Employee vs. Independent Contractor Bookkeepers?

Employee vs. Independent Contractor Bookkeepers?

If you are someone who can spot a good accountant from a bad, has the desire to manage the HR component of having employees, like paying worker’s comp insurance, and don’t mind not being able to fire someone without worry about a lawsuit then an employee might be the best option.

Employees are dedicated to the company (meaning – not working for any other company), but also have that dreaded employee mindset. Most entrepreneurs we work with need people to think like them, act like them, and understand what it is to have your own business, even if it is a consulting service. Employees are limited in what they know. If they don’t know something, there isn’t anyone else on the “team” to ask. If the company outgrows them, there is no place for them to contribute and the hiring and knowledge transfer has to start over from scratch.

It makes sense for companies of a certain size to have accountants on staff, but for most entrepreneurs, it is too limiting to what they need and they simply can’t afford to make the wrong choice, usually can’t pay the employee desired benefits, and don’t have an HR team that can manage the hiring process.

Business owners should not be saddled with this time consuming process. In terms of risk management, accountants that are comfortable in their stable, steady position (where no one else really understands what they are doing) are in a place of trust and have a higher opportunity to commit fraud. It happens and there are ways to mitigate the risk of it happening to you.

My vote is stick with a part-time independent contractor until your business grows enough to warrant the additional fixed cost and salary burden. Usually around $1m of revenue, it makes sense to hire and pay an accountant $30-40k/yr. Rule of thumb accounting services run ~ 2-3% of gross revenues.

Are Accounting Consulting Firms The Best Option For Small Businesses?

Are Accounting Consulting Firms The Best Option For Small Businesses?

 

Consulting firms are in a word…expensive. Yes, you can get talent without having to hire an employee or worry about the quality of the work, but you pay for it. If the accountants are employees to the firm, this is a less expensive model for you as the client, but you are now having your books managed by someone who has an employee mindset, probably not getting paid what their worth, and waiting for the opportunity to go consult on their own. Expect turnover.

The other non-employee consulting company model has a typical mark-up of 50-70% if they work with independents. This is reasonable if you consider the amount of HR/people administration, legal & insurance risk, and client management that is involved in running an accounting consulting firm (think Enron.) The better the talent, expect to pay double.

If you hire a CPA firm, in most cases (not all), the person who actually performs the work is in fact a bookkeeper whose work is reviewed by the CPA. You think you are paying for a CPA, but the work is being done be a bookkeeper.

In our business model, the CPA does the work, not a bookkeeper. How can you tell? Ask.

If the consulting or tax firm bookkeeping rate is inexpensive, the primary reason for this is usually because the person you are working with isn’t performing the work. This is very common in CPA firms. The CPA doesn’t do the work, they just review the work a bookkeeper they have on staff completed. A CPA typically charges $100-$300/hr, so if you aren’t sure…ask.

This model is fine because the bookkeeper’s work is being reviewed by a professional. However, it simply isn’t what most people think they are paying for.

Should I Use A Placement Company For Finding A Good Accountant?

Should I Use A Placement Company For Finding A Good Accountant?

 

If hiring an employee makes sense for your business, and you don’t have an HR person on your team, I wouldn’t recommend winging it. Placement companies are not taking responsibility for the quality of work that employee produces, but they are taking responsibility for the quality of the person you hire.

There are lots of upsides of using a placement company. The greatest one that I can think of is LEVERAGE. It is time consuming to find, screen, and test for the right talent. If you don’t have the expertise, it is close to impossible to determine if the person you are hiring is truly qualified.

The biggest downside is that you usually have to pay for the placement at the time of hire. This fee is usually 30% of first year salary which is payable up front. It is worth it if you consider the cost of employee turnover when you hire the wrong person for your team, but again this is not usually the best option for an entrepreneur. And, all of the downsides of having an employee still exist, except the process of finding and hiring that person which you leverage the placement company for.

The employee you hire is still just one person, they have a limit to their skills and abilities, and have an employee mindset. Also, the placement company/client relationship ends when the placement happens. Who is there to make sure your needs are met after that? Again, it may make sense for some businesses.

We think the Agency model is a much better way for companies looking for an independent contractor. Our Agency is the perfect blend of “consulting firm” type services and relationship management combined with placement services (without the fees). For an employee search – use a placement firm that specializes in accounting talent.

Dangers Of The Low Cost Bookkeeper

Dangers Of The Low Cost Bookkeeper

For those that have never gone through the process of replacing their bookkeeper or have never worked with a professional accountant, let us share some of the lessons we learned the hard way. When we started our company, we were an accounting firm that believed that there was a way to include low cost data entry and bookkeeping professionals in the accounting service delivery and save our clients even more money.

In our commitment to keep prices low, we hired, trained, and supervised bookkeepers in the early stages of our business. We had CPAs review the work prior to delivering the work to the business owner. We charged $15 an hour for data entry, $30 an hour for the bookkeeping work and double for CPA review.

