Kundun Consulting

I am very sorry but it is now time for my first rant.

People - bookkeepers are not accountants!

I have just started some work for a new client - great you say - yes I think so too. Problem is that they also have an external bookkeeper - charging $80 per hour plus GST.

I am sure some of you have choked down on your lunch, breakfast whatever -  I nearly did.  

Now I am the first to admit that bookkeepers have a place in small business - but it needs to be attached to the end of a very short rope. I have spent the better part of 4 days fixing errors that the bookkeeper has made. Now you might say “So what your getting paid”  To which I reply that it is not my job to fix the errors of someone that should be doing a better job - and I cannot in good conscience charge my client the full rate for what I am doing - that is not value.

All too often I see shoddy work performed by bookkeepers and it is a really frustrating aspect of the industry.  I believe that you should never take on a bookkeeper who  is not supervised by a CPA or ICA registered accountant. If you are relying on their work to provide reporting that allows you to make financial decisions - well I am sorry but you are in real risk of making a badly informed mistake.

Now this post may very well spark outrage from the bookkeeping fraternity.  I am not trying to create a war. I am trying to get some momentum for the industry to develop an operaitonal code of conduct and a method of self administration so that the general standard is improved.

Setting a standard that is adopted voluntarily will be a far better result for everyone - than having regulation thrust upon.  

As a consultant I undoubtedly advocate the use of consultants in your business.

My top 5 reasons for using a consultant:

1. Save costs - you can call on them as required and so don’t have to have them on your payroll permanently.

2. Their experience is broad and they will often bring a breadth of knowledge that you just can’t get from an employee.

3. Good consultant will be skilled at drawing out the result required and focusing energy and resources thoughtfully to achieve the best result.

4. They are not bogged down with your internal politics, methods and inward looking focus. they will achieve a better result by providing a “clean set of eyes” to an issue.

5. They may well have seen the issue raise its head in another form and can quickly address your issue so that you can concentrate on what needs to be done.

However - time for a reality check - what are the issues:

1. No doubt cost - keep them in check with either a fixed price or an estimate that allows you to control what you are spending.

2. No clearly defined method of reviewing their performance.  They may not be your employees - but they must still be accountable.  Make sure that you have some method of determining the success of the project so that you get a return out of your spend.

3. No internal champion of the cause.  Consultants need management just like any other staff member - make sure that it is you - or at least a person with enough seniority to engender respect and get the result that you need.

4. No formal qualification to be a consultant.  Too many people hang their shingle out with little skills, experience or ability to give you a results. In my experience be careful of those consulting houses that typically recruit licensees. There is very little criteria for selecting a licensee other than - “Show me the money!”

5. A lack of ability to understand the business that they are consulting too.  These consultants think that there is a one fit solution for all - rarely have I seen this.

Choosing a consultant is a task that should not be taken lightly. Seek referrals from your colleagues, your network, employees and industry bodies to try and source someone who has achieved a result.

Ask for references - all good consultants will be able to point you to a satisfied client.

But most of all - make sure that you establish the goal of the project\role and what you want to achieve. Throughout the course of the engagement ensure that it is meeting your needs and if not - sit the consultant down and refocus the energy.

And be honest - if it isn’t working then cut the cord and find another alternative.

Using a consultant is a fantastic solution for many small business owners. It opens up a world of skilled professionals that you just simply could not afford to employ by yourself. Be sure that you select wisely and that the goals and desired results are clearly defined before you engage the consultant. Never just throw in a line and hope that the fish bites - it will because the bait is very lucrative!

I often come across small business owners who have come to a point where they must make a strategic decision about the direction that their business must take. They must decide how they will allocate resources, whether to take on a partner/investor, whether to branch the business out into something else that is not within their core services - or they must actually decide whether to actually be in business.

When I sit down with my clients one of the first questions that I ask is why are you in business. If they cannot tell me immediately the reason that they decided to risk everything and go out on their own - then well they often do not get an answer that they like.

As a small business owner you must never be in a position where you are not earning what is a relevant wage for the work that you are doing.

