Five questions for your bookkeeper to keep your books running as smooth as a Classic 1962 Chevrolet Corvette
Growing up, my buddy’s dad had a cherry red 1962 Chevrolet Corvette. Hat tip to “Mr. Shellenberger.” He babied that thing, put only the best oil, gas, and materials into it. It was basically his third child. I often think about that car and how a car like that is a good analogy for life. In this post, I’ll compare how you treat your car (and your trips to the mechanic) to how your company should be doing their books. Throughout this post I’ll use car analogies – so that you don’t have to go digging through your old Accounting 101 textbooks and class notes in order to decipher what we’re saying.
1. How frequently will you close my books?
Closing your books is critical to gaining an understanding of where your money is going, of what your financial statements looks like, and for doing your taxes. This is kind of like asking your mechanic how often you should be bringing your car in to him. The answer is usually: It depends. For your Corvette, it’ll depend on how much you’re driving it. Where you’re driving it. Who is driving it. And how much wear and tear you’re putting on it. When it comes to your books, your close frequency will depend on how much business you’re doing, how many transactions you have, the level of insight you want/need, and who else needs that insight.
2. What accounting/bookkeeping system will you use?
This can be an important question if you plan on growing. Different accounting systems are better for different types of businesses. We recommend systems that are flexible, cloud-based, and easy to operate/understand. More complex businesses or certain industries may need their own systems, add-ons, plug-ins, or supplemental systems. This is akin to asking your mechanic if he’ll be using OEM repair parts, the quality of the parts he will be using on your corvette, and the quality of the tools he uses to do the mechanic work.
3. What will your bookkeeper do for your finance/accounting function versus what will you need to do yourself?
Knowing exactly what your bookkeeper does is kind of like knowing what exactly your mechanic can handle for your Corvette. Sure, most mechanics will fix your brake lights and do an oil change. But what if you need a more advanced repair, like a transmission job or an engine overhaul? When it comes to your finance function, the simple stuff can be done by anyone: bookkeepers, CPAs, EAs, or even non-accounting professionals. But you’ll want to know who is responsible for booking your transactions, closing your books, invoicing, payment processing, collections, payroll, and reporting. Oh, and advice/strategy is also important. Finally, who is responsible for talking with your other vendors who help you with things like HR, Legal, and Taxes? This is kind of like having a mechanic that knows a good parts person, or tire person, or paint person.
4. What basis will you use? Cash Basis or Accrual Basis?
These are two different and distinct types of accounting methodologies. They require different levels of effort on behalf of the accountant/bookkeeper AND on behalf of the business owner. For more specific information on what sets these two methods apart – see our blog post on this here. One of the most common issues we see is business owners not knowing the answer to this question and or not even asking their bookkeeper this question. Issues come up when there’s an inquiry into the business itself and the inquirer (maybe a bank, lender, auditor, tax agency, or investor) needs an answer. This is kind of like putting regular gas into your corvette for years – and when you bring your car to your mechanic he asks you why you haven’t been using supreme, or unleaded, or diesel.
5. If you’re using Accrual Basis, will your bookkeeping be fully GAAP compliant?
Using our corvette and mechanic analogy, full GAAP compliance would be like having your mechanic keep a detailed record of every fluid, part, and repair for every service or item that has “touched” your car. You may actually need this if you’re racing your car professionally or if you’re taking your car to car shows. Or if you intend to sell it to a collector one day. You can always ask your bookkeeper if your bookkeeping is fully GAAP compliant. And you can also probably tell whether it is or not based on what you’re being charged for bookkeeping. Full GAAP compliance is labor intensive and it’s having one or many qualified professionals (aka CPAs) working on your bookkeeping on a regular basis.
So a hearty shout out to Mr. Shellenberger (and his son, who is a legit war hero). Like Mr. S. took care of his Corvette, you – as a business owner – have some important decisions to make when it comes to caring for your business. Specifically, in getting your bookkeeping and accounting right.