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QuickBooks Desktop vs. QuickBooks Online – Which is Better?

Posted on May 22nd, 2020

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

I am a Certified QuickBooks ProAdvisor and have been using the original Desktop version since 1996.  In recent years, QuickBooks has been heavily promoting its Online version, and because of that, a lot of new QuickBooks users are jumping on board.  First, let me come right out and say this:   We frequently receive inquiries for consulting with QuickBooks Online by people who are trying to use it and most likely, making a total mess out of it.  It functions completely different than the original Desktop version, and in our opinion, it is inferior in many respects, and calls things differently in the Online version which makes it that much harder and time consuming to correct things.

Now, after that, if you are still considering doing your bookkeeping yourself and trying to decide between QuickBooks Desktop and QuickBooks Online, here are some things to consider:

  • Navigation: If you are used to using the Desktop version, as mentioned above, QuickBooks Online functions completely different. Various things are called and located differently almost, it seems, for the sake of calling and locating them differently.
  • Reporting Capability: In my experience, the reporting capability in the Online version is not nearly as robust as the Desktop version.
  • Support: For the above reasons, I’ve found that to do just about anything in the Online version, I had to call Online support, a monumental waste of time!

The reporting capability in particular in the Desktop version is one of its major benefits.  This is extremely useful not only for researching accounting issues, but the ability to create and memorize numerous customized reports for the client for managing their business.  And as a former CFO /controller, I believe that the most important thing to come out of an accounting software are meaningful financial reports.

Now, what many people are not aware of (because QuickBooks doesn’t promote this service for themselves), is that there are companies that also provide access to the traditional Desktop version via the “cloud,” and have the Intuit certification of “Authorized Commercial Host – QuickBooks.”  In our business, we use Ace Cloud Hosting to support the Desktop version.

In the past when I’ve tried to use the Online version, I found myself spending most of my time “re-learning”QuickBooks, sometimes only to find out in the end that what I want to accomplish isn’t available in the Online version.  I’ve also read that many Online users are complaining about both software glitches, and issues with Online support.  I’ve rarely ever experienced software issues with the Desktop version.  But if I do, I have access to both Ace support staff, and as a QuickBooks ProAdvisor, unlimited access to QuickBooks ProAdvisor Support – and at no cost to my clients.

And I am not alone in my views of QuickBooks Online. I’ve been told on more than one occasion by ProAdvisor Support staff that they hear the same frustrations from most CPAs and accountants regarding the Online version. When I asked one of them why it was designed differently, his response was, “Because the desktop version is too powerful to create online” (meaning without being hosted in its entirety on a remote server).

In the area of “pricing,” a QuickBooks comparison chart shows $70 per month for Online Plus (currently discounted to $35), or $840 per year ($420 as of the date of this writing).  According to the chart, Online Plus is (“theoretically”) the closest in capability to QuickBooks Pro, the latter of which is what we have most of our clients purchase, and currently sells for a one time purchase price of $299.95 (retail before our ProAdvisor discount which fluctuates).  However, with the Desktop version, it is NOT imperative that you upgrade to the newest release every year for at least three years, when QuickBooks stops supporting it with maintenance relaeases.  The improvements each year with the Desktop version are mostly cosmetic, and would be of interest primarily to the most advanced QuickBooks users (which most small business owners are not).

Finally, in our case, a monthly user fee of $44 is paid to Ace Cloud Hosting which includes unlimited 24/7 support by phone or email.  (And as mentioned above, as a ProAdvisor, I also have unlimited free access to QuickBooks ProAdvisor Support.)

Ace Cloud Hosting recently published an article in their blog comparing QuickBooks Online to QuickBooks Hosting.  This is part of what the article concludes:  “Hosting [QuickBooks] on the cloud can offer you the flexibility and mobility benefits of the cloud, along with all the features available in the desktop version.”

But that all said, regardless of which QuickBooks you use, let me now say this:  QuickBooks has done a great job of marketing its software as being “easy to use,”….. but, that’s also what makes it easy to abuse.  Most QuickBooks users we’ve worked with have no idea of the accounting mess they’re making, and that’s when they throw up their hands and turn to us to do a major clean up their books.  Our philosophy is to relieve the client from the bookkeeping headache as much as possible by doing most of the data entry ourselves, and WE use QuickBooks Desktop and we do not support the QuickBooks Online version.

