Building Your Business Bookkeeping Team

Which do you like doing more: working IN or ON your business?  

Most small business owners say that working ON the business is their biggest pain point. And that's exactly why our resident bookkeeping mensch, Paul Rosenblum, is providing this much-needed overview of the top things that will help you grow grow your small business bookkeeping team. You can't/shouldn't do all the things in your business forever, no matter how much of a control freak you are.

He covers topics like the totem pole of bookkeeping, how to network to find bookkeeping help, getting clear on your business's personality and customer service flavor and how they impact your books. Why did the scarecrow become a successful entrepreneur? Because he was outstanding in his field! And you'll be too if you follow Paul's advice!

Transcript

Episode 38

Welcome to episode 38, and welcome to any of you listening for the first time. Glad to have you here!  As promised, today I will be speaking to business owners who are not bookkeepers. But before we get started, remember to check out the beautifully graphic YouTube channel that Steph, my producer and YouTube guru created. All of these episodes are there as well as your favorite podcast app.  So, please subscribe and comment over there on the Youtube  platform. 

In the last episode, I was speaking mostly to bookkeepers with their own business. However, equal time is necessary in my world!  So, if you are a small business owner, sit back and hear what I have to say about having the right team around you, how to find an accountant, CPA, or tax preparer, and of course, how important bookkeeping is to your business, especially with the small business owner’s eyes looking at the profit and loss that a bookkeeper creates for you. (And you thought I would take the summer off from podcasting—oh, no!) --- I’m Paul Rosenblum.  

Let’s start at the beginning.  As a potential small business owner, most people have an idea that they want to go into business for themselves. They (you) start doing research on what kind of business (if you don’t already know by possibly being an employee somewhere else in the same field that you want to start your own business in) --  maybe you take associates out to dinner to talk about your ideas, maybe buying some magazines or research materials, or if you’re in the clothing industry, purchasing samples to show perspective buyers.  

First point:  This is where the accounting begins. I’ve spoken about this before – they are called ‘Startup Expenses’.  Use a spreadsheet and log all the expenses related to the idea of having a company.  That’s all I am going to say about that, because episode #1 in 2022 (I know, I hardly sound the same now as to when I was just starting out), explains in more detail.  

Second point: How do you know when to hire a CPA, accountant, or tax preparer?  The simple answer is when you are getting close to figuring out what kind of entity your business will be.  Sole Proprietorship, LLC or Corporation. (And by the way, that’s episode #2, back in 2022). If you notice, I never use the generic word ‘accountant’.  I always use the job titles of CPA, accountant or tax preparer. The quick ‘totem pole of accounting’ works this way:  

CPA (Certified Public Accountants) – They are at the top of the mountain.  They have the most schooling, they have the most education credits to get every year to keep their licenses current, and in theory only, they have the most knowledge (but take that one with a grain of salt these days). They also charge the most amount of money either hourly, or on retainer, or just for tax returns, which are not guaranteed to be any cleaner than other kinds of tax preparers.  As a new business, a CPA will probably be overkill for what you need at least for the first year or two. So, we move to other types of tax preparers. 

Accountants:  College degree, yes, and state certification, yes, but not as many requirements by many states in terms of the seminars and webinars that they have take to keep their certification active. However, that doesn’t mean that they have less knowledge or less passion about what they do.  THAT has to do with personality, (and I can say this because I’m almost 70) –the age of the accountant and how many years that they have done taxes as well as what their practice specializes in.  This is true with CPA’s as well. Again, I’ve spoken about this before, matching the right tax preparer to you and your business is very important. There isn’t an accountant or a CPA anywhere who knows every line of the tax code nationally and for the state that they are in, or for the state that you are in.  It’s impossible, and even if it were possible, the code changes every year.  How can they keep up?  So, as a business owner, I’d try and find a CPA or an accountant who knows your particular business. So, it’s your job to ‘interview’ your tax preparer and try and find the person who is best for you – personality, knowledge, and of course, price. 

E.A.: (Enrolled Agent)  An enrolled agent is certified by the IRS to prepare tax returns after the applicant takes a national course and of course passes that class. I know EA’s who have as much knowledge as any other kind of tax preparer, so how much certification and schooling that one has doesn’t necessarily define how good someone is at their job, and that runs true in accounting as well.  

In my mind, there are three kinds of ‘engagements’ with tax preparers. 

