22. Red Flags to Avoid When Hiring a Bookkeeper

The only thing worse than no bookkeeping is bad bookkeeping. It costs you time and money, both today and in the future. I know because I'm often working with clients to clean up shoddy bookkeeping work. It's the starting point for a good financial foundation.

There are a lot of great bookkeepers and accountants out there. But it's also an unregulated field and anyone can hang out a shingle.

It's also one of the first tasks business owners will hire out, but many don't really know what to look for or what to avoid. And this often adds up to bad hires that leave you with inaccurate and incomplete bookkeeping.

In this week's episode of Purposeful Profit, I'm sharing the 5 red flags to watch out for when hiring your next bookkeeper (or assessing your current one) so you can make better hiring decisions.

Mentioned in this episode:

• Get your Simple Financials Bookkeeping template
• Continue the conversation and book a free call
• Episode 21: 10 Habits to Get Your Business Finances Organized in 2024

For the full show notes, including the transcript, go to www.carlamoats.com/episode22

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

Welcome to Purposeful Profit, where I help you take your business to the next level. I'm Carla Moats finance and strategy coach and fractional CFO for high achieving female entrepreneurs. I'm here to empower women to build wildly profitable businesses that give them the freedom to live their dream lives. I'll use my more than 30 years of finance and consulting experience to take the mystery out of your finances and help you make more money, and go after your next big thing. 

Hi, and welcome back to the Purposeful Profit Podcast. I'm your host, Carla Moats, and I am a financial whisperer and a coach to female business owners that are ready to take control of their finances and put more profit in their pockets. And last week in episode 21, I talked to you about ten habits to build so that 2024 is the year you finally get your finances in order. You might want to go back and listen to that first. I will drop the link in the show notes. But one of those habits was about establishing a bookkeeping system, and a bookkeeper is often one of the first tasks that owners look for help with. It's something that a lot of owners don't want to do. It's something they don't really understand so often that, you know, it'll be one of the very first things that they will try and hire someone to help them with. And the thing is, they don't really know what to look for when hiring one. And bookkeeping isn't regulated. I mean, anyone can hang out a shingle. If you were listening to this call today and you decide tomorrow you want to be a bookkeeper. You can go. Whatever your normal local licensing or business registration requirements are. But there's no license required to do bookkeeping. And when you don't know what to look for when you're hiring one, often you're just comparing on cost because it's really the only way, you know, to compare bookkeepers. You talk to three bookkeepers, one's 400 a month, one's you know, 500 a month, one's 800 a month, and you really don't know, other than costs, you don't really know how to compare them, and it gets treated as a commodity. 

Here's the thing. If I had a dime for every time I was called in to do cleanup work, that was the result of shoddy bookkeeping. Well, let's just say I'd have a lot of dimes. And when I say shoddy bookkeeping, it's things that are done incorrectly, things that are done incompletely. They're not done in a timely manner. Basic services that should be part of bookkeeping, work that aren't being done in cases where the business owner thought they were getting X, but the bookkeeper wasn't providing X. And shoddy or low quality bookkeeping cost you time and money. It cost you a ton of money now. Definitely cost you time and money in the future, because at some point you're going to have to have it cleaned up. And, so I've seen a lot of accounting cleanup in my career on both small scales and large scales. Even big corporations have shoddy, bookkeeping or accounting. And so today I'm going to share five red flags that I see that you want to avoid when you're hiring a bookkeeper. All right. 

So let's dive in, Red flag. Number one that I see is, people are hiring bookkeepers that have no accounting background. So I'm going to ask you if you need to have a plumber come into your house, are you going to hire a plumber? He's never done any plumbing. We need to get your dog groomed. You know, your puppy. You know your baby. Are you going to go to a dog groomer who's never groomed a dog before? like, let your dog be the very first one that groom. Accounting is a specialized field and your bookkeeper needs both training and experience. There's two components that we'll talk about, but there are two components that need training and experience. 

