Why bookkeeping is so frustrating for contractors and why you aren’t alone in thinking it is
The 2 kinds of bookkeeping and why 1 sucks and the other is pretty fun, but few contractors use it
What a good bookkeeper SHOULD be doing, and also what they SHOULDN’t be doing
The crucial security pieces every contractor needs to have in place to avoid fraud, embezzlement, or a nasty call from the tax man
What good bookkeeping FEELS like to you the business owner, and how to know when you’ve nailed it
The 3 traits you should be looking for when you hire a bookkeeper
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Let’s be honest, you didn’t start your contracting business to stare at QuickBooks or painstakingly track every expense. But, love it or loathe it, every successful business needs solid bookkeeping and accounting systems.
That’s why on this episode of Contractor Evolution we invited Morgan Ray, partner at Bookkeeping For Trades, into the studio. Her firm has managed the accounting cycle for more than 200 trades businesses, helping them gain true financial clarity and increase margins.
She joins us to address the thorny issue of bookkeeping by demystify what a good bookkeeper does (or doesn’t do); what the monthly bookkeeping cycle should look like; where you, the business owner, come into that picture; and the crucial security pieces every contractor needs in place to avoid a nasty call from the tax man.
Before we get into that, let’s address the elephant in the room. Why is bookkeeping so frustrating? “People have incredibly complicated emotions when it comes to money and financial management. There’s a lot of shame and guilt that goes around managing money, especially in the contracting space. The bookkeeping/accounting piece is also often low on the list of priorities as it’s not vital to keep the business moving. It compounds a lot of negative feelings,” says Morgan.
At first glance, bookkeeping is the antithesis of an entrepreneurial mindset (and why 90+% of contractors struggle with it). “Highly motivated individuals driven toward achievement find maintenance-type tasks like accounting that can be very retrospective, much like brushing your teeth. It doesn’t feel like an achievement,” says Morgan.
Until, that is, you find out its benefits to your day-to-day operations.
To begin with, Morgan explains there are two types of accounting:
Compliance Accounting (the one we tend to think of): This is the bare necessity of any business. “This type of accounting is about looking back in time to make sure we are checking boxes to get the tax man off our back,” Morgan says.
Managerial Accounting (the one entrepreneurs love): This is the scorecard of how the business is doing. “In its highest form, it can be an elegant system of organization. As a business owner you are faced with decisions constantly, and those decisions are only as good as the information you are basing those decisions on . . and that all comes through this accounting system.”
With a better understanding of what accounting and bookkeeping are, let’s get into…
What a good bookkeeper does:
A really high-functioning bookkeeper is a highly technically-minded and super-organized individual. They will be handling all the data running through the business and will make sure all pieces of information are accounted for, or flag areas they are missing.
Morgan says, when looking for a great bookkeeper “you need to find someone who understands enough about your industry and business to put things in the right spot, so you, the business owner can get something useful out of the accounting system.”
They will also be technically proficient in softwares you are using. “For example, Quickbooks Desktop is dramatically different to Quickbooks Online, and skillsets don’t transition!”
How Much Input Is Needed From You?
Can you just hand over the bookkeeping and get on with running the business? Not quite.
“At the beginning [the design phase] you will need to make sure the channels are flowing to the bookkeeper. Beyond that, aside from pulling statements together once a month [see section below on security], that’s it! There should be a minimal amount of time you need to commit,” says Morgan.
What does good bookkeeping look (and feel) like?
The first word that comes to mind is “Freedom.”
Igor calls it the Nirvana Moment of business ownership: “There comes a point where there is no attachment to cash. It’s just a number. What matters is your monthly income statement compared to your budget and plan for that month,” says Igor.
The information from your bookkeeper will help make your business successful. “The data allows you to routinely screen your business for signs of cancer,” says Morgan. You will understand, in-depth, what’s going on in the business, so you can address any issues before any fires start.
And now, the thorny issue of security . . .
We’ve all heard the horror stories, but Morgan says there are numerous ways in which you can safeguard your business from being fleeced.
“Some areas of your business should be reserved for the business owner alone, like the bank account,” she says. That’s why you will be the one to pull those monthly statements.
Also, the person pressing that button to execute a transaction of money going out should be a different person reporting on it. “When means, motive, and opportunity exists there is a chance for abuse at some point. Remove the means,” says Morgan.
And absolutely no cash handling! “You’re just inviting trouble. It’s difficult to track, and opens you up to so much potential abuse,” she explains.
In the end, bookkeeping is complex and a specialist job (and not really one for the generalist office manager). When your bookkeeper has it dialled in, it’s an absolute game-changer.
You don’t need to figure this all out on your own. Nobody expects you to be perfect, know the answer to everything, or the business to be without issue – but you need to be paying close enough attention to the data from your bookkeeping so that you can flag problems sooner rather than later.
There’s so much more in this episode, from why computers won’t be taking over the accounting industry anytime soon to the pros and cons of in-house versus outsourced bookkeeping. Have a listen, Morgan’s insights might just change the way you view bookkeeping