So, with our firm, some clients have access to their QuickBooks file, others do not and don’t care.  But if they do need access to their file, we still try to make things as simple as possible for the client, and therefore, for us, which is to the benefit of the client in more ways than one.  In those situations where the client does not need access, we are paying for our own user fees, the client is paying nothing for QuickBooks hosting, not even for the purchase of QuickBooks.  Instead, our clients are paying us to do their monthly accounting and bookkeeping accurately, thus freeing themselves up to focus their full attention on their own business rather than “learning” QuickBooks.  Those business owners are, in effect, factoring in the “opportunity cost” of doing the bookkeeping themselves, or hiring a full-time bookkeeper at $25,000 to $35,000 a year, or even half of that for part-time.

So to summarize our position on all of the above, if you:

  • Are NOT interested in struggling with the bookkeeping (regardless of which version), or;
  • Are NOT interested in learning QuickBooks all over again if you’re accustomed to the Desktop version, and;
  • ARE more interested in managing your business, and letting someone else worry about which bookkeeping software they want to use, or;
  • Just want to perform minimal bookkeeping tasks yourself with someone overseeing and adjusting your work;

Then, consider a third alternative of outsourcing the bookkeeping to those who specialize in it.  In terms of the services we provide, as stated earlier, we do not encourage our clients to spend a lot of time “learning” QuickBooks, most of whom just end up making a mess out of it.  But rather, we encourage our clients to focus on their own business, and let us take care of the (tedious) bookkeeping and accounting tasks. Therefore, we do not wish to spend a lot of unproductive time ourselves, either, relearning QuickBooks for the sake of relearning it, and at our client’s expense.

In a nutshell, simply ask yourself, “How do I prefer to spend my time, learning QuickBooks, or running my own business?”

Related Articles:

4 Reasons Why You Should Consider Outsourcing Your Bookkeeping

The “Opportunity Cost” of Being Your Own Bookkeeper

Part-Time vs. Full-Time Accounting Staff

 


Do What You Hate and the Losses Will Follow

Posted on September 5th, 2019

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

Several years ago I read an inspirational book, “Do What You Love and the Money Will Follow” which in part, led to a few career changes I made.  Of course, nothing in life is quite that simple, especially in a society where supply and demand rule, and economic change, or “creative destruction” (as described by Alan Greenspan in his book, “Capitalism In America“) is the norm.  But it does make a good point, that if your work is closely aligned with your inherent talents, or in other words, your “spiritual gifts,” you have a much better chance of succeeding.

But what if the opposite is true, and you spend most of your time performing tasks that you hate doing?  In a recent article, “4 Reasons Why You Should Consider Outsourcing Your Bookkeeping,” I listed some reasons why it is advantageous for small business owners to outsource their bookkeeping, such as accuracy and the lack of accounting knowledge, or in general, avoiding making a mess out of your books that someone else eventually has to clean-up at tax time, and at your expense.  But reason number 4 in this article may be the most important, and that is, the other, more profitable activities you could be doing with your time if you weren’t spending it trying to do your own books.

This article from Entrepreneur Magazine,The 80/20 Rule of Time Management: Stop Wasting Your Time,” hits that nail right on the head with this statement:

“Sometimes you have to do everything when you start out. But now you’re doing a $10 or $20 per hour fix-the-faucet job and you’re not doing your No. 1 job, which is getting and keeping customers. That job pays $100 to $1,000 per hour.”

The author’s example of how this particular business owner is spending his or her time is an example of the old cliché, “penny-wise and pound-foolish,” and his point is a perfect example of an “opportunity cost.”  So how may this concept also apply to doing your own bookkeeping?

To illustrate, assume your sales are currently running at $100,000 a year, and your gross margin after your direct cost of sales is 50%.  Now assume that by shifting your focus from “bookkeeping” to “marketing” you could increase sales by say 20% per year to start.  The increase in your available profit would then be $100,000 times 20% times 50% = $10,000 (which flows right to your bottom line).

Now, assume that you can outsource all or part of your bookkeeping at say $350 per month, or $4,200 per year.  Your “opportunity cost” in this example would then be $10,000 minus $4,200, or $5,800 per year!  In other words, that’s the profit you are forgoing by doing your books yourself in an effort to “save money.”

Of course, there may be other marketing costs you would incur depending on how you go about increasing your sales, but you get the general idea.  The ultimate question is, as a small business owner, how would you prefer to spend your time, and is that the most profitable use of your time?

Related Articles:

What’s the One Task Most Small-Business Owners Loathe?

Part-Time vs. Full-Time Bookkeeper, Controller, and CFO

The Difference Between Your CPA and a Controller: M-1

The Role of Cost Accounting in Planning Your Business’ Success


4 Reasons Why You Should Consider Outsourcing Your Bookkeeping

Posted on February 26th, 2019

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

How many of you small business owners out there had the childhood dream depicted in the above picture?  Based on this January 2015 article from Entrepreneur Magazine: “What’s the One Task Most Small Business Owners Loathe?,” I suspect not very many of you.  Yet, bookkeeping is an essential task, as is the need to do it accurately, as well as using an accounting method that gives you a true picture of your company’s profitability.  So here are a few things to consider:

  1. Accounting Accuracy:  What many small businesses do first is to purchase a small business accounting software such as QuickBooks and attempt to do their books themselves. But they quickly learn that QuickBooks is not as “easy to use” as their name and marketing implies. In fact, I often tell people, “QuickBooks has done a great job of marketing its software as being easy to use, but that’s also what makes it easy to abuse”(and most small business owners I’ve worked with do just that).
  2. Accounting Consistency: Many CPAs and tax preparers will simply take your QuickBooks file at the end of the year and transfer the data into their own tax software, then make their adjustments there, not in your books, and charge you for the extra time to prepare your tax return.  However, your books are then not consistent with your tax return (book basis), so your internal financial statements are meaningless for monitoring the financial health of your business on a monthly basis. And even then, your tax return may not be completely accurate either if your books were in that bad of shape to begin with, which is ultimately your responsibility, not that of your CPA or tax preparer.
  3. Time Management: As a small business owner, what is the best use of your time, learning to do bookkeeping, or focusing on managing your own business?
  4. Foregone Profitability: Compare the cost of outsourcing your bookkeeping, to the dollar value of increasing sales and bottom-line profit (known in the financial world as your “opportunity cost”).

The timing of course, is a matter of profit and cash flow.  But in my experience, most small business owners can sense when the time is right to outsource.  At some point it becomes more advantageous to the small business owner to outsource this function to someone who better understands accounting, or at the very least, have someone oversee and adjust their work.  But even then, as stated above, it doesn’t take much to completely screw up a set of books, so the sooner you can outsource it completely, the better. Otherwise, you’ll be constantly paying for someone to clean up your books anyway, which is a waste of money.  Rather, as sated above, compare the cost of outsourcing your bookkeeping function on a part-time basis, to the value of your time, and to the cost of hiring a full-time bookkeeper at $25,000 to $35,000 a year.

For more information on our services and/or a fee quote, give us a call, or fill out the form on our contact page.

Related Articles:

Winging It In QuickBooks

The Opportunity Cost of Being Your Own Bookkeeper

Part-Time vs. Full-Time Accounting Staff

The Difference Between Your CPA and a Controller: M-1

 


Part-Time vs. Full-Time Accounting Staff

Posted on December 9th, 2018

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

In my previous article, “Difference Between a Bookkeeper, Controller, CFO, and Tax Accountant,” I briefly described the responsibilities of these various accounting roles.  In this article I will discuss the advantages of outsourcing these tasks vs. when it’s time to bring them in house.

To start, this article from the October 2016 issue of Entrepreneur Magazine provides a good overview of accounting roles: “How and When to Grow Your Company’s Accounting Function.” One role the article leaves out is that of the Controller, which falls between bookkeeper and Chief Financial Officer. The difference between the two is that the Controller’s position is more of an accounting role, while the Chief Financial Officer (CFO) role is more “big picture.” In reality, sometimes they are combined into one position, which I believe is what the author of this article was assuming.

Again, in our business, the organization chart would look something like this with the client in the traditional role of “Chief Executive Officer,” and the boxes in red are the services we typically provide:

 

In our business, the data entry may be performed to a degree by the small business owner using QuickBooks, and to a larger extent by a part-time bookkeeper on our staff.  Or in some cases, it’s performed entirely by our staff person when the owner doesn’t want to have anything to do with bookkeeping.