Now, I'm not saying they need to have a bachelor's degree in accounting. But I'm not even necessarily saying they have to have it. Even an associate's degree, because you can go to a community college getting an associate's degree in accounting. But I am saying that they need to have some training and experience. And for me personally, this does not include how to become, how to build a home business as a bookkeeper.There are places you can go out there. You can pay $495 for a course on how to become a bookkeeper. Last month in some cases, some cases might even last a week. In some cases, it's just a course. And is that how you want to do it in your books? So when somebody's paying $495 for a class, they're not getting accounting training, they're getting training on how to run a business. 

So I said earlier that they need training and experience. Let's talk about training our knowledge, things you can look for, for knowledge is do they have a degree? You can go to a community college to get an associate's degree in accounting, and then you have a bachelor's degree in accounting.They could be a CPA. Is it the very high end? Your bookkeeper does not, let me emphasize this, your bookkeeper does not need to be a CPA. And in fact, if they are, you're probably way over paying for the service. But they need to have some, some type of educational background or a degree, an associate's degree or bachelor's degree. I mean, that's how I came into it, I have my bachelor's degree in accounting. And, you want some indication that they've got some type of academic background.

Another option is if they don't have a degree, is that they worked with another bookkeeping firm, or they've worked in accounting for years. So, there's entry level jobs. You can go out and get an accounting or CPA firm that will hire people who don't necessarily have an accounting background, and they'll train them. If you've got somebody who's worked five years for a CPA firm, that would probably be a good ideal replacement for a degree, and just make sure you understand what they did at that firm. If they were the office manager at that firm, that's not substituting for an accounting background. 

So if they say, well, I worked at a CPA firm for five years, will tell me what you did at that CPA firm, what was your role? They should have actual, you know, have gained actual bookkeeping experience. And also, when they're talking, I've interviewed a number of bookkeepers in my time and usually, I don't know how to explain. There's like, a vibe I can get. I can usually tell pretty quickly whether or not they have expertise. So in your interview with them, are they owning their expertise? And again, experience. So you could ask somebody who has a degree but has never done any bookkeeping. I worked at corporate America for a while, but corporate America is different. The bookkeeping, you know, but I've done work for smaller clients as well. 

So make sure that, if they are coming to you from, say corporate or, or they're a CPA or former CPA, do they have some experience working with businesses of your size as well? Rough flying number two. They market or advertise primarily on low cost. Bookkeeping is often treated like a commodity. Commodities obviously two things. Two things that, are very similar. And the only real differentiator is cost. So bookkeepers that are competing on low cost is because they don't either don't have much experience. They just complete that $495 class, or that's the only way they know to differentiate themselves. And I really advise that when you're hiring bookkeepers, shop for value. I'm not saying you want to go out and hire the most expensive person. It's actually not about the cost. It's not even about whether the high or low. It's what value are you getting. For what you're paying. Okay. What type of support do you get throughout the month? When do you receive your financial statements? Are you getting your financial statements? I actually worked, this actually wasn't a bookkeeping client. It was a CFO client. And when I first came in, they had an in-house accountant. And I asked, I said, when do you get your financial statements? And she's like, I think, I think we were in April and she was getting February statements and I'm like, OMG we have to go fix this because those statements aren't timely. I would say you should be getting your state, your statements by the 20th or at the latest of the month. Ideally you want a lot earlier, but you want your statements, within 2 to 3 weeks at the end of the month so that they're still relevant to you. 

I mean, if there's a team, how often do you talk to the owner? Some bookkeeping firms are building out large teams, and you're actually not dealing with the owner. So are you talking to the owner? What type of reporting are they providing? Are they actually sending your reports. We're going to talk about that later. But are they actually sending you reports or are they just saying, hey, we're done and you're going in and downloading your report, so what's the value that you're getting for them? And you can even ask them what differentiates them from other bookkeeping or accounting services. So for me, for my executive accounting services I have two main differentiators. One is I'm very low volume. I take on very few accounting clients. And so I'm low volume. High touch people deal with me a lot. And I do more than one meeting a month. And the other thing is I have over 30 years of experience. There's not much that I'm that anyone's going to present to me that I haven't seen before. But ask them what their differentiator is, because if they can't explain to you what difference differentiates them from somebody else, to me, that's the indication that they think of themselves as a low cost commodity business. 

