Proactive Bookkeeping

     As business owners, you know the importance of keeping your books in order. After all, you want to be able to accurately file your taxes in a timely manner. In fact, to most business owners and managers, this is the essence of bookkeeping: keeping track of transactions. However, “Proactive Bookkeeping” can do far more than just keep track of transactions, enable you to file your taxes and keep the IRS off your back. When done properly, Proactive Bookkeeping provides you with invaluable information about both the past and the future of your business, allowing you to do, among many things:
· Find your most efficient advertisement venues.
· Find the most profitable segments of your business.
· Track the most profitable areas to do business at.
· Track your most efficient employees.
· See the true cost/profitability of the work and products you provide.
     Imagine how it would impact your business if you knew precisely which advertisement works best for each segment of your business and in which locations each segment is most likely to generate the most income.
Bookkeeping as “keeping track of transactions” is an expense; however, Proactive Bookkeeping is an investment. The insight it provides for your business is capable of leading to income that far outweighs the cost of bookkeeping. Furthermore, the longer you utilize Proactive Bookkeeping in your business, the more data it will have to provide information that has greater accuracy and precision; consequently, allowing you to further increase the efficiency with which you utilize your resources.

So, how does a business go from traditional bookkeeping to Proactive Bookkeeping?
     Just as you would hire someone who is both knowledgeable and well equipped to build a strong house, you will want to hire someone who has both the tools and knowledge to do your Proactive Bookkeeping. Luckily, there are tools out there like QuickBooks that are well-known and affordable that can be phenomenal in the right hands. Unfortunately, their use often stops at traditional bookkeeping precisely because their simplicity allows for business to get their bookkeeping done by people who are not trained to take advantage of their full potential. To return to the previous analogy, given the right tools anyone can build a shack, but not anyone can build a house.

So, how does a business know if their bookkeeper can “build a house or a shack”?
     Discuss with whomever is currently/going to be taking care of your books the following questions based on whether they apply to your business:
· Can they track (and provide you with reports for) your income and expenses separately based on which segment of the business they belong to?
· Can they track (and provide you with reports for) your income and expenses based on the different locations you do business at/from?
· Can they track all expenses (including time spent, freight expenses, etc.) to a specific job so that you can get the true cost/profitability for the job?
· Can they track different jobs for the same customer separately, so you can see the profitability of each job?
· Can they track each customer interaction to how the customer was acquired so that you can track your different advertisement venues?
· Can they track each customer to the location where they are from so that you can decide the best places to advertise at?
If the answer to any of these questions is no, or if they hesitate, you might want to consider looking elsewhere, unless you want your bookkeeping to be just an expense, and your books to “live in a shack.”

Is Proactive Bookkeeping expensive?
     It can be, but it doesn’t have to. There are a few steps you will want to take:
1. Hire a company that specializes in bookkeeping rather than having somebody on payroll. There are several advantages to this.
   a. No payroll taxes/expenses to deal with. Remember that when somebody is on your payroll, you must pay part of their payroll taxes as well as their payroll itself. For example, if you are paying somebody $17/hour, it is costing you more because you must pay half of their Medicare and Social Security taxes, as well as worker’s compensation and other possible payroll expenses.
   b. Less liability. Companies that offer bookkeeping services generally have Errors and Omissions Insurance. What this means is that if they mess up your books and it costs you money in the form of tax penalties and interest, etc. then they are liable for it and their insurance will cover it. If somebody in your payroll messes up and it costs you money, you are on your own.
   c. Less overhead. Bookkeeping companies will generally do everything through their own computers, generally by remotely connecting to your data or by storing it themselves or in the cloud. This means that you don’t have to have a workstation or space designated for your bookkeeper. Also, bookkeeping companies will generally absorb the cost of the software involved and they can generally get a better level of support for the software than you can. This means no costly software upgrades every year or software support costs.

2. Make sure that you are not paying for your bookkeeping by the hour. Find a company that will analyze your business’ needs and give you a rate that is based on the complexity of your business; just remember that if your business becomes more complex your rates could go up, but this generally means that you are making more money as well, so it is expected. This give you a predictable monthly expense.

3. See if the company offers a plan where you can email/fax/etc. your transactions (like estimates, purchase orders, receipts, bank statements, etc.) to them. If so it can drastically reduce your bookkeeping costs without sacrificing in quality since they will give you a discount for not having to physically come to your location to get your bookkeeping done.

4. See if the company offers a solution where you can enter some of the information yourself as opposed to having them do everything. For example, if you will be entering estimates and purchase orders into the books, then they don’t have to, which lowers the “complexity” of your business and thus, your cost. Moreover, it will avoid mistakes by simplifying the process.

5. Go paperless, but be secure. Check if the company offers a plan where all your documents are stored digitally as opposed to on paper. This reduces their cost, and if they are honest, yours. Make sure to ask if the information is stored securely and whether it is backed up. With all the recent hacking happening these days, you will want to make sure your data is protected and that it can’t be lost with a simple hardware failure.

Final Thoughts…
     Don’t be afraid to break from tradition. A lot of businesses have their office manager handle the books. In most cases however, that is a mistake. Let your office manager focus on managing, and have a company specialized in bookkeeping take care of your books: you are better off having your office manager working on how to generate more business using the information and insight that that a specialized bookkeeper can provide.
Think quality first, cost second: do not sacrifice on quality to reduce your bookkeeping costs. Work with your bookkeeping company in ways to make your bookkeeping more efficient (see 1-5 above) to reduce costs without losing on the quality.
Finally, and most importantly, make sure that you can get as much data and insight from your books as possible. To accomplish this, make sure to have a comprehensive sit down with the bookkeeping company to make sure you have all the necessary workflows in place that will generate comprehensive reports that you can use to make well-educated business decisions from day to day.
by Lucas R. R. Cunha - Chief Consultant at Integral Consulting