Now that does not mean that you do not operate a business which may involve a pay cut from what you are used to for a while - we all have to build.But if you give it a genuine crack - and by that I mean that you have systems set up, you have products or services to sell, you create and run a marketing campaign, you create a business plan that you refine from time to time and you work hard to make sure that you are running a business - and you still are not making an adequate return on your investment (which includes your time) then perhaps you need to explore other alternatives.

Knowing when to change a business is just as important as knowing when to end a business.

I was watching 4 Corners the other night and I saw a great example - where a family of farmers, whose land had been in the family for 4 generations had decided to sell up because the risk was too great. On face value this is tragic - however these people have seen that to continue in the current vain, with no real end in sight to the drought, that their nest egg - i.e. the value of their land - was in jeopardy of they continued to operate their farm - and so they have taken the money and ran. 

Personally I applaud them for having the courage to admit that this was the decision that needed to be made - they will now live to fight another day.

Don’t let your business consume you to the point where it in effect defines you and then breaks you. Do everything you can to ensure that you get another opportunity to capitalize on your insight, entrepreneurial outlook and your skill to deliver a result - albeit in another form.  

I am very lucky in what I do that I get to meet a great variety of people. I don’t really consider myself a “true” accountant in that whilst I have always played a “policeman” function, my greatest skill is seeing what can be and assisting my clients to get there. 

I recently accepted an engagement from a client who I just could not say no too. He had this infectious personality that honestly made me feel that I was the most important being on the earth right at that moment. I had some reservations about taking him on as a client however when he started to tell me what he did and more importantly why he did it well - i just couldn’t say no.

My point is really simple - and one that many Seth Godin http://sethgodin.typepad.com devotees would say he proposes all too often.

If you do not believe in what you do, are not proud of what you do, and cannot get passionate and speak from the heart about what you do - then is this the right thing for you to be doing.

I think not.

The truly remarkable thing about my client is that he has now reached the point that he understands that he cannot do everything himself. He has recently engaged an Advisory Board and sought out consultants and new senior managers to assist his business to grow.

He has decided to take a financial hit and invest in his business in order to take it to the next level. 

He has decided to innovate not just his products and services - but also his business and himself.

Every small business owner must take time out to reflect and to honestly admit when they could do better - that way you will set your path towards what you desire - and maybe - just maybe - you too can speak about your business with as much passion as my client. 

As an accountant - and a CPA - I often struggle to understand the logic that we asa profession sometimes employ. How many small business owners out there use their tax accountants to prepare a set of annual financial reports? Basically all of you I expect!

Well have you ever read the last page of your prepared financial statements? I think that you really should!

Are you aware that the reports have a significant disclaimer on them?

Basically the last page says that the report has been created with the information AS HASBEEN PROVIDED by the client. It goes on to say that it should not be relied upon as it was prepared for a particular purpose.

So how many of you get your financial reports and read them as if they are true?

Guess what in most cases you shouldn’t!

There`has been very little work performed by your accountant to review the data entryto ensure that it has been entered correctly. The profession operates on the basis that it is too much to expect that they should actually CHECK the financial integrity of the data – that’s your job!

Pardon I hear you say – isn’t that what I am paying for? How am I supposed to ensurethe accuracy – I am not an accountant!

No you are not!

Now a good accountant will review the transaction ledgers to determine whetherthere are any larger items appearing that could cause issues. The rest theywill put back against materiality and make an assumption that even if incorrectthere will not too much of an effect on the reports.

In another post I will provide a case study which will highlight the short-falls of  this, however for this post it is enough that I begin to spark some interest in what the profession does and does not do.

For my part, I come from a different background. My first accounting roles were in the Corporate world where inaccuracies are not tolerated, and so my clients all accept a monthly or quarterly maintenance package or they are not clients. This way I can – in small chunks – catch errors quickly and ensure that each report produced is accurate.

As an accountant I want to see accurate financial reports to ensure that people are able to rely on the information provided. It may cost the client a little more but the benefits of being able to base decisions on good information is priceless – and should be the minimum acceptable standard.