Speaking of costs, one of the things I'm always asked is, what's a normal price to pay for outsource bookkeeping? And I would say expect to pay at least $500 a month for bookkeeping services. That's probably a starting point. This is really an area where there's like a minimum. There's a certain amount of work that you have to do regardless of the volume that you have.

So for instance, you always have to reconcile bank accounts. It doesn't matter whether you have, 1 or 2 transactions or you have 150 transactions, you always have to reconcile all the bank accounts or credit card accounts. So there's a minimum level of work that has to be done irregardless. So it's just like when you hire that plumber comes to your house, it says, it's gonna be $100 just to come to your house. And then whatever you need is above and beyond that. So expect to kind of have a minimum, 4 to 500 a month. It's a starting point. 

Your bookkeeping fees really depend on what you need. They can go up for a larger, say, seven figure business that's more complicated. It could go up to, 2 or $3000 a month. And this is really driven by your volume of transactions. The more transactions you have, the more work there is. The complexity of the business. Again, the more complex your business is, typically, the more services you're going to need. And some of the add-on services that are typically not included in standard bookkeeping or things like 1099 processing payroll is often not included because not everybody will have payroll. So it's an add on service, invoicing, doing your invoicing versus having somebody in your firm do your invoicing. Accounts receivable, accounts payable. 

Bookkeeping is generally the processing of your transactions and categorization or transactions. That's kind of like your core booking bookkeeping servicing services. Bringing in my transactions from all my banks and credit cards categorized as transactions reconcile my bank statements, do reviews of all my transactions to make sure they're categorized correctly issued me financial statements that are your basic core service. 

Red flag number three. They don't have a detailed onboarding process. I really encourage you to ask in your calls with your potential bookkeepers, what is their onboarding process. Because this is really key. Do they have an organized process for taking over your books, or are they winging it because a lot of you will already have QuickBooks online and you will be transitioning from somebody else. So that's one way that they're onboarding you. You're currently with somebody else who you outgrown or you're not happy with. For whatever reason. You're moving to a new firm. There's an onboarding process for that. And then or you're setting up QuickBooks online from scratch. And again, they have to there's a lot of information they need to collect and they need to get access to. And how are they doing that? This is also where they start to learn about your business. Um, and you want a bookkeeper who understands your business and doesn't think your business is just like any other business. And this is where they get access to all your records and the information, passwords, you know, access to accounts. When I say access to accounts, by the way, you're not giving your bookkeeper access into your bank account where they can move money. But most banks will provide you the ability to give certain people access where they can just pull down bank statements and they can go in and review activity so that they can do their work. And a solid onboarding process is going to save you time and cut down on emails.

So it's going to ensure your books get done in a timely manner. And it's going to minimize how long it takes him to onboard you. So ask them to discover what their onboarding process looks like. And do expect to invest some time in this first 4 to 6 weeks, probably 2 to 4 hours. Okay. In either meetings where you're going over questions that they have or completing an intake form, an intake form I find for most clients is a combination. I have intake forms that go out in the beginning. I have ways that collect initial information. But one of the first part of your onboarding process, you're categorizing transactions and you're not familiar with the company's transactions. And you want to make sure that they're categorized in a meaningful way. So, I don't always necessarily categorize the same transaction for two different clients exactly the same way, because how they want to see it or what's meaningful to them may be different. So I will have some transactions that I want to question with them. I want to go over with them, but expect to invest 2 to 4 hours, over those 4 to 6 weeks. And again, this is your investment in this new relationship.

Red flag number four. They charge by the hour. It used to be really common to charge. Accounting is in the professional services space and in the professional services space. It used to be really standard to charge by the hour your trading time for money. But I really don't like this model for bookkeeping. There's no incentive for efficiency. The longer it actually takes them to do the work, the more they make. You're really treating like you pay your employee, you have an employee, you pay by the hour. And obviously if you have an employee who's doing your bookkeeping, this is different. When I say charge by the hour. I'm talking about somebody who you're outsourcing to. I'm not talking about you having a W-2 employee, but they don't have any efficiency, And in my opinion, if they are charging you by the hour, it's a sign that they probably haven't done this work long enough to know how long you should take them. If they're charging by the hour, they are hedging that, basically saying, I'm not really sure how long it's going to take me to do your work, so I'm going to charge you by the hour. And with hourly pricing, you're going to get surprised. You can get surprised by a big bill or they're going to come to you in the middle of the month and say, I've already done the ten hours this month that I expected to do, but I'm still not done. If you want your financial statements, it's going to be an extra five. And then, you know, what are you going to do? 