1. Once a year tax returns only.  The client gives their books to the tax preparer, and taxes are done. Unless there is something that stands out like a sore thumb in the books, the tax preparer will use those books pretty literally except for balancing payroll numbers and of course depreciation on assets, and amortization entries if needed.
2. Once per quarter visits by their tax preparer to make quarterly entries to keep your books accurate and ready for taxes, and meetings with you, the business owner, virtually or in person.  
3. Having an open relationship with your tax preparer so that you can call him or her to discuss anything that comes up in the running of your business.  This will probably be agreed to as a monthly retainer to be put toward the tax return when it’s done during tax season.  

So, as a business owner, you should decide which one of these kinds of relationships suits you and your personality the best. When you do, then it’s time to shop for a tax preparer. 

As I mentioned in the last episode, going to Meetups (virtual or in person) or networking meetings (paid or free) work the same way for bookkeepers starting up or small businesses starting out.  Business networking meetings are a place where you can possibly meet bookkeepers, accountants, CPA’s and E.A.’s. Networking in business is valuable in so many ways. It could help you in finding new customers and clients as well as bookkeepers and tax preparers. 

I’ve had clients who got advice from friends of theirs as to what kind of entity to create for themselves, and most of the time, it’s the wrong advice. I have had artist clients who got the advice years ago to start a C Corporation for their one-person business.  To put it bluntly that’s just incorrect and wrong. Very complicated accounting, and tax prep—much more complicated than an LLC, for example.  So, take advice from the people who know, even if you have to pay for a consultation.  Even before you talk to a tax preparer, you might want to have a meeting with a business coach. They can give you some solid advice about the right kind of entity for your business.  (Or email me @ bookkeepermensch@gmail) – and we can schedule a short phone call or zoom conversation. 

If you choose the wrong entity to create for your business from the very beginning, it can cause problems going forward. I do believe in clients doing their own bookkeeping to experience it, but after a time, a bookkeeper is absolutely needed. A good bookkeeper will sit down with you and show you the bookkeeping mistakes, and make sure the books are ready to move forward. Again, bookkeepers can be met at networking meetings for businesses. 

I can tell you story after story of clients doing their own bookkeeping for over a year, and when the tax preparer gets the books, they are so inaccurate that they send them back to the client to have them done again and will probably need to put them on extension.

Being a business owner is not only about selling services or a product, but it’s also about accounting. Some businesses are more accounting-heavy than others, but all businesses center around accounting. And it’s not just for the IRS and taxes – it’s about really knowing where your money is coming from and where it’s going.  It’s a process – not a magic trick. So, as a business owner, you need to be part of that process and have a good relationship with your accounting team. I’ve had clients who were not part of the process, to their choosing, and it not only makes the job of a bookkeeper more difficult, it also makes bookkeepers like me, who are relationship based, frustrated. 

Just as I said in the last episode about building a bookkeeping practice, the same applies to any business.  Personality. Your personality should reflect in your business name, how you do business, what your working hours are, how accessible you are to clients or customers and general ‘customer service’. At the beginning of most small businesses’ lives, the owner will do literally everything themselves--Pay the bills, take out the garbage, sweep the floor, order supplies, and even wash the coffee cups. But a good business owner needs to know how to delegate to others. Even if one is a control freak in other parts of their lives 

This delegation thing has always been a weakness for me.  I’ve had up to 3 subcontractors at a time working for me, but always found it difficult to delegate to them, knowing that I will have some cleanup to do when they are finished with the data entry. My initial feeling is just to do it myself! 

As any business grows, the ‘personality’ starts diminishing. You can advertise in the same way as the company grows, but the reality is that customer service changes -- the company may have more than one department for different customer service issues, so customers are transferred to different departments and speak to different people and we all know that online ‘chatting’ isn’t the most efficient way of customer service at all --  and the pressures on the business owner to keep raising revenue numbers because of investors, and the higher cost of goods or payroll makes working at the company as it grows a different feeling when there isn’t as much closeness or a ‘family feeling’ in the office. As the business grows, there is more pressure on the bookkeeper to have the books done earlier in the month, so that the numbers are up to date. There might be re-financing or mortgages of property that the company owns, and many new people are brought in like a CFO to work with the bookkeeper, so that the whole structure slowly changes over time. Does your utility company have a ‘personality’ anymore?  I think when Thomas Edison started Con Edison, there was some personality, which probably went away quickly after the initial excitement started to fade. I just got into a conversation the other day with a client about a book that she highly recommended me to read – it was a half hour conversation that I didn’t charge for since it wasn’t about accounting -- when was the last time someone at customer service at Walmart or your bank talked about a book or a movie or a TV series?  I’ll say it again.  Personality.  The YouTube channel for this podcast has personality.  Check it out and take a look. If you are interested in a backstory on that one, email me at Bookkeepermensch@gmail, and I’ll tell you about it. 

