Bookkeepers are a dime a dozen. In fact, anyone can open up shop, regardless of the amount of training he or she has had. Add to that, the fact that most business owners are not numbers people, along with the woeful lack of industry regulations, and it’s downright scary what a poor bookkeeper can do to a business, intentionally or not. 

I cannot tell you how many times I’ve personally heard about a bookkeeper stealing money from a business and getting away with it for years!  Of course the business owner did not know how this could possibly happen because they were not involved.

This type of story is becoming far too common. Therefore, I wanted to point out some of the warning signs that could potentially indicate that this might be happening to you and your business. This list is not meant to be all-inclusive, but if any of this rings true for you,  run – don’t walk – to your nearest CPA.

1. You don’t have access to your accounting system. Why on earth would you give someone full control of your finances without maintaining access yourself so you can review their work from time-to-time? These are your records and, I believe, your company’s property, so don’t let anyone tell you that you cannot have access to your accounting system.
2. Your bookkeeper gets defensive when you start asking questions or requesting information. If you ask to see a profit & loss statement, a bank detail report, or any type of banking or financial document and you get an attitude in response, this is a red flag.  No one should be so protective of his or her work that you cannot review it. If you are met with such resistance, the reason is probably because your books are a complete mess and the bookkeeper does not want to get fired. This goes back to #1. You should not even have to ask; you should have full access to your records at all times.
3. Your bookkeeper does not prepare bank and credit card reconciliations. This is one of the most basic bookkeeping tasks for any business. Why?  Because it is your checks-and-balance system. It is the way you know if you have everything in your financial system that should be there – nothing more or less. These reconciliations should be done monthly, and I advise you get copies of them. This shows your cleared and outstanding checks, deposits and all other transactions, providing a great snapshot of your business transactions.
4. Your bookkeeper adds adjustments to the reconciliations. The reconciliation is a comparison between your records and those of the bank. Like I said in #3, it is your checks-and-balance. If you see reconciliation adjustments, your bookkeeper is doing something wrong. A bookkeeper should aim to NEVER have an adjustment, because that means he or she did not account for something properly. Instead of giving up and saying, “Oh well, I missed something,” make sure your bookkeeper finds the adjustment and enters it into the system correctly.
5. There are crazy descriptions within different transactions. I’ve seen descriptions like, “Opening balance?” before. There is NO reason for a question mark here! Regularly review your transaction descriptions so you really get a sense if your bookkeeper knows what he or she is doing. If you never see any descriptions, you see odd descriptions or there are a lot of journal entries, this should be another red flag.

Stay on top of your business’ financial well-being by requesting monthly reports from your bookkeeper and giving them the once-over sniff test to make sure they do not smell bad. I also recommend you hire both a bookkeeper and a tax CPA, and that they come from separate firms. This provides yet another checks-and-balance layer. A bookkeeper and a CPA from different firms will wind up checking each others work more thoroughly, and should notify you if they see something awry.

As a business owner, you have the responsibility to look over your bookkeeper’s shoulder from time-to-time. Remember that it is your business and your shirt if something goes wrong.

I am always reading about how we all move away from a managerial role and become leaders in our companies. I agree – most of the time. There will always be instances where a manager is needed. I think the goal, however, should be to turn your employees into managers so that you can spend more time leading. 

What is the difference?  Here is how Wikipedia defines leadership and management:

• Leadership is “organizing a group of people to achieve a common goal.”
• Management is the “organization and coordination of the activities of an enterprise in accordance with certain policies and in achievement of clearly defined objectives.”

Here is how I see it. Leadership is defining a goal and guiding and advising people on how to reach that goal. Management defines the goal, but then gives explicit details on how that goal is reached. Managers spend more time detailing the specific tasks for people to follow step-by-step.

Still confused? Look at following questions and see if you can determine if that person is acting like a manager or leader?

• How do we go about increasing our sales?
• Can you contact XYZ Company and setup a meeting to discuss how we can work together?
• Here is our pricing methodology. Can you make it into a process for us to replicate more easily?
• Next year we are going to decrease overhead expenses. What are your suggestions on how to achieve that goal?
• I need your help figuring out this proposal from a vendor. Do you have time to sit down and go through it together?

