details of product or customer profitability, you are probably leaving money on the table, whether it is in lost profits or opportunity costs of missed revenues.

Solution:

Having a knowledgeable person doing your books that can give you these types of details can help you get the laser-focused reporting you need to identify and capitalize on opportunities to improve your bottom line – and get those details to you in customized in-house reports that make sense.

 

Surprise- surprise:

Poor bookkeeping has also led to many a cash flow surprise. Unbilled (or late-billed) invoices, vendor bills that got lost and surface just when you are in the middle of a cash flow crunch, can cause havoc when you are trying to make payroll.

Solution:

Find a bookkeeper with an unwavering commitment to your business. Unreturned calls and texts are red flags: Your financials are an incredibly important part of your business’s success and your questions and concerns about them are just as important.

 

Constant owner intervention:

“High maintenance” bookkeepers, i.e. ones that need constant supervision or review of their work, cost business owners a lot of money. From extra hours of pay due to inefficiencies, to the time it takes the owner away from managing and growing the business, an unskilled bookkeeper‘s costs often are a multiple of their wages.

Solution:

Read and check on your bookkeeper’s credentials and testimonials. Other clients who are highly satisfied about his or her services are the best assurance you could have.

 

Forget it– I’ll just do it myself.

This is a common response for when people don’t want to invest in outsourcing their bookkeeping. While this may seem like a cost-saving measure, when you think about it, it really isn’t. Whether the owner doesn’t see the opportunity cost of not investing that time to manage and grow the business, to the errors and large “clean-up” bill they get from their accountant at year end, to the saddling of a non-financial office manager with bookkeeping, the money saved by keeping bookkeeping in the wrong hands quickly dwindles when all the other factors are taken into consideration.

Solution:

Weigh the costs of not having accurate and timely financial information at hand. Include in your analysis the cost of not invoicing your customers on a timely basis, not taking advantage of purchase discounts and the possibility of incurring heavy penalties and fines for late payments, especially in connection with the CRA.

 

Does any of this sound familiar to you? Sometimes it is worth it to talk to professionals. Even though they may seem like they are “expensive”, when you factor in the costs of poor bookkeeping, they may seem like a bargain after all!