The next level up on the chart then is the Controller, who reviews, adjusts, and closes the books after everything has been entered and reconciled by the bookkeeper, and then issues and analyzes the financial statements (going back down the right side of the chart).  The emphasis here is on tying out the client’s books to source documentation such as loan documents, capitalizing and depreciating fixed assets, and matching costs to revenues (or in the case of the latter, on “management” and “financial” accounting vs. “tax basis” – see previous articles referenced above and below).  I refer to this “value-added” level of bookkeeping as “Part-Time CFO/Controller.”  This is where I believe we differ from individuals or firms that perform only data entry or QuickBooks consulting functions, who often leave it up to the tax preparer to “fix” the accounting at year-end, and often in their tax software, not your books (thus rendering your books completely useless for managing and planning your business).

While the business is small, the internal accounting can be accomplished on a part-time, “as-needed” monthly basis, with each accounting level remaining more affordable during the early growth stages.   Then as your business grows larger, the accounting functions become more full-time in terms of hours required, and that is when it’s time to consider bringing the positions in-house on your payroll.  While there are no hard and fast rules as to when it’s time to add a full-time accounting staff, I tend to use these rules of thumb:

Gross Revenues Accounting Staff Annual Compensation
Start-Up to $100,000 Outside Tax Accountant $500 to $2,000 (Tax Returns only)
$100,000 to $5 million Part-Time CFO/Controller $2,100 to $12,000 (Combined)
$5 to $10 million Full-Time Bookkeeper + Controller $35,000 + 75,000 = $110,000
Over $10 million Full-Time CFO $75,000 to $100,000 +

Obviously, every company’s accounting needs are different, so there will be some overlap between business sizes as to when you actually start adding a full-time staff, who, and at what salary.  Also, a major controlling factor as to when to hire a full-time staff person is the company’s bottom line profit.  A company with higher profit margins can afford to add staff people sooner than a company with thin margins.  Aside from that issue, as I’ve said previously, most small business owners know when the time is right to add a full-time accounting department staff.  But until that time, it is essential that proper accounting not be ignored, as that historical financial data will be needed later when applying for a business loan or selling the business.

 Related Articles:

Why Outsource Your Bookkeeping?

The Opportunity Cost of Being Your Own Bookkeeper

Profit vs. Taxable Income

Profit vs. Cash Flow Revisited: The Matching Principle 

The Difference Between Your CPA and a Controller: M-1

The Relationship Between Financial Management and Loan Underwriting

Larry’s Exit Strategies, Inc. 

 


Difference Between a Bookkeeper, Controller, CFO, and Tax Accountant

Posted on December 2nd, 2018

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

Often times I find that many of our clients are a bit confused as to the difference between various accounting roles, and therefore, the various functions our firm performs behind the scenes.  In fact, most small business owners I’ve worked with tend to think in terms of “tax,” as that is the first accounting issue they learned they needed to address when they started their business.  So the challenge we frequently encounter is one of educating our clients on how all of these roles tie together, and the importance of each role to their particular business.

An excellent “Glossary of Job Descriptions for Accounting and Finance” is published by Robert Half International, an employee staffing agency.  The job titles highlighted in yellow in the previous link more or less correspond to the functions we perform.  Of course the larger the business, the larger the internal accounting department that is required to perform the accounting function.  Conversely, the smaller the business, the fewer accounting positions that are justified.

With very small businesses, many small business owners attempt to perform their own bookkeeping using QuickBooks.  But then many often learn that QuickBooks is not as easy as its name implies, and they end up making a mess out of their books that someone has to clean-up, usually their CPA at year-end at CPA hourly rates.  And worse, they often find that “bookkeeping” has become a distraction from running their own business, and a task they’ve come to dread.  So, eventually, during the early stages of their business’ development, many small business owners discover that they are better off outsourcing the bookkeeping task all together so that they can focus their attention on their own business.  This is where our firm comes into the picture, wherein we perform the “accounting department” function on as “as needed,” part-time basis.