But I digress again, a long digression this time. I spoke earlier about deciding what kind of tax preparer you have. Sit down and have in person or virtual interviews as much as possible.  Ask friends, or small local businesses if they like their tax preparer, and get their names.  Schedule a meeting with them.  You don’t necessarily have to network – you can ask friends or family members like cousins and aunts and uncles about who they use for tax filings. 

Switching subjects, I have had clients who have really struggled to make a profit in the first year or two of being in business.  They decide to add a room or add a roof to a second floor in hopes of bringing in more people into their restaurant or bar, for one example. When you expand, and you are not making a profit, you have a few challenges to face.  

1. Hard to get a loan from a bank for a project since you aren’t making a profit.
2. One of the only places to get a loan (or short-term funding) is from a company that charges you 25% interest.  Yes, I said that right.  25% interest. And since it’s a short-term loan, they electronically take money out of your bank account 5 weekdays a week to pay it back once they deposit money.  So, that cost has to be part of the cost calculations of the project itself. 
3. Furnishing the room, including a sound system if needed, and fire alarms and inspections, etc. have to be worked into the overall cost.  
4. Maintenance of the new room or space has to be budgeted. 
5. The accounting has to be figured out.  Maybe separate the income from the new room as opposed to the original room or space in the accounting system? 
6. I’ve had clients who have done every step wrong in this example.  One year later, they were losing even more money. 

Hey, it’s tough to run a business!  I have always thought (and I won’t get political here), but – here it comes --- a choice has to be made by the business owner.   Running a business or having a family.  A business has to be neutered just like kids and family relationships.  I am not saying that both can’t be done, but I think that few people can do both successfully. Especially these days! 

And another thought -- WHY are you starting a business of your own?  Are you starting the business because of your passion, your love for what you do, or are you starting it to build it up as fast as possible, and find investors, expand, or sell the business for one lump sum and move on to something else? No wrong answers here, but having an ultimate goal is essential for the business owner.  WHY?  One word.  “Personality”.  How the business is going to be run, how the business is going to take care of employees and customers, for two examples.  

I had a client who, before Covid, was doing very well in the business – almost 3 million dollars a year, and the owner went out of their way to pay the employees more than other businesses in the field and offer more benefits than any other company in that kind of service business.  They wanted to attract the best people. Since Covid, things have changed somewhat, and they are trying to ‘start again’ in building the business and increasing revenue. The business is almost starting at the beginning, and again, the ‘personality’ of the business needs to be re-invented.

In my own life, I try and stay away from purchasing from really large companies.  I try as much as I reasonably can to buy local, but I do admit, I do purchase stuff from Amazon and the large retailers sometimes. But my first thought is to go locally, since it is generally a better experience for me than dealing with a very large company. However, as a consumer, I also look for the best value, and it’s not always about price! (which the large retailers might give you)  So, it’s sometimes difficult to choose which way to go! 

In the episodes that I’ve spoken about the chart of accounts, (episodes 7, 34, and 35) I have always used examples for smaller business models.  However, as a company grows, the chart of accounts might need to change as well.  There would be a reason in many cases to have a chart of accounts reflect ‘Operating Costs, (the day-to-day operating costs of a company) versus Overhead costs (the cost of goods), and Administration costs (accounting, legal, rent and advertising (and then add (or not) have subaccounts of those. I mention this because this is also the financial ‘personality’ of the business, the internal personality that the business owner and the tax preparer and the bookkeeper know about.  

There is so much to talk about here, about building a business and having a business plan. What are your long-term goals?  What are your short- term goals?  Are you willing to be flexible with them if things change? And if you are a brick-and-mortar store or retail operation, remember, location, location, location.  Do the research.  What business was in that space before you? How many years were they there for? What’s the population of the neighborhood?  Is it the right location for you?  Is the foot traffic good or bad?  Is it near public transportation?  Is there a parking lot for people who drive?  

If your business is a restaurant, can you make deals with local parking lots or garages to get a discounted price for your guests?  Even the merchant system that you use for credit cards adds to the personality of the business.  There are restaurants that I go to that I have actually had to ask how to pay, because it’s not obvious to me what to do on the screen on the device that’s on the table.  There are very super friendly POS systems out there that customers will understand easily. 

And of course, any small business owner with employees should really try and be in a good mood and not bring personal stuff to the office and treat your employees with respect. The better you treat employees, the better employees they will be. 

I’ve got to get back to my full time job -- bookkeeping and dealing with occasional abuse from clients --- I’m ‘talked out for now’ , Paul Rosenblum