13. 5 Bookkeeping Mistakes to Avoid So Your Books Are Not a Hot Mess

All businesses need bookkeeping. It's usually one of the first things business owners will outsource. Yet, 90% of all clients that come me have bookkeeping issues. They don't know what they don't know.

A good bookkeeper is a huge asset and a key part of your financial team. But it's an unregulated field and business owners often don't know what they don't know.

When clients come to me with profit and cash flow issues, I often see a direct link with the  quality of their bookkeeping.  You can't manage profit and cash flow effectively if you don't have books you can trust and rely on.  

In this week's episode, I'm sharing the 5 bookkeeping mistakes I most often see businesses owners make, so you can avoid them.

You'll learn

• Questions you should be asking when you hire a bookkeeper
• The delegation mistake most business owners are making
• Why bookkeeping shouldn’t operate in a silo in your business

Mentioned in this episode:

• Ready to quit avoiding your finances and finally take charge of them? Book your free financial assessment to get started
• Sign up for the September profit roundtable 

For the full show notes, including the  transcript, go to www.carlamoats.com/podcast/episode13





This episode was produced by The Podcast Teacher.

DISCLAIMER: The information in this podcast is for informational purposes only and does not constitute an accountant-client relationship. While we use reasonable efforts to furnish accurate and up-to-date information, we assume no liability or responsibility for any errors, omissions or regulatory updates.

Transcript

Hello. Welcome back to the Purposeful Profit podcast. Today, I'm talking all about bookkeeping, almost every client that comes to me, once I dive in, I find bookkeeping issues. But, they don't know it, and this is a contributing factor to the profit and cash flow issues that they bring me. They simply don't know what they don't know. So today, I'm going to be sharing the mistakes I'm seeing in my own clients so that you can look at where these could be an issue for you.

But first, I want you to be sure and go register for my monthly profit round table. It is next Wednesday, September 13th at 11 Pacific Standard Time, 1 Central Standard Time, 2 Eastern Standard Time. You can register by going out to www.carlamoats.com/roundtable, and I will also drop the link in the show notes. This is something new I'm doing this month. This will be your opportunity to bring in financial accounting and strategy questions on your business. And really what my goal is in this round table is I wanna create a conversation that is simply not being had enough, which is about how to build a profitable business that fits your life. I’ve talked about this before - there are all kinds of people out there talking to you about revenue, how to drive revenue, and I love revenue. I'm not a revenue hater.  but there's just simply not enough conversations being had about profit.

If we had as many people talking about profit, as we had talking about revenue, we would have a lot more profitable businesses out there. And this is really my niche. My niche is helping businesses that have profit and cash flow issues turn that around. And I would love it if people came in and even if they haven't hired me, and we could start having conversations to help them with the profit cash flow challenges in their business. So, at this round table, that's exactly what you can do. You can bring in your own personal profit and cash flow challenges, and I'm gonna share my experience and tips from my 30 years of corporate consulting public accounting experience to help you in your business. 

So again, today, we're talking all about bookkeeping. Bookkeeping is one of the very first things you do in your business, whether you DIY or outsource, you have to have reliable bookkeeping. You need it to write your business. Often the driver for hiring a bookkeeper for a lot of business owners, in the very beginning, is they need to do their taxes. But that's actually not the most important part of bookkeeping. In fact, I would argue that it's actually low on the list of the reasons it's important. 

But what I find is that 90% of my clients come to me, they have some level of issues in their bookkeeping, and more often than not when I've asked them, ‘how's your bookkeeping?’ Most of them will say, “it's pretty good.” Or, “yeah, it's good. I have a really good bookkeeper.” But then when I start to look at their actual numbers and actually look at their data in QuickBooks, I find issues. Today, I'm gonna be referring to QBO or QuickBooks online because that's what most small businesses, particularly in the US are using, but this could also apply to Zero, which is a competitor to QuickBooks, or to any other financial system. Maybe you're in the construction or you're using something like Deltek, even if you're on something like NetSuite, whatever the system is, pretty much everything here could turn around and be applied to that as well. 

So the first mistake I see clients making is that they make a bad bookkeeping hire. And this is actually the root cause of some of the other reasons that we will talk about later. When you make a bad bookkeeping hire, it has a trickle-down effect. So bookkeeping is unregulated. Anyone can be a bookkeeper and hang out a shingle. It's not licensed by the states. Unlike being a CPA, it's not licensed by your state. And there are actually courses you can go out and buy for, say, $497 or even less. where in a weekend or in 4 weeks, they say they'll teach you to be a bookkeeper and build your own bookkeeping business. Okay? So you really have to be diligent about screening your bookkeepers.