In our business, the organization chart would look something like this with the client in the traditional role of “Chief Executive Officer,” and the boxes in red are the services we typically provide:

In a nutshell, here are our “job descriptions:”

  • Bookkeeper:  Performs all data entry including bank and credit card transactions and reconciles same to month-end statements. Provides assistance to some clients who perform some tasks in QuickBooks and need our help.
  • Controller:  Oversees bookkeeper’s work; performs month-end adjustments and closing.  Creates month-end financial statements and various custom reports for client.  The emphasis  here is on management accounting and financial accounting. Provides assistance to some clients who perform some tasks in QuickBooks and need our help.
  • CFO (Chief Financial Officer):  As a business grows, its accounting and financial needs becomes more complex. In terms of the functions our firm provides, this would encompass (on an “as-needed,”part-time basis), financial analysis including ratio analysis, and strategic financial planning including budgeting, projections, business plan assistance, and in some cases, communicating the company’s financial results to prospective lenders and investors.  In terms of the above chart, the CFO role encompasses the positions of FP&A (Financial Planning & Analysis), and Financial Analsyst down the right hand side of the chart, which are all performed by myself (see Owner and Management.)
  • Tax Manager: Converts the company’s books for tax accounting purposes for preparation of the year-end tax return; provides assistance in various other tax related matters such as sales tax, property tax, etc.  (In our organization, this function is performed by an outside CPA firm, our affiliate, Kern and Associates CPA, P.A. which is owned by Marianne Kern, CPA (see Owner and Management).  Marianne’s primary focus is providing tax assistance to our business clients who do not already have an outside tax accountant.)
  • Payroll: While QuickBooks includes a payroll module, in our opinion, it is a tedious process that is more efficiently and economically managed by outside payroll companies.  These company’s typically guaranty timely and accurate submission of payroll tax returns and payment of payroll taxes which most CPA firms I know of do not, and at rates that are more affordable to the client vs. what a CPA firm would charge.  For this reason, we also see many CPA firms who prefer to outsource this task to a payroll company vs. offering this service themselves.

If you have questions on any of the above, as always, please do not hesitate to give us a call or send us an email.  Our contact info is on our website.

Related Articles:

The Difference Between Your CPA and a Controller-M-1

Winging It In QuickBooks

How You Use QuickBooks Can Distort Your Company’s Profitability 

Why Outsource Your Bookkeeping?

The Opportunity Cost of Being Your Own Bookkeeper

 

 


It’s the Most Wonderful Time of the Year – Year-End Accounting Cleanup

Posted on November 25th, 2018

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

It’s that time again!  The taxes are coming due, and your books may have gone all year without being looked at by an accountant. If so, what many business owners don’t realize is that when your CPA or tax preparer takes your books to prepare your tax return, they are not performing an “audit,” so they are not providing any assurances to the IRS as to the underlying validity of the income and deductions you show on your books. They may make some obvious adjustments for tax purposes in their own tax software, but may or may not provide those changes to you to enter in your books.

Thus, whenever we review a client’s QuickBooks file, we look at it first from the viewpoint of a CFO / Controller to make sure the financials make sense (and for “book” purposes, not tax). Here are the types of things we look at before I send the financials to an outside CPA firm or tax preparer:

Balance Sheet – Pull it up as of December 31st, and create a comparison to the previous year, and check the following:

  • Bank Reconciliations – This is the starting point.  Make sure your bank accounts are reconciled to the bank statements. This tells you that you at least have accounted for all of your cash. Even if it’s not categorized properly, you can always correct the account classifications later.  Make sure that the “cleared” balance agrees with the ending balance on your bank statement.
  • Credit Card Reconciliations – If you track credit cards in QuickBooks, reconcile those the same way you would reconcile your bank account. Make sure all charges are entered and categorized, all payments are recorded, and that the “cleared” balance in QuickBooks agrees with the year-end credit card statement balance.
  • Negative Account Balances: (other than “Accumulated Depreciation,” “Retained Earnings,” and “Net Income”). Negative balances in any accounts other than these three indicate major accounting or set-up errors and need to be investigated and corrected. For example, common mistakes I’ve seen are setting up credit card or loans accounts as a “Bank” type account, or posting payments to accounts payable without first entering the bills.
  • Due To (liability) / From (asset) Stockholder Accounts:  Throughout the year, funds may be lent to the business by the owner (“Due To” account), or taken out of the business in the form of cash transfers or personal expenses (“Due From” account).  Care should be taken to make sure this information is accurate as these accounts affect your “basis” in the company.  For example, if you take money out of the business that exceeds your “basis,” it can cause you to pay more taxes even if your business had no income.
  • Inter-Company Loans: Multiple “company files” with extensive inter-company transactions, with no effort to reconcile and consolidate the financial statements.  The amount owed to Company A, “Due From Affiliate”(asset side), should logically equal the amount owed by Company B, “Due To Affiliate” (liability side).  If not, investigate and correct.
  • All other balance sheet accounts should be “tied out” to external documentation such as year-end statement balances, loan amortization schedules, etc. A common mistake we see is entire loan payments being posted against the loan balance or the Profit & Loss statement, rather than separating the principal and interest portion.