So really push them for a flat rate pricing. I can't speak about where first X services you're going to pay this flat rate. You're going to pay it every month for maintenance work. Now do expect some provisions in your contract or and your agreement to revisit pricing periodically because your circumstances can change. Your volume can change, especially if you're in a growth mode, doing bookkeeping for somebody who has, you know, 75 transactions a month is different in 3 or 4 months, you're up and you're doing 200 transactions a month, because, again, a lot of the bookkeeping work is impacted by the volume of transactions that you have. So expect to revisit the pricing periodically, or perhaps for your pricing to be tied to some type of volumetric or the type of services provided. Again, some things maybe if you add employees, maybe they're doing payroll, but their payroll fee for you is covering up to five employees. And after you have five employees, you're going to pay more per employee. Or maybe you're paying X amount for a certain number of bank accounts. And if you add an additional bank account, you're going to pay an extra amount. And obviously add on services. 

Now, the one caveat I'm going to make to being charged by the hour is for cleanup work. So cleanup work is often very standard. Often if you are switching bookkeepers, there's a reason you're switching bookkeepers. Maybe there's some transactions that haven't been reconciled or maybe you've been denying it. And, there's some tasks that you haven't done. There needs to be some cleanup. It's very hard to estimate cleanup work until you actually get in there. often I go, when I do cleanup with clients, I do, in my discovery, ask questions to kind of give me a feel. And I also get access to the QuickBooks online, and we go through it together on the call, and I can go in and I can get a look and get a feel. But until you actually get in, you really don't know what you're going to find. And I would say 90% of the time when I'm doing cleanup, there's issues that we come across that we didn't expect. So cleanup work is most more often charged by the hour or there's an upfront payment and includes a certain number of hours or so, you know, $2,000 for cleanup work, half of it upfront, half half when your almost done, but it includes a certain number of hours and any more hours than this I'm going to get approval for from you. Before I go on when you're doing this. So you also do want to get some updates. You want to have a timeline for how long they think the cleanup is going to take, but do expect to pay an hourly fee for cleanup work. And even if you're going straight to maintenance, a lot of times there will be a level of cleanup work. Often I tell clients when they come over, it was like, we and we've agreed to a maintenance amount. I will tell them that, in the first week, I'm going to be doing a deep dive into their books, and if there's cleanup, I will come back and we'll and that will be discussed. That'll be discussed separately. 

And then five. The red flag number five is that their services are transactional only. So I said earlier, at its core, your core bookkeeping service is to bring my transactions in from my banks, my credit cards, any loan activity, get them categorized.  Which is, where are they going to show up in the financial statements? It's at its core levels of transactional service, low level bookkeepers. That's really all they're interested in. What I want you to look for here. Are those what they should be a valued member of your team? They should be adding value beyond just categorizing your transactions. So are their processes set up to help you? For instance, I once had a client who came to me because she wasn't she wasn't feeling it with her, her current bookkeeper. And one of the first things she told me, which is, was my biggest red flag, we ended up I was actually doing CFO work for her, and we weren't originally planning on moving bookkeepers. but we ended up doing that because the first red flag she told me was, well, this bookkeeper told me that I'm not allowed to do anything on my own books. So she's doing all this work outside of QBO and spreadsheets and everything, because our bookkeeper told her that you're not allowed to do any work in your books. I was like, these are your books. They are there for you. The bookkeeper is there to empower you, and they're there to take some low hanging fruit off your plate, get things categorized, but they should be providing value. They should be helping you understand how to use your books. They should be helping you understand how to use some of the functionality in QuickBooks. So, are they interested in just being transactional only or they are actually interested in helping you understand your numbers, understand your books? Finding ways to leverage QBO to its fullest extent. because high level bookkeepers are really interested in helping you make better decisions and grow your business. And so this is again, the difference between low cost and high cost. If it's a low cost, if they're competing on costs, they are probably a transactional bookkeeper. And they're not really interested in helping you make better decisions to grow your business. Do they seem interested in your discovery call or your consultation and understanding your business? Are they more just asking you how many transactions you have and how many bank accounts you have so that you know that they can give you an estimate of what it's going to take to do your transactions. A good bookkeeper is going to have a good discovery call where they're, yeah, they're going to ask information to help them, ferret out how long, you know, the transactional part's going to be taking. But they also really want to understand your business, because a good bookkeeper or a high level bookkeeper is looking for ways to add value to you. 