Do you see the difference now? The first and fourth questions come from leaders and the other three come from managers. Managers dictate the process while leaders leave the process development to their managers.

Because of this, it is important for every business owner to know how to act as both a leader and a manager. You just have to know the appropriate times to be one or the other.

Billing by the hour is fairly common for certain industries. When I worked for a public accounting firm, I had to track my hours so the firm could bill accordingly. Now that I have my own business, I try to avoid that practice by charging flat fees for my services, but certain situations still call for billing by the hour. 

Why do we hate tracking our time so much? Because it feels like it takes much more time to keep track of your hours than to complete a project. If you are in business for yourself, then you can easily see the value in time-tracking. But for your employees, it can be difficult.

Therefore, you want to make time-tracking as convenient and easy as possible for your employees and yourself. To do so, first develop a system to track time. If you have QuickBooks Online, you can set up time entry users, free of charge, and track the hours within your accounting system. This way you won’t have to re-enter the data when it comes time to invoice your clients, it’s already in the system. There are a lot of other programs that can help you track time as well, but make sure it integrates with your accounting system so you don’t waste time later.

Once you have a system in place to track your hours, establish a practice for recording hours. Depending on what you do, it might need to be different for some staff members than others.  When I was in public accounting, my firm’s policy was to track time every seven or eight minutes. I thought that was ridiculous, but it worked best for the tax accountants who might spend very little time on several projects a day. I, on the other hand, worked on a few projects for almost the entire day, therefore, that same process was not as efficient.

Here is one technique that worked for me. Because I only worked on a few projects each day, I would track how many total hours I worked, then prorate my time based on which clients I spent the most time on. For example, I may have spent half of my time that day on Client A, 30% on Client B and 20% on Client C. It was an educated guess–there is no way you can be 100% accurate when tracking your time–but this technique worked very well for me and was not overly daunting when it came time to enter my time.

While charging by the hour sounds great in theory, I worry that some of my clients are short-changing themselves. If you charge by the hour, what is your policy on travel time? What about the time  you spend answering emails and phone calls? Are you really tracking all that time, or are you comping your clients for those minutes? If it is the latter, does your hourly rate reflect that?

If you do not charge your clients for travel time, phone and email communication or the time you are thinking about their work when running errands, then you need to increase your hourly rate or add a base couple of hours to your monthly bills. This is time you could be doing something else, and you should be compensated for it. This is one of the reasons I now charge a flat fee for my services.  I am always thinking about clients, and I can not charge them for that time, nor do I even know how to track that time. So, instead of raising my rate to a level where I might price myself out of the market, I just charge for the task instead.

As an alternative, you can communicate with your clients that they will be charged for your travel time and/or a weekly amount for communications and still continue to charge your hourly rate for all other work performed.

All this being said, it is important to document how you want to track your time and that of your employees, and communicate it with them and your clients. Tell your clients you charge in 15-minute increments. Tell your employees that all time has to be entered daily and has to be approved by a manager before they are paid. Make sure that all the correct information is attached to each time entry–such as customer, task performed and date.

Tracking your time does not have to be a daunting task. It is all about setting up a system that works best for you and your business, and then communicating that system to all involved. Without proper planning and implementation, you could be losing out on money you deserve.

Pricing is one of the biggest struggles that any business owner faces. How much is too much? Am I undervaluing my services? How do you know? 

First of all, understand that there is not one right answer. But you should have a strategy behind your pricing, and it should align with your company’s vision and goals. When it comes to setting a pricing strategy, there are a multitude of questions to answer. If you go through this list, one by one, you will end up with a great foundation.