Profit and Loss – Account Classifications – After your bank accounts have been reconciled, the next step is to create a “detailed” Profit & Loss Statement report (or other accounting report) and do the following:

  • Salaries & Wages – Verify that they agree with your W-3 and W-2s.  If you do your own payroll, make sure it was done correctly and that “gross” salaries are just that, NOT your net paychecks.
  • Officer Salaries – If you are an S-Corporation, ensure that Officer Salaries are “reasonable” in relation to the business’ profit.  And note, what is “reasonable” is very subjective and something you should have discussed with your tax preparer before year-end, as this is closely monitored by the IRS and can trigger an audit.  Read More.
  • Meals & Entertainment are clearly identified.
  • Fixed Asset Purchases – Larger amounts, say over $1,000.00 (your tax preparer may use a larger threshold for tax purposes), should be posted to Fixed Assets on the Balance sheet, not the P&L, and clearly described in the memo field.
  • All other expenses are categorized where they belong and consistent with the prior year, which by now, should also have been adjusted to agree with the prior year tax return (except for book and tax differences).
  • Net Income – Ultimately, your prior year net income should agree with the “Net Income (Loss) Per Books” shown on your prior year tax return (Schedule M-1, line 1), as this is where your tax preparer will begin when preparing your current year taxes.

The above are just a few of the major items that need to be looked at, but these will go a long way toward achieving accounting accuracy.  Again, keep in mind that in the end, the burden of accurate reporting of income and deductions still rests with you – the business owner.

Related Articles:

What Is the Role of a Company’s Controller?

The Difference Between Your CPA and a Controller – M1

How You Use QuickBooks Can Distort Your Company’s Profitability

Winging It In QuickBooks

Why Outsource Your Bookkeeping?

 


The “Opportunity Cost” of Being Your Own Bookkeeper

Posted on May 28th, 2017

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

In my recent article, “Why Outsource Your Bookkeeping?”, I explained several reasons why it is advantageous to small business owners to outsource their bookkeeping, such as accuracy and the lack of accounting knowledge, or in general, avoiding making a mess out of your books that someone else eventually has to clean-up at tax time, and at your expense.

I also mentioned in my article another reason to outsource that I think is even more important to you as a small business owner; and that is, the other, more profitable activities you could be doing with your time if you weren’t spending it trying to do your own books.  This article from Entrepreneur Magazine,The 80/20 Rule of Time Management: Stop Wasting Your Time,” hits that nail right on the head with this statement:

“Sometimes you have to do everything when you start out. But now you’re doing a $10 or $20 per hour fix-the-faucet job and you’re not doing your No. 1 job, which is getting and keeping customers. That job pays $100 to $1,000 per hour.”

The author’s example of how this particular business owner is spending his or her time is an example of the old cliché, “penny-wise and pound-foolish,” and his point is a perfect example of an “opportunity cost.”  So how may this concept also apply to doing your own bookkeeping?

To illustrate, assume your sales are currently running at $100,000 a year, and your gross margin after your direct cost of sales is 50%.  Now assume that by shifting your focus from “bookkeeping” to “marketing” you could increase sales by say 20% per year to start.  The increase in your available profit would then be $100,000 times 20% times 50% = $10,000 (which flows right to your bottom line).

Now, assume that you can outsource all or part of your bookkeeping at say $350 per month, or $4,200 per year.  Your “opportunity cost” in this example would then be $10,000 minus $4,200, or $5,800 per year!  In other words, that’s the profit you are forgoing by doing your books yourself in an effort to “save money.”

