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5 Tasks Small Business Owners Should Do

Mar 4th 2019
Owner FitBooks Pro
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As bookkeepers and accountants to small business owners, we are often frustrated when the client stops looking at their books or financials because they know we are looking at them. It is our responsibility to educate them that just because they have hired a professional, does not mean they can abdicate responsibility for understanding their books.

In fact, not looking at or understanding their books puts their business at risk. They may not realize that even though they have cash in the bank, their company is not profitable. Or, worse yet, they may be victims of fraud by their own trusted staff, people who know the owner is not looking, so they take advantage of the situation. 

This can be a tough conversation to have. Here's how you might start. 

You could say, “I know that you have hired me as your bookkeeper so that you can have the peace of mind of knowing that your books are accurate and up to date. However, just because you have engaged a bookkeeper and work with a tax preparer to get your state and federal tax returns filed does not mean you can abdicate responsibility for reviewing and understanding your books.” 

Let them respond. Particularly if they counter by noting that's what they hired you for, you might say, “Yes, it is your responsibility to look at how your business is doing: not just to know how much cash you have in the bank, but to really understand if your business is growing or shrinking, and to understand why. You must also make sure that your books are accurate and that trusted staff/family/advisors aren’t stealing from you.” 

Your client responds: “Wait, whoa…” you say? “Didn’t you just tell me you are providing me accurate books, Lady Bookkeeper?” 

Your say, “I am providing books as accurate as I can, but it is your job to verify the accuracy by looking at your P&L and your Balance Sheet. And not just eyeball scan the reports, but dig down into the accounts.”

Then, go over the following five tasks with your client. Each one is something a small business owner should do themselves:

1.    Verify that bank statements are reconciled in the books. Each financial institution account (checking, savings, loan, line of credit) should be reconciled monthly. And there should not be unreconciled transactions hanging around from prior periods or from prior years without a good explanation. Don’t know how to see if your accounts are reconciled or not? Ask me, and I will show you.

True story: A client had a bookkeeper coming to her office weekly to enter all the bills and receipts, payments and deposits, file documents, etc. My client decided to stop working with said bookkeeper because she was always on her cell phone, talking or texting. After the bookkeeper’s departure, my client found a basket full of documents that had not been entered and bank statements that had not been reconciled. It is your job as a small business owner to know if the people you hire are actually doing their work.

2.    Look at your bank and credit card statements. Do you regularly look at your statements to see if there are charges that look odd or not right for your company? A small business owner who does not look at the bank statements is setting themselves up for potential fraud, usually by a trusted staff member. When an unscrupulous employee knows you are not looking, it is easy for them to pay themselves, their friends or their own credit card balances with your company funds. How would you know if you’re never looking? And if you ask for the bank statements and trusted team member won’t show them to you, that’s a big fat red flag.

True story: A client’s bookkeeper was not reconciling the statements and not giving them to the business owner. What she was doing was paying her own credit cards from the business funds. Since the owner never saw the bank statements, he never noticed that his credit card balance was going up every month instead of down (no payments were being made to the card) even though the online banking/checking statement showed payments to Cap1 and Chase. The payments were going to the Trusted Staff’s Cap1 and Chase, not to the business cards. It is your job as a small business owner to look at your bank statements and copies of cleared checks to detect potential fraud or red flags.

3.    Look at and understand your Balance Sheet. Verify your loan balances are going down if you are making monthly payments. Look for items posted to Fixed Assets that could be expensed instead. Look to see what changed since last month and confirm that makes sense. It is your job as a small business owner to know what the Balance Sheet is showing you, and if you don’t understand it, ask me!

4.    Look at your Shareholder Distributions or Owner’s Draws detail report. See what the bookkeeper is posting to the Balance Sheet instead of the P&L.

True story: I took over a QuickBooks file for a new client from their previous bookkeeper. I found thousands of dollars of expenses posted to “Shareholder Distribution,” which basically means they were marked as Personal expenses.  However, they actually were legitimate business expenses. Because the bookkeeper mistakenly posted them to the Balance Sheet instead of the P&L, the business was missing a lot of tax-deductible expenses. Review what is posted to the Balance Sheet accounts. If this entire paragraph makes absolutely no sense to you, Ms. Small Business Owner, ask me to explain it!

5.    Look at your payroll reports. This is another potential area for fraud. Make sure the trusted staff submitting payroll is not adding their friends and family as employees, or paying themselves bonuses. Don’t abdicate! If they know you are not looking, you have opened the door for costly, unpleasant discoveries.

Small business owners hire us as trusted advisors to help them with their bookkeeping so they can run their company. We take care of their books, but at the same time, we need to train them that they cannot abdicate their own responsibility to review and understand their business books. Also, we can remind them that when we make appointments with them to review their financial reports, it is to their own detriment if they postpone or cancel because “other things are more important.” We are responsible for teaching and training our clients. We ourselves must not abdicate this responsibility! 

Here is a wonderful resource I highly recommend: the book Accounting for the Numberphobic by Dawn Fotopulos.

Jody Linick is an AIPB Certified Bookkeeper and a QuickBooks® Certified Pro Advisor.  Her company, FitBooks Pro (formerly called Linick Consulting), specializes in remote bookkeeping services using hosted QuickBooks and QuickBooks Online. You can find her series of Blog posts here.

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QBO Trainer
By [email protected]
Mar 7th 2019 15:36

Thank you Jody for the posting the dialogue we must have with our clients on a regular basis. I too find that the client might think that their accounting team (if they have one) is there to perform some sort of magic - and we do - to a point. After that we need to convince our clients to review the data and as you said, 'dig down.'

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By Frinnal
Mar 27th 2019 11:34

Thanks, so many helpful information. When it's about a business you need to be very careful about every tiny thing, this is the only way to success.

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