The High Cost of Incompetent

Bookkeepers

An Executive White Paper
Marty Koenig and
Susan Commins

All About Accounting LLC
and CxO To Go LLC
July 2012

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Copyright 2012 by CxO To Go LLC and All About Accounting LLC. All Rights reserved
Published by Buchanan Publishing LLC, Denver, Colorado
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HOW MUCH DOES IT COST TO HIRE
INCOMPETENT BOOKKEEPERS?
By Susan Commins and Marty Koenig

As the CFO, COO or CIO/CTO for small biz
companies in Colorado I've seen it all.
When business owners call Marty, its not
because they're feeling great. They call
because they need advice and action on
things they aren't sure how to deal with.
Even with an "entrepreneur's ego," the
smartest ones realize they don't have all
the answers. They're walking a tightrope
every day with their company. There are only a handful of problems where
they believe outside help is useful:
1. They want more time with their families and friends.
2. They want more money to do things with their family and friends.
3. They want to sell their company some day and get a big check so they
can start their next business, travel, or go sit on the beach near a golf
course with their friends and family.
4. They want to achieve something great and need a little help from
experts who do it every day.
Every issue you have as a business owner can be included in those four
points. Running a successful business requires that you take care of
fundamentals. Keeping a close eye on your business accounting is very
important -- even if you hate working with numbers. The numbers tell a
story. If you don't know the story of your business every week and every

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month, then you're guessing. And you'll guess wrong. Looking at your
company's checking account balance every day won't give you the story.
If you are a "skimmer" and only pay attention to the numbers when there is
a problem, it's simply too late. I've heard owners say:
"I have plenty of money in the account, so everything is fine."
"I get paid every month, so what's the problem?"
"My cash flow seems fine."
"We're paying the bills and getting new customers, I don't need to dig into the
numbers, besides I hate numbers."
"My brother's high school daughter does our bookkeeping and does a great
job."
"How hard can bookkeeping be, you just enter data."
"I don't care about job profitability, we're making money hand over fist."
The small biz owner can cause serious damage when they believe
"skimming" and skimping on the books is OK...
Damage to their company and personal finances.
Damage with the IRS.
Damage to their customers, lenders or investors
Damage to their suppliers and employees.
Damage to their friends and families.
Yes, they damage the very things they went into business for in the first
place.
Every small biz I've worked with has one thing in common: They aren't so
good at keeping good books. I've looked at hundreds of companies and
their books. It has simply never happened where I walk into a company and

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everything in their accounting/finance department is perfect. Not that
perfection is the goal, but 99.9% of the time there are serious issues with
the way they run the accounting functions.
Here's the problem: There are lots of people that call themselves
bookkeepers or accountants, but most of them aren't very good. They may
know how to enter data, reconcile accounts, do invoicing, etc., but there's
so much more to managing business finances. Just because they say they're
QuickBooks Certified, Peachtree Certified, whatever, does not mean they
are an expert bookkeeper. Geez, I was QuickBooks Certified and you
wouldn't want me as your bookkeeper.
Here's a story on a recent client whom I'll call POA. When I arrived as their
part-time CFO, I dug into their books and their bookkeeping practices,
workflows and data flows in and out of the accounting system. I looked at
the "what goes where, when and why." I looked at how well they manage
their cash cycle.
POA had 5 bookkeepers in three years. The
current one then, I'll call her Sherry, was a
contractor from a local CPA firm that offers
small biz income taxes and bookkeeping
services.
Both biz owners knew there was something
wrong with the books. They had seen the
reports every so often, but they kept wondering
if the numbers were really true. They had no
trust in the numbers. Neither did I!
The owners had continued to go along for several years, wondering about
the numbers, and making spending and hiring decisions based on bad data.
They believed that if they paid a bookkeeper $40.00 to $50.00 an hour, the
bookkeeper should know what they're doing, especially if the bookkeeper
was recommended by their CPA.

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When I started with POA, I led meetings with the owners, meetings with
Sherry the bookkeeper, meetings with the CPA firm, just to try and make
sense out of the mess.
I spent some time trying to teach the bookkeeper
how to put data into the right places, and why. I
tried to teach her to go back and clean up the
books. After some time, it was taking too long. I
couldn't do my job as their part-time CFO and I just
couldn't help the company by telling them the story
behind the numbers. Nor could I craft for them the
cash story of the future. I started looking for a more
qualified bookkeeper.
After a bunch of phone interviews, I found one that I thought was
competent. I didn't tell the owner what her hourly rate was, just that for
the first month or two it would cost more to get the books cleaned up, and
that it was not an option not to get that done. Then it would cost about the
same as they had been paying, just with much faster work, and better
quality, with a bookkeeper that knows what she is doing.
When I brought in Susan Commins from All About Accounting, LLC to meet
my client, they recognized each other. Three years prior, the owner said he
had interviewed her and liked her, but her hourly rate was too high. He had
gone with someone else because she had a cheaper hourly rate.
Zoom forward three years, and guess what? That low hourly rate cost the
company a bundle. Have you heard of negative return on investment?
That's what POA had experienced. The money they had spent on
bookkeepers over the years was like they threw money out the window.
Sherry, and the cheaper bookkeepers before her, had made such a mess
that it was now going to be very expensive and time-consuming to get
things right.

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POA had determined that they wanted to sell their company in a couple of
years. That is one of the reasons they needed to get their books in order.
Nobody is going to buy a company where it takes three weeks to prepare a
balance sheet and income statement (and even then the numbers were
suspect)....a tell-tale sign the business didnt have their act together.
When your books are screwed up, your company isn't an actual business,
but looks and acts like a hobby. A buyer will more likely pay you a very
small, and undervalued, amount, if anything, for your "hobby." Fortunately
for POA, bringing Susan in to clean up the books and continue the
bookkeeping was a life-saver for POA and helped make the business much
more valuable to potential buyers. Her speed and her understanding of
accounting concepts, as well as her QuickBooks proficiency, made her very
cost-effective.
Susan is a QuickBooks expert who has been providing QuickBooks
bookkeeping services to businesses for the past 20 years. Unfortunately,
she found the story of POA a very common one. 100% of the businesses
that hire me after theyve used less expensive bookkeepers, including
bookkeepers referred by their CPAs, have nothing but a mess on their
hands and need their books to be cleaned up. The costs can be significant
when you tally up the wasted money paid to the incompetent bookkeepers,
the wasted time by those bookkeepers, the aggravation and frustration for
the business owners inability to get accurate financial information, the
costs of paying for the clean-up, to name just a few of the issues. If the
company file is not setup correctly and the person doing the books is not
trained properly from the get-go, the business is already at risk. Ever
wonder why a large percentage of businesses don't survive after five years?
Everyone has an answer to that, but my answer is
poor accounting and forecasting/budgeting for cash
flow.

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At a minimum, it cost POA over $20,000.00 just for the clean up over a
period of 1 years. Because POA was an online retailer, they purchