Jeb Molony

            Bookkeeping is the least sexy of all the business processes, and is often viewed as a chore more than anything else.  Most business owners do not pay attention to their bookkeeping process except once a year when taxes are due.  Unfortunately, the people who decide it is important are often the ones who are finding out there is an issue with their bookkeeping process.  Problems with bookkeeping often lead to increased accounting costs, fees for unpaid taxes, higher tax burdens, or penalties for payroll taxes.  With the tax deadline recently behind us this is a great time to look at your company’s bookkeeping process and see if there are ways to improve the process or reduce costs.

            The costs associated with bookkeeping are primarily staff, software, payroll processing, and accounting fees at the end of the reporting period.  For the average small business the most expensive of these is the salary expense associated with hiring a bookkeeper.  Typically a business owner starts by keeping their own books, and when the job becomes too time consuming they hire a bookkeeper.  The bookkeeper may double as an office manager and because of the expenses often does.  However, this is the point where the business goes one of two ways; either, the business owner keeps bookkeeping and administrative tasks separate or the two sets of tasks are combined into one job.  Many business owners fail to separate out the administrative tasks from the higher skilled bookkeeping tasks so over time the office manager’s position becomes entrenched with the company’s vital data which may restrict growth.

            Data entrenchment is a problem caused when one person or position has to be involved in almost every process of the business.  For example if the sales people must go through the bookkeeper to remember their customers or if the service providers must consult with the bookkeeper for any reason other than invoicing or reconciliation.  This problem is very common in small businesses and can be spotted by simply asking if every position can do their job independently of every other position.  The most common place for data entrenchment is the bookkeeper because as discussed above the bookkeeper is often given the administrative tasks associated with an office manager on top of the bookkeeping tasks because it was cost effective as the business grew.

            Data entrenchment will cost business owners money by restricting growth or reducing efficiency because the business is limited to the work capacity of one position.  Reversing data entrenchment means returning the business to a state where the administrative tasks are left to an administrative assistant and the bookkeeping tasks are left to a bookkeeper.  A true office manager may be hired if the business is large enough to require management of assistants and bookkeepers, but an office manager’s role should be that of a true manager.  Separating the bookkeeping and the administrative tasks will reduce overhead associated with salary because the business no longer overpays for an administrative assistant, and the books can often be outsourced at this point.  The administrative assistant will be left to make sure things like licenses and insurance are paid on time which prevents late fees.  Also for industries where time keeping is crucial the task of data entry may be handed to an administrative assistant.          

            Separating the tasks also prevents a person from becoming irreplaceable which means the business will not lose time, money, or data if there is employee turnover.  The business is also in a better position to guard against theft because there is more oversight and employees feel less empowered to take advantage of an employer.  Outsourcing can be another great way to provide oversight, and if a third party steals from the business then the bookkeeping company will be liable.  The business owner must always remember that no matter how far up the ladder they climb there needs to always be some level of personal interaction and oversight with the company through bookkeeping.

An owner should understand the progression of their bookkeeping role as the business grows.  In the beginning they will be managing every aspect of the books.  Once the business grows enough they should hire an administrative assistant to help with data entry, and consult with their accountant about reports they should begin generating monthly to help manage the company.  The next step will be to handoff reconciliation, invoicing, payroll, and payables.  Many owners like to continue managing receivables in order to maintain their relationship with their client.  Finally the entire bookkeeping process should be turned over including receivables.  However, the business owner’s involvement should not end.

            The business owner’s role has shifted from bookkeeper to a leadership role.  As the leader the business owner needs financial data that is accurate and timely in order to make decisions regarding the direction of the company.  Further the owner needs to review and question monthly expenses and reports to keep costs low and prevent theft.  The reports which are generated become more crucial to the owner than the rest of the bookkeeping process.  The reports are the only place to monitor expenses, improve cash flow, and predict threats and opportunities.  Technology is improving the access and transparency of bookkeeping which in turn improves the timeliness and accuracy of reports.  There is currently great opportunity to use the technology currently available to streamline operations and reduce overhead.  There is no better time than post April 15th to reexamine your bookkeeping process and remember though bookkeeping is the least sexy of the business processes it provides the best insight for improving profitability and starting growth.

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