We can guarantee you that bookkeeping done wrong could cost you closing down your business. That’s a fact and not something made up to sell a service. The most important for a small business owner to realize is that bookkeeping is the foundation of your business success. When you entrust your books to the wrong bookkeeper, you have to be prepared to spend more or embrace the reality that your business lives on a shaky ground and could fall at any time. It’s always wise to strengthen the foundation of your business success.
Here are some warning signs to know if you hired an incompetent bookkeeper for your company.
1. Failing to Keep an Accurate Accounts Receivable Aging Report
Accounts receivables represent products or services you have provided to your customers but still uncollected, which affects your business’ profitability and cash flow. This is one of the most important reports and internal control procedures that your bookkeeper should be closely looking at. Your business may be going great recently, clients may be coming in easily and are fully satisfied with your products or services, but none of this would produce a great outcome for your business if the accounts receivable aging report is not accurate and updated. Long outstanding receivables that go unnoticed due to inaccurate or incomplete recording could hurt your business more than you can expect it. Make sure that you review this report weekly or monthly, depending on your business, and be sure to follow-up with your bookkeeper if numbers don’t make sense.
2. Small Transactions are Ignored
There might be a certain threshold for keeping receipts but a good bookkeeper will always remind you to keep all receipts for expenses whether it is for a huge or small transaction. It is a good practice to be thorough with keeping track of all your expenses most especially the small ones. A great bookkeeper should not ignore these small expenses and make sure these are all recorded on the books.
3. Expenses not coded correctly
The bookkeeper should know how to properly classify company disbursements to the appropriate expense category. If these are not recorded correctly, you not only run the risk of having inaccurate and misleading financial information but you may not be maximizing business deductions for your business. Case in point, if your bookkeeper codes a fuel to meals and entertainment, you are losing 50% of business deduction as fuel is 100% tax deductible expense while meals and entertainment is only 50% tax deductible. The impact to the business is you are paying more tax than you should due to incorrect coding of expense by your bookkeeper.
4. Incorrectly classifying direct labor costs to overhead cost.
Just like categorizing expenses, your bookkeeper should know the importance of classifying disbursements between Direct Costs which is part of Cost of Goods Sold and Indirect Costs which is below the gross margin line. If costs and expenses are not properly classified, the business owner run the risk of pricing their product or service incorrectly as the cost to which they based their decision is inaccurate.
5. Monthly reconciliation is not prepared or prepared incorrectly.
Some bookkeepers often ignore this most important bookkeeping task, so make sure that your bookkeeper is not one of them. Reconciliation should be done monthly by your bookkeeper to avoid incomplete or inaccurate financial report. When you see aging outstanding items representing uncleared transactions in your bank reconciliation statement (uncleared deposits, outstanding checks with age over 6 months or one year, etc.), these are signs that your bank reconciliation is not being done correctly by your bookkeeper.
In summary, don’t hire the wrong people to do your bookkeeping.
Find the professional ones who can really help you set up your system and record your transactions properly and correctly. Remember to go back to your objectives. Get help where you need it. And when you get help, choose the qualified professionals who know what they are doing. Not some amateur or worst incompetent bookkeeper just because they offered you the cheapest bid for the job and you are trying to cut costs. Remember, you get what you pay for.
If you need help with your bookkeeping and tax preparation for your company and wants to avoid incompetent bookkeepers, contact us today at email@example.com or 832-437-0385. We surely won’t let you and your business down.
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