As a small business owner do you trust your accountant?

Do you believe that the advice is the best that money can buy?

Do you make decisions that you are unsure of because you do not have the right information?

Do you allow your accountant to bamboozle you?

If you answered any of these questions with a little unease then it time to look at what you are doing. I see too many business owners trying to manage their business with bad or a complete lack of financial information. Your accountant needs to be engaged to do more than just prepare your taxes. He or she needs to be engaged to help you drive your business.

Let me give you an example.

A normal suburban accountant will have somewhere between 10 and 50 clients that they look after at any one time. There will be a mixture of clients but in the majority of cases about half will be small business clients.

Now how much would you pay to get access to the business practices and intimate financial knowledge of 20 small business clients in your local area?

How much would you pay to be able to benchmark your business against 20 other small businesses in your local area?

How much would you pay to be able to spend an hour with a person who is the senior manager of 20 your local area businesses?

Well you have that right at your doorstep and you just get him or her to lodge a tax return - what a waste.

Now I am not suggesting that your accountant will sit down and run through the financial affairs of 20 of his clients with you. But she is perfectly poised to be able to highlight to you exactly what others are doing right or wrong - so long as they protect the identity of the client.

Get your accountant involved in your business. Get them to sit in on managers meetings, or get them to sit with you and have a pseudo Board meeting. Throw things on the table and let them challenge you. Get them to help you understand financial reports and what you would be looking at. Get them to assist with the strategic development of your business.

Whatever it is - get them involved. Yes it will cost you a little but more - but it will be money well spent - if you have the right accountant!

So you have decided that your business really needs to start putting together a budget - well where do you start!

I am a really big advocate of throwing out your conceptions of what your business does and starting with a clean fresh outlook.

With a client who has not budgeted before I start with the big picture:

1. What return on your investment do you want to make?
2. What, right at this point, are the issues in your business?
3. How do you believe that you have performed against your biggest competitor?

Depending on the business type and the answers to the above, a whole series of questions will arise - which we will work through.

The most significant aspect revolves around what the business owner wants to achieve. It is critically important that we put together a plan that meets the owners personal and business goals. In every case that I have worked on where there has been no budgeting I put a very basic model together. I look 12 months out but try to get the business focused on the first 3 months. We establish KPI’s in the form of sales/revenue, profitability, cash in the bank and return on assets or revenue - whichever makes more sense.

The point of the exercise is to get the key people in the business focused on budgeting correctly. I want them to come to me in a months time and show me the errors that were made in their planning. AND THERE WILL BE ERRORS - I HAVE NEVER SEEN A BUDGET THAT REPRESENTS THE TRUE POSITION.

Budgeting is a tool that helps drive the business. You establish benchmarks which then you try to meet. It is not a disaster if a budget is missed. It helps to highlight the key areas in your business that you need to work on - and which are critical to success.

Once we have this basic budget I would then use this to have them deal with some forecasting. Forecasting is the process whereby we review our goals as we move forward to take into account the changing economic conditions. As an example, when you budgeted you may have planned to get $1m revenue from a particular customer. That customer goes bankrupt in 3 months time so the budget cannot be achieved. To reposition the business it is now a requirement that we review what has been lost and work on replacing it, with an understanding that this will take time and as such it will not be possible to achieve the budget.

I would never start a budget process with a client without a commitment to undertake a forecasting regime as well. They go hand in hand.

Budgeting is a work in progress. It is part of a range of tools to drive and manage your business. I believe that you should share you budget and the actual performance with ALL of your staff (using a watered down version) so that everyone knows what the ultimate goal is. It is then very easy to set some great staff reward programs based on the performance against budget. 

Remember this tool is an internal toll. It should not be used for any other purpose. Should you wish to apply for refinance or seek out investment then documents prepared for that purpose should be prepared separately.

There are many people out there capable of assisting you with this process. By all means seek them out and see what you can achieve. 

Accounting can be a very difficult process to manage and one that really shouldn’t be. Lets take for example the budgeting process.