1. What do your competitors do? Do some research on how your competitors are pricing their services. If you do not have direct competitors, find a group that provides services or products similar to yours. Act like a potential client, make some phone calls and research their pricing, services and rates.
2. How do you compare to your competition? Be realistic here. Prepare a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis and consider getting someone from outside of our company to help you be honest with yourself. By completing this step, you will see how you truly compare to your competition. Later on, when you are in the middle of the sales process with a potential client, it will help you position your company against your competitors.
3. What do your clients want? Just because your competitors price a certain way, does not mean you have to do the same. Here, you really want to look at the personality of your prospective client and determine how they want to pay for your services and at what level. For example, the market may sell their services by the hour, but your clients really want to pay by the project. If you can meet their needs better than your competitors, you’ve already gotten ahead of the market.
4. Pick a model. Do you want to charge by the project? Do you want to receive an initial deposit?  Should you set up payments based on milestones? If you charge hourly, how are you going to track that? Do you have a minimum hour commitment? Do you round up your time to the nearest 30 minutes or hour? Do you charge differently for different types of services? You need to develop a structure that will be your norm and then stick to it.
5. Test the model. Having a plan in place is great, but knowing that it will make you money is even better. Do a break-even analysis. For example, if you sell this many jobs at this amount, what will your profit be at the end of the day? Make sure to include all of the regular overhead costs  – rent, phone, email services – that you need to cover to stay in business. When you put your model to the test, does it work?
6. Roll-out for real world testing. Once you are comfortable with your model, it is time to roll it out for testing on real clients. As with any test, you need to grade it and make sure you are still passing. You should test your pricing model once a year, at a minimum. I suggest doing it every quarter. This will help you determine, fairly quickly, if there is a problem in your pricing model and give you an opportunity to fix it.

Unfortunately, while there is a lot of science out there on pricing, there is no perfect formula. Take the time to think it through and run through these steps. And remember, as a small business owner, you can be more flexible and respond to market needs much quicker than your larger-company competitors.

So, I have been driving around in a gas guzzler for more than a year. It was my decision to buy our used Durango because I wanted to “sit higher.” Yeah, well three rows of seats are not as roomy as you would think and, in fact, they tend to be overkill. 

Every time I would fill it up or even drive it around town, I would feel guilty for driving this beast. I do not need that much space on a daily basis, and furthermore, the space I did have never worked well for me. With the third row up, I did not have enough room for groceries, but when it was down, the groceries scattered everywhere. It just felt like a huge waste – so I started dreaming about a new car.

I already reimburse myself for business mileage and attempt to keep good track of that. The disadvantage of our gas guzzler is that it is costing us more than what we are getting in return for mileage. In 2010, the IRS rate was $0.50 per mile and now in 2011 it is $0.51 per mile.

Let’s run some calculations. If I drive 400 miles for work each month, that is $200 in reimbursements. If I get 14 mpg and the cost of gas is about $3 per gallon, I am paying $86. If you add on top of that insurance and repair costs that every used car needs, my costs begin to outweigh my reimbursements.

So now, I have gone to the other extreme and just bought a 2010 Honda Insight. Actually, it is a lease and the dealer offered a great deal because they are eager to rid their lots of their 2010 stock now that it is 2011. The lease is around $200 per month. Now, same scenario: if I drive 400 miles, I reimburse myself $200. My mileage rate has gone up to around 40 mpg, so I am now paying about $30 in gas.

Yes, I am paying more in insurance, and I have a constant lease payment, whereas before my car was paid off. However, I am not worried about having to take it to the shop for every little thing now and spending a few hundred bucks here and there. The car fits my lifestyle much better, and I feel better about what I’m doing to our environment. I feel like I am making a difference every time I drive my car.

If you are thinking about upgrading your car, consider a hybrid or just a high mpg car – it does not have to be a Lexus, Acura or other luxury model. By driving a more economical car, you could actually break-even between the costs and your mileage reimbursement, depending on how many miles you drive.

Consider this, if I drive 800 miles in my Honda Insight every month, then I reimburse myself $400 in mileage. The gas is around $60, plus my lease payment of $200. I am netting about $140, which hopefully should cover my insurance and my total mileage for the year is 9,600, still under my 12,000 per year. Pretty cool, huh? It really can pay to go green.

This week’s management lesson is all about suffering. As we know, the economy has been in the dumps for a while and honestly, it is going to take time to get it back to where it once was.  We have all been suffering through it and I want to applaud you for sticking in there.