How is Your Bookkeeper Doing?

It has been a rewarding couple of months. I have not posted anything recently as I have been going to school full time and working two jobs, averaging between 36 and 48 hours a week. One of the jobs has been a wonderful internship were I was able to redesign a small business’s accounting system. Then I was able to create a training program for new employees at the company to help prevent the crumbling of the new system.

Today, I wanted to address the need for a good bookkeeper at a small business. Most small businesses employee only a handful of people and are unable to meet the demands of the fast paced business world. The bookkeeper is not one that the owner should skimp on.

A good bookkeeper can fix a couple of problems that I have seen keep owners up at night worrying.

Answer these questions to yourself:

Before paying employees or writing checks to vendors do you check your bank account, online, for your balance?

Do you understand how to pay your employee withholding taxes and are confident that they are paid on time, with the right amounts, and the right categories are being paid?

Are all your expenses being accounted for to include your quick run to the local hardware store for a couple of bolts or other small amounts? Those bolts can add up over the course of a year.

Can you print off your financial statements, have those accurate, and give you a good picture of your business?

Do you know what the financial statements are? *hint* Income State (also called a Profit and Loss) and Balance Sheet are the two most important for small business.

If you answered yes to these you probably need to look at your bookkeeping(er’s) skills.

One of the biggest problems that will get a small business owner in trouble is employment tax withholdings. These are trust funds that if mishandled can actually land the owner in prison. Anyone that had access to the withholdings and accounting of them can be held responsible, that includes the bookkeeper.

Hand in hand with this problem is whether the system is reconciled every month or more often. Your system should be keeping an accurate account of your checking account at your bank. When you write checks your system deducts that amount from your checking account (if you have multiple accounts, does the bookkeeper know which account to deduct it from?) I have actually worked at a place before that the bookkeeper yelled at me because I didn’t cash my check for over a week after receiving it. They were paying their bills by what was reported by the bank on their online website. The bank doesn’t know about the outstanding checks.

If your account is reconciled and tracked properly by a good bookkeeper, you will know the exact amount of your account on any day. Not what the bank says, but what is still in transit. That can be really helpful, especially if a floor checker shows up and demands payment for inventory that was recently sold.

A good bookkeeper keeps the accounting system running fluidly. This means that if you are worried about your business, you can print off your income statement and know that it is accurate. Instead of going home worried about how the month is looking, you can go home looking at exactly how you are doing and be thinking how to fix it if you are having a slower month.

Now there are a few warnings to mention here. A good bookkeeper understands your accounting system, probably better than you do. This always put the owner at a little bit of risk of embezzlement. Since you have so few employees there is limited ability to have separation of duties which is one of the key functions of internal control.

The bookkeeper should not at any time have access to funds. The cash should be handled by the owner if no one else is available. The owner takes the nightly deposit to the bank. The bookkeeper creates the deposit but the owner handles the money.

A couple of examples of weaknesses that I have seen:

The bookkeeper prints two checks a week for him/herself and then has them separated in the stack of checks when the owner signs them. The bookkeeper can create a mythical vendor and send checks to their selves through a PO Box.

Understanding your financials and paying attention to your business can help prevent these. Set up the system so that the bookkeeper has to show supporting documents of the checks. Is there a purchase order or a bill from the vendor?

An owner that is not paying attention because they do have a good bookkeeper is all the more likely to be taken advantage of even if they think they can trust their bookkeeper. A good bookkeeper with an owner that is paying close attention to their business is much more likely to succeed.

If you are in the Southeastern Idaho location and want help with your bookkeeping please take a minute to look at my services.