We discovered that after the review, clean-up, and correction, it always cost more in total no matter how well trained the lower skilled accountant was.

Our conclusion was universal (no matter how small or large the scope of work is,) it is less expensive to our clients to have a CPA provide the bookkeeping services than have a CPA clean-up, follow-up, train, and manage the work of a well trained bookkeeper. Depending on your volume of accounting activity, and the complexity or inherent risk of your business, we have found that the efficiencies of one accounting expert at $100 per hour cost the company about the same amount for a less proficient bookkeeper at $30 per hour.

It seems counter intuitive, but after a year of measuring the results, we understood why entrepreneurs have such poor accounting records.

Instead of asking”how much do you cost,” consider how much it will save you or make you to hire an accounting expert.

Top 10 List Accounting Services For Entrepreneurs

Top 10 List Accounting Services For Entrepreneurs

An entrepreneur’s accountant should be doing more than just keeping the books. The entrepreneur’s accountant should be adding value to the business by providing the following services, asking the following questions, or handling the following business matters:

1 Keeping the Books & Reporting: data entered, reconciled, and “closing the books” on a monthly basis is an absolute requirement. Generating and providing monthly financial reporting. At a minimum, the monthly reporting package should include a Balance Sheet, P&L by month, P&L by business line, AR Aging, AP Aging, and a Cashflow report. These reports should be delivered to decision makers without having to request these reports within 2 weeks of every month-end. If an entrepreneur’s accountant has not performed any one of those tasks on a consistent monthly basis, there is no need to read further…it is time to find another professional.

2 Managing the daily, weekly or monthly Cashflow (frequency depends on how tight cash is)

3 Knowing who in the company is required to take a Payroll and when, including the business owners in certain corporate types. Knowing the IRS employee versus independent contractor rules and all of the required reporting for each. Knowing the worker’s comp insurance rules regarding payroll. Managing the payroll in-house or outsourcing. If outsourced, should be reporting, verifying and entering all payroll data into the accounting system. Maximizing tax savings strategies, including group Health insurance and HSAs, by working with insurance agents and tax preparer.

4 Knowing all of the tax reporting deadlines and rules for sales tax, payroll tax, 1099, business asset/property tax, income tax (including extensions) is a key accounting role. Even if the accountant doesn’t file the returns, the accountant is the one who should be pushing information well in advance of tax deadlines to the tax preparers

5 Providing tax preparers with quarterly or monthly financial reports to obtain tax liability estimates for the quarter and annualized for the year. The accountant should properly accrue for tax liabilities as they occur and communicate to the business owner, not wait until the end of the year to get the bad news from the tax CPA or in March/April when the taxes are due. Also, accountants should be providing tax saving strategy ideas to the business owner and work directly with the tax cpa to ensure all tax savings strategies have been communicated and considered by the business owner. If you don’t know your estimated tax liability for the year by the end of the first quarter and haven’t looked at your tax savings options at least once a year with your tax cpa, your accountant isn’t doing their job.

6 Know and question the basic legal structures and the tax pros/cons of choosing one entity structure over another. This includes information on all the steps required to form an entity and dissolve an entity. Also, accountants should know when it makes sense to incorporate financially. This information should be used to simplify the company structure, save taxes, ensure legal protections have been created to protect company assets and business owner assets & interests. The accountant isn’t an attorney, but should have ideas of what structures make sense and facilitate those discussions with the attorney and tax cpa for the business owner if the legal structure is unclear to the entrepreneur.

7 Know the legal filing deadlines for all entities, including foreign registrations (i.e. registering entities to do business in another state.) Accountants should either file and pay the annual legal filings or should outsource to a corporate maintenance company for every entity.

8 Always safeguard the company assets. This means making sure that measures to prevent fraud, including from the accountant themselves are in place (accountants don’t sign checks, owners do.) Safeguarding assets ensures that inventory and supplies and checks and equipment is accounted for and measures to prevent theft have been employed. The other aspect of safeguarding assets is managing the insurance and legal structure in cooperation with the business owner, insurance agent, and attorney.

9 Since most entrepreneurs co-mingling some personal activity with their business to take advantage of the tax savings in a corporation, accountants should know how to properly account for those transactions and should know all of the 4 different options entrepreneurs have for getting paid from the company, 3 of the 4 are non-taxable withdrawals to the business owner.

10 Provide timely financial information to assist the business owner with pricing and understanding how much profit is being generated for each major business line or product line, and to assist the business owner in setting budgets and forecasts for the year, including revenue targets, profit targets, ROI and other key financial ratio targets.

This top 10 list is the bare essentials for every entrepreneur. It doesn’t stop there, however, someone who can and does perform all of these functions is what we consider to be an entrepreneur’s CFO.