Of course, there may be other marketing costs you would incur depending on how you go about increasing your sales, but you get the general idea.  The ultimate question is, as a small business owner, how would you prefer to spend your time, and is that the most profitable use of your time?

Related Articles:

What’s the One Task Most Small-Business Owners Loathe?

Part-Time vs. Full-Time Bookkeeper, Controller, and CFO

The Difference Between Your CPA and a Controller: M-1

The Role of Cost Accounting in Planning Your Business’ Success


Part-Time vs. Full-Time Bookkeeper, Controller, and CFO?

Posted on May 1st, 2017

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

In my previous article, “Why Outsource Your Bookkeeping,” I talked about the advantages of outsourcing this unpleasant task.  In this article I will discuss the differences between accounting department roles, and when it’s time to bring them in house.

To start, this article from the October 2016 issue of Entrepreneur Magazine provides a good overview of accounting roles: “How and When to Grow Your Company’s Accounting Function.” One role the article leaves out is that of the Controller, which falls between bookkeeper and Chief Financial Officer. The difference between the two is that the Controller’s position is more of an accounting role, while the Chief Financial Officer (CFO) role is more “big picture.” In reality, sometimes they are combined into one position, which I believe is what the author of this article was assuming.

In our business, the organization chart would look something like this with the client in the traditional role of “Chief Executive Officer,” and the boxes in red are the services we typically provide:

Some good job descriptions of the various accounting department roles are footnoted below in an excerpt from a booklet I obtained a while back published by Robert Half International[ref]Job Descriptions[/ref].  For our purposes here, I will discuss only a few of the basic roles needed by small businesses, starting with the bookkeeper.

As indicated above, bookkeeping is essentially a data-entry function. Some bookkeepers understand basic accounting, others do not.  I’ve found that there are numerous bookkeepers out there who “know”QuickBooks, but they don’t understand the accounting effect of what they are entering.  In our business, the data entry may be performed to a degree by the small business owner using QuickBooks, and to a larger extent by a part-time bookkeeper on our staff, or in some cases it’s performed entirely by our staff person when the owner doesn’t want to have anything to do with bookkeeping.

The next level up then is that of the Controller. This is more of a traditional accounting role which places more emphasis on financial reporting. The Controller reviews, adjusts, and closes the books after everything has been entered and reconciled by the bookkeeper, and then issues the financial statements to the client.  This level of service is where our firm differs from those individuals or firms that provide only “bookkeeping” (QuickBooks data entry).

Finally, the CFO role is more of a financial planning and analysis role (FP&A in the above chart), meaning the interpretation and forecasting of financial statements.  (One of my favorite “tongue-in-cheek” definitions of the difference between an accountant and a finance person is that “accountants put the numbers together in black and white, and finance people add color.”)

Obviously, in the start-up stage a business’ accounting needs are very basic and the immediate need is to have an outside CPA firm to oversee and prepare their taxes. But as I have said in numerous articles, tax returns are not appropriate for managing your business, so your books internally need to be maintained differently, and that is not typically what tax accountants do.  Rather, accrual accounting is more appropriate for managing your books internally and making business decisions.  Over time, managing your books this way will also develop a consistent financial history (profitability trend, etc.) that you may need someday for prospective lenders, etc.

While the business is small, the internal accounting can be accomplished on a part-time, “as-needed” monthly basis, with each accounting level remaining more affordable during the early growth stages.  As your business grows larger, the accounting functions become more full-time in terms of weekly hours, and that is when it’s time to consider bringing the positions in-house on your payroll.  While there are no hard and fast rules as to when it’s time to add a full-time accounting staff, I tend to use these rules of thumb:

 

Gross Revenues Accounting Staff Annual Compensation
Start-Up to $100,000 Outside Tax Accountant $500 to $2,000 (Tax Returns only)
$100,000 to $5 million Part-time bookkeeper / controller $1,200 to $12,000
$5 to $10 million Full-time bookkeeper & controller $35,000 + $75,000
Over $10 million Add full-time CFO $100,000 +

 

Obviously, every company’s accounting needs are different, so there will be some overlap between business sizes as to when you actually start adding a full-time staff, and who.  Also, a major controlling factor as to when to hire a full-time staff person is the company’s bottom line profit.  A company with higher profit margins can afford to add staff people sooner than a company with thin margins.  Aside from that issue, as I’ve said previously, most small business owners know when the time is right to add a full-time accounting department staff.  But until that time, it is essential that proper accounting not be ignored, as that is a recipe for financial disaster.