Are there generic discovery questions? Like they're scripted, like they're asking the same questions of everybody? Are they asking good questions specific to your business? They might start with a script. You know, they have a standard. I have a standard list of questions that I'll ask, but then I'll have specific follow up questions that I will ask, based on the answers that I get to those based on what I know about their industry. What type of reporting are they providing you? Are they providing any commentary or insights? Don't expect your bookkeeper for bookkeeping prices to be doing analysis. They typically want to have the skills or that's where you start to get into CFO services. But they should be able to provide you with some basic commentary or insights. They should be able to explain to you what happened in your numbers this month. Again, if they can't and they're purely transactional. Another thing to look at is how big of a client load do they have? And if it's if they have a team, you know, it's pretty standard one of the ways to scale an accounting firm is to deal with higher volume and hire bookkeepers to do the actual work. But if that's the case, what's the client bookkeeper ratio? And are you always dealing with the book? Are you dealing with the same bookkeeper every month or are you or is it just that you're just out there and whoever comes in and does the work, does the work?

There was a client I had that worked with a big bookkeeping firm, and there can be advantages to those firms because obviously if somebody's out sick or something you've got coverage. But every month somebody else was doing her transactions and you could tell because you would have something where a particular vendor would go in one category, one month in a different category in the next month, and a different category the next month. Because if they do have a team, I would also make inquiries as to what type of training they do with their team, what type of standard procedures they have so that if you have different people touching your account  that the work is being done consistently. Ideally, you want to have a single bookkeeper on a team. You have a single bookkeeper that you're dealing with. 

And again, are you ever dealing with are you ever actually meeting or dealing with the owner? Can they explain their finances to you? What type of questions did they ask during your consultation? Again, are they training all their clients alike? If you're if you for instance know, bookkeeping , let's say an organizer who does all of her work in home, say you're a, home organizer who does all of her work on site with clients, has a very different business model than somebody who is doing organization courses and coaching similar, type of knowledge, but a very different business model. So, can they recognize that or are they treating us to those two types of businesses essentially the same? 

So I hope today's episode gave you a feel for things to be looking for when you're interviewing bookkeepers, questions that you should be asking, and red flags that you really want to avoid. If you are ready for DFY accounting services, I have three spots available right now for my Executive Accounting services. I use my 30 years of finance and accounting experience to give owners like you a high touch accounting service. This service is for business owners that are ready to get their finances in order, but they don't need CFO services yet. But they want really solid bookkeeping services. I kind of position this is definitely a step above the bookkeeping services that you typically see out there. 

You can book a free call at www.carlamoats.com/workwithme. The way this call works is I will together we'll do a quick financial assessment and then we will discuss your accounting needs and really your business specifically. And I will also help give you some insight, whether you use me or somebody else as to what type of accounting services your business needs. All right. And I will see you next week. Thanks for being here. 

Thanks so much for listening to the show. Remember that your finances deserve some love. Finance doesn't have to be complicated or overwhelming, and you do not have to do it alone. I'd love to talk to you about your business, so please come on over to www.carlamoats.com to learn more. Or if you're ready for financial and strategy support that will upload all your business. Go to www.carlamoats.com/workwithme to book your free financial assessment. And the last favor I'll ask is for you to help me get out the word. Tell your friends about this podcast and share it on your favorite social media. Until next week, go create some purposeful profit.