And this relates to another mistake I see that make when they're hiring their bookkeeper, which is that they hire strictly on cost. If I'm a brand new bookkeeper who doesn't have experience, you just got certified at $497 class, Am I going to probably be a higher cost bookkeeper or lower cost? I'm getting my first clients. I'm probably gonna be lower cost. Okay? And what I'll often see is business owners will meet with, say, different 3 bookkeepers. And the packages are generally the same because what you actually have to do bookkeeping it could be replicated from one firm to another. So most firms will have a package. These packages will generally be pretty similar. So look at 3 different firms, and one will quote them up price of $400, one will quote $500, one will quote $600, and they're like, well, it's all the same thing. So I'll just do $400. 

Remember that when you pay for bookkeeping, you're not just paying for that service, but you're paying for their experience, their expertise, and that is why I always tell people: don't hire strictly on cost. I'm not saying go out and spend a $150 an hour on bookkeeping, but I'm also saying, don't just make your decision based on the cheapest cost. But, business owners, they'll see bookkeeping as commodity. And while it is something you need, a really good bookkeeper is a integral part of your team. I want you to find out what type of experience do they have. Where did they get their training? There are accountants, like myself, who are CPAs, who do bookkeeping, I actually don't do, which I don't know, I may talk about that a little bit later, but there are CPAs out there who leave their firms or whatever. They start businesses as a part of their accounting firm, they do bookkeeping, or they start bookkeeping firms. And they have an accounting degree, they got certified, they have some definitely prerequisite knowledge that gives you some confidence, but you don't have to have that as a bookkeeper. And I'm not saying that your bookkeeper needs to have an accounting degree, but they do need to have some experience. So if they don't have educational prerequisites, where did they get their training? What I really love to see is a bookkeeper who trained with an accounting firm or worked for an accounting firm for 2 or 3 years. That's a great place because they were likely mentored by somebody who has that educational background. They had somebody reviewing their work.

One of the biggest mistakes I see out there, and some of worst bookkeeping I see, is from bookkeepers who have never ever worked with somebody with real accounting experience. So they've never had anyone review their work, so they don't really know if what they're doing is correct or not, and they're not gonna get that out of a $497 class. They're just not. 

What's their industry and sector experience? If I'm a dentist, I don't wanna hire a bookkeeper whose only experience is with digital businesses. Likewise, if I have a construction business, I don't wanna hire somebody whose experience and specialty is in dental businesses. You can look for somebody who has experience in your industry, or at least has clients in that space. This is particularly important if you're in a specialized area like say construction, software as a service, industries that have some more specific accounting challenges. 

Find out how many clients they have. If they're brand new and they only have 1 or 2 clients, I mean, that can be nice because getting a lot of hands on attention, but it also means they don't have a lot of experience. That's where you then really dig into. What was their experience before they started their firm? Likewise, if they have 50 clients, that's a lot for one person to handle. So if they have 50 clients and they're the sole person, you're probably gonna have issues with getting answers to questions and getting response times. So find out, do they have a team? How do they hire their team? I have a client right now who was with a larger bookkeeping firm, and they assigned you a bookkeeper. And she's had that bookkeeper changed on her a few times. So that's a thing you can ask about. If I'm assigned a bookkeeper, how often can I expect to see that bookkeeper changed? 

When do they produce your financials? I'm gonna go out of the record now as saying if you are not getting financial statements from your bookkeeper by the 15th of the month, please come and see me. I said earlier, I don't actually do bookkeeping and very rare exceptions. but I have a good network of bookkeepers that I think are awesome and that I refer work to. So you should be getting your statements by 15th of the month because part of what you wanna use as statements for us to make decisions in your business. If you're getting them after the 15th or even the 20th, 25th of the month, you've lost that window. You're already at the end of the following month. 

And the other thing I'll see is that they're signing up for packages that they don't need, and they're not understanding what's being provided. So if you're signing up for a package that includes payroll and you don't have any W2 employees, you don't need that. Be really clear with your bookkeepers. Your bookkeeper may be a contractor to you, and you are just delegating work to them, but you can't simply delegate it. You have to think of them the way you would any other employee in your business. When you hire another employee in your business, that employee is not just telling you what they're gonna do, you're setting some expectations. You're telling them what you need in your business. So make sure you have that open dialogue with your bookkeeper as to what you really need. 

And probably my number one tip in avoiding a bad bookkeeping hire is use referrals. Never hire a bookkeeper without a referral. That's one of the biggest things. Again, if you're just taking your own finger and, you know, pointing it in, I would say the phone book, but, Internet site just picking a bookkeeper at random. Find somebody, in a similar business, somebody in your network, and ask for referrals. That is your best way to avoid a bad bookkeeping hire. 

So once we get past that, what's the next problem I see? I see that QBO is not set up properly for your business. And again, if I have a bad bookkeeping hire, this is not surprising that I'm gonna have issues with how my QuickBooks was set up. My chart of accounts is not set up correctly. So your chart of accounts is how we organize transactions in QuickBooks. So every account is assigned to, like, a category, you know, an asset, a liability, an income expense. And even within that, there's subcategories. I'll see chart of accounts set up incorrectly all the time. Often, this is because your bookkeeper is focusing on tax prep and not helping you run your business. I said earlier that while your books are being used for tax preparation, at the end of the year, you're gonna provide reports or even access to your tax person, they're gonna use this to prepare your taxes. That happens once a year, that's the smallest value in my mind to your bookkeeper. 

Your bookkeeper's real job is to provide you information reporting and data you can use to make decisions in your business, even if they're not providing you commentary or, like, on any type of analysis, which most bookkeepers, that's really outside their wheelhouse, But just getting those reports and understanding those reports, that's really the biggest value that they're providing you. They're often doing a generic setup setting up a construction is not the same thing as setting up professional services, which is not the same as setting up product-based businesses. Again, this is why it's really important to inquire about their experience level. Because when you go into QuickBooks, are they just using it like a generic setup, or are they customizing it, talk to them about your needs, you know, if you've got 3 different lines of business, you should be tracking those 3 different lines of business and 3 different revenue accounts and often, I'll see them all go out together. 

Same thing with costs. Costs aren't getting mapped correctly. Cost of goods sold is inaccurate. Accounts are being globbed together. They should really be separated because one of the things we're trying to use our financials for is to give you better visibility to where your money went. And with profit, that's one of the biggest issues is, you know, hey, where'd my money go? Well, go look at the financial statements. And if everything's globbed together, then you spend a lot of extra time trying to unglove it. 

There's apps that can be used to leverage your business. It's one of the advantages of QuickBooks, is there are apps for pretty much anything and everything. So there's apps that you could be used to allow leverage your business. There can be special industry considerations like we talked about the other day about construction. QuickBooks online, out of the box, isn't really set up for construction, but there are ways you can…I don't wanna say Jerry Rigg, but there are some workarounds… that allow you to better leverage QuickBooks for construction. 

If you are doing it DIY, my warning is you might wanna pay for QBO setup. QBO markets itself is something that business owners can do themselves. But my experience is if they don't have some kind of accounting background, they usually create problems for themselves. So this is something where pay for some QBO set up. And, again, if you're listening to this and you're saying, I probably have a bad bookkeeping hire, definitely send me an email. Let's chat. Even if you're not a fit for CFO services, I can definitely send you to a few bookkeepers. 

The next thing I see, books aren't accurate. Again, we go back. I said earlier, the bad bookkeeping hire drives a lot of these other issues. You made a bad bookkeeping hire. Not gonna surprise you these books are not accurate. When I say they're not accurate, I mean, transactions are not being categorized properly. Balance sheet accounts are not being reconciled. One of the best ways to make sure your books are correct, is to reconcile the balance sheets. I have gone into clients where, okay, the cash accounts were being reconciled, but then they have 15 credit cards spread out amongst employees and none of those credit cards are being reconciled. They've got accrual accounting that's wrong or incomplete. You know, if you're on accrual accounting, there's some knowledge that's necessary to do proper accrual accounting, So if you're asking a bookkeeper without any accounting background to do accrual accounting, unless they've really trained again with an accountant, you're probably gonna have issues there. 

QBO is set up wrong. Accounts are not organized properly. Transactions are not being categorized. There's a couple of uncategorized classifications in QuickBooks where they put things that haven't been properly reviewed and categorized. Those should be cleared out every month. Accounts receivable aren't being reconciled. So if you send out an invoice for a $1000 and you get a payment for 800, a bookkeeper should take that 800 and applying it to that a client's account without actually reconciling, where's the extra $200? And then what happens is months later, you have a huge mess in your accounts receivable. 

This is really important. The next thing is really important. The owners are not reviewing financial statements. I think a lot of this again is because firms or, business owners, they don't understand their numbers or they're looking at their bookkeeping really as a means to an end to prepare taxes. You need to be reviewing your financial statements. You cannot delegate a dump. That's one of the biggest mistakes too that I'll see is I've hired a bookkeeper and it's now, you know, now it's not anything I need to worry about. 

When you're hiring a contractor, you know, they're gonna have their own ways of doing things. There's certain things you can't control with a contractor, but you still need to just like anyone you're paying you need to set some kind of expectations and you need to be monitoring them. The best way that you're doing that is reviewing those financial statements. Okay. And that is something that I do. It might work with my clients.

Some bookkeepers will review them with you, but even then, again, depending on their experience, your review can be pretty limited. So this is one of the things that I do with clients, is I really help them so that they can do an effective review of their financial statements. But please don't delegate and dump, okay? 

Next mistake. You're not using the system just full potential. Okay. So even if you don't have a bad hire, maybe you're paying for QBO, but you don't really understand how it works. QBO comes in different tiers of functions or functionality. you're paying for QBO, but you don't understand how it works. A big one I see is lots and lots of offline spreadsheets and processes that could be done inside QBO. You're tracking accounts receivable outside of QBO. You're tracking accounts payable outside of QBO. Your tracking profitability of jobs outside of QBO. You're not leveraging the reporting functions of QBO. 

That's actually one of the biggest advantages I think of QBO versus other packages is, I think their reporting is pretty robust. And, actually, even relative to desktop, if you're on desktop, I had a client who was on our QB desktop, and I was not impressed at all. I thought it was really clunky. I thought the reporting was really weak, but I find that QBO's reporting function is actually pretty good. And, you can also bring it into Excel. You can do an analysis there. So, make sure that you as a business owner have an understanding of how to use reporting because it's super easy. Don't let a fear of it keep you from leveraging the features of your system. 

And you're not creating business systems and processes that leverage and integrate with QBO. Understand your bookkeeping system is not in its own silo. It needs to be an integrated part of your processes. Okay? So you need to have an accounts receivable process that is integrated with QuickBooks. You may have some stuff being done outside of QuickBooks, but QB needs to be integrated into your processes. And that's one of the things that I'll see if they're often operating silo. 

And then the last mistake I'm seeing clients make is they're not using QBOs reporting and data in their decision-making. I just talked about fact that you're not really leveraging the reporting function and you're keeping that silo between the decision-making and your bookkeeping system. You know, you're still managing totally with your gut. even myself at me. I still do a lot in my business by my gut, but, you know, I can bounce my gut off my numbers. You know, what I think I wanna do to my numbers back that up, what's my data telling me? Okay. The value of good bookkeeping isn't just for your tax prep. Said earlier, it's actually the smallest part of its value. It's really there to provide objective data to help you make better decisions. Let you know what's going on in your business. And with proper mentoring, you can use it to understand the financial dynamics of your business. You can answer questions like, where's my money going? What customers and products are profitable? What percentage of my costs are going to providing my service versus going to SG and A costs? 

The first question I ask people when they tell me that they're not making a profit is a couple, where's your money going? And I will very often hear I have no idea. And that's because you're not looking at the financial statements because if you look at your financial statements, it becomes really easy to see. where your money is going. So that's the first question we have to answer. If we don't have profit, the very first question we have to answer is why? Where's our money going? 

So I hope this helped you today. If you're seeing yourself in any of these 5 mistakes, it's normal. You're not an accounting and financial expert That's what I'm here for. I do a QBO and a financial assessment. It's one of my services for new clients. I basically go in, I review your QBO. I look at a lot of different factors to determine really, are things being done correctly in QBO or are they set up correctly? I'll do a review of your financial statements. I also review financial processes to see if you have those silos. And then I give you a list of findings and recommendations and your next steps so that you have a road map for what you need to do. So this just starts with our conversation. you can go to www.carlamoats.com/workwithme and we can continue this conversation. Alright. And I will see you next time.