 Related Articles:

Profit vs. Taxable Income

The Difference Between Your CPA and a Controller: M-1

Financial Planning, or Business Turnaround – Your Choice

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Why Outsource Your Bookkeeping?

Posted on April 26th, 2017

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

So how many of you small business owners out there had the childhood dream depicted in the above picture?  Based on this January 2015 article from Entrepreneur Magazine: “What’s the One Task Most Small Business Owners Loathe?,” I suspect not very many of you.

Yet, bookkeeping is an essential task, as is the need to do it accurately, as well as using an accounting method that gives you a true picture of your company’s profitability. So what many small businesses do first is to purchase a small business accounting software such as QuickBooks and attempt to do their books themselves. But they quickly learn that QuickBooks is not as “easy to use” as their name and marketing implies. In fact, I often tell people, “QuickBooks has done a great job of marketing its software as being easy to use, but that’s also what makes it easy to abuse”(and most small business owners I’ve worked with do just that – see my previous article, “Winging It In QuickBooks”).

At some point it becomes more advantageous to the small business owner to outsource this function to someone who better understands accounting, or at the very least, have someone oversee and adjust their work.  But it doesn’t take much to completely screw up a set of books, so the sooner you can outsource it completely, the better.  Otherwise, you’ll be constantly paying for someone to clean up your books anyway, which is a waste of money.  Furthermore, many tax preparers only do this in their own tax software at year-end, not in your books, and then charge you for the extra time to prepare your tax return.

In terms of the cost of outsourcing, don’t get hung up on “hourly rates.” That’s comparing apples and oranges. Keep in mind that you are hiring a person or firm that has its own payroll taxes and overhead just like your business, and you cannot sell your product or service at cost and expect to stay in business very long either.  Instead, compare the monthly fee to what it would cost you to hire a full-time bookkeeper on your payroll.  Also, compare it to what you could be doing with your own time, such as increasing sales and producing a larger profit, known in the financial world as “opportunity cost.”  The timing of course, is a matter of affordability.  I’ll have more on this topic in a future article, but in my experience, most small business owners can sense when the time is right to outsource.

Related Articles:

Profit vs. Taxable Income

The Difference Between Your CPA and a Controller: M-1


“Winging It” In QuickBooks

Posted on March 11th, 2017

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

I was recently closing year-end for a client and found out they had somehow downloaded numerous, duplicate payments on accounts receivable. As QuickBooks couldn’t locate matching invoices for the duplicates, it created a new customer name called “Other Customers,” and created a negative account receivable balance.

Then, to make matters worse, my client proceeded to enter the bank deposits through the Make Deposits window, but didn’t match up the date of the payment with the correct customer name and date of the deposit per the bank statement (which, by the way, was several months past due being reconciled).

The end result of the above was an accounts receivable report that was so messed up that one couldn’t tell which customers owed what, and several hours of reconciling and re-reconciling her bank account via trial and error on her part, until she finally got the correct payments matched up to the correct customers.

This client is actually also a friend, and I told her jokingly, “You know, QuickBooks will let you do anything you want, but you learn the hard way that after you’ve done it once, you’ll never do it again.” Then I asked her, “But seriously, how much time have you spent trying to fix this, and what would you have rather been doing?”

I have seen messes like this (and far worse) created by numerous QuickBooks users, and it’s almost always the result of not understanding the accounting effect of QuickBooks methodology and instead just “winging it.” In fact, many of our clients came to us initially as a QuickBooks clean-up engagement, after which the client threw up their hands and turned over most or all of the bookkeeping to us.

For any small business owner who is currently attempting to do their own bookkeeping, or contemplating it, I would highly recommend these two articles I found in Entrepreneur Magazine: “What’s the One Task Most Small-Business Owners Loathe?” , and this one;  “5 Tasks Entrepreneurs Are Better Off Outsourcing.”   And here’s one of my own recent articles on a similar topic:  “How You Use QuickBooks Can Distort Your Company’s Profitability.”

Bottom line, as I’ve often told my clients, “Focus on your strengths, delegate your weaknesses.” In other words, where is YOUR time best spent?