How many companies out there spend months setting up, refining, getting approval for and then publishing a budget? Too many is my experience.

Don’t get me wrong, budgets are an essential tool to managing your business - but they should take a few weeks - not months.

Too mnay budget processes simply don’t follow any real process. For example:

• How many of you out there have the budget process written down in a document that is provided to the key players which describes the reasoning - i.e. the why and the how. Would you employ someone without a job description (if you still answered yes then you need to instantly call a trusted HR adviser - and then ME.)
• How many people actually trust the information that is returned by the key people in their budgets. E.g. if the sales guys tell you that only 5 units of widget A can be sold this year - is the figure accepted or is it altered?
• Is the budget accepted for the right reasons?
• Is the budget used for the right reasons?
• How many companies use the budget to reward staff?

The point is that the budget can quickly become this all encompassing tool that few people trust. It can be seen as the means that they are soley judged and in reality this should never be the case.

In my next post I will go through a prime example of a failed budget process. For now let me just say that a budget should - in my opinion and in my experience - encompass the following:

1. It should be based on reliable and trusted information.
2. It should be used to set the INITIAL KPI’s for the business.
3. It should not be too detailed to ensure that it is completed accurately.
4. It is an INTERNAL document only.
5. It should never be used to set key deliverables for staff - it can be used as a starting point but must be used for the right reasons.
6. It must be based on reality.
7. It must be achievable - albeit a really tough push.
8. It should take nor more than 3 weeks of preparation.
9. There should only ever be one (1) DRAFT.
10. IT MUST FORM PART OF YOUR BUSINESS PLAN - NOT BE YOUR BUSINESS PLAN.

To highlight, I have created a 4 page business plan for a real estate office which can be completed and finalized with a few hours work over a few days. No it is not a document that will drive and change a busineses direction but it will start the process of further review - this is what a budget and business plan should be setting out to achieve.

This is a topic that I will explore extensively over the coming weeks as we approach the traditional budgeting period. Have fun!

As a Consultant I see far to many cases of businesses persisting with Bookkeepers who they should have moved on long before I ever got involved.

Lets be very straight here, Bookkeepers ARE NOT ACCOUNTANTS.

They do not have the training or understanding of accountants and from my experience too many of them lack the care of accountants. Don’t get me wrong here there are many accountants out there not doing a great job either, however, invariably these people get weeded out through bad advice. 

Now this is not an attack on Bookkeepers - it is simply a statement of fact - that bookkeepers are invariably not trained, have no continuous knowledge improvement requirements and often operate outside of their level of expertise. Bookkeepers do however play a very significant role, but it is up to the client/employer to ensure that they understand what the bookkeeper can and can’t do.

So with this in mind here are my steps to finding and selecting a good bookkeeper:

1. There is now a professional body that Bookkeepers can be registered with - this is a great step in the right direction – so see is they are registered.
2. Get at least 3 references - including one form an accountant that they have worked with. This will at least allow you to try and prove that they can do what they say.
3. Get your accountant to run through a verbal competency test. Yes it may cost you a few hundred dollars to get their assistance bit it will be money well spent.
4. Ask your friends and associates for a referral to a bookkeeper that they know - invariably someone will know one themselves who does a great job.
5. Consider hiring a bookkeeper full time and sharing that person with an associate. I bet there is a business associate close by who needs some additional work performed.

Personally, when I place a bookkeeper in a clients business I stay away from the franchised chains. As someone who has a significant background in franchising I know first hand that the selection process can be a simple case of:

“Show me the money” - i.e. if the franchisee can come up with the franchise fee then they are in. A complete generalisation I know however it can and does occur.

If you or your accountant is not happy with the work being performed then fix it immediately. You would be better off paying your accountant to do the work properly in the first place then to have them try and fix the mess later.

To finish - I am not saying that bookkeepers should not be allowed to operate - they perform a significant task that clients need. I am saying that client’s expectations of what a bookkeeper can and can’t do needs to be cleared up so that they are not being asked to do more than they are capable of, and the bookkeeper needs to remain within their areas of expertise – so that they work that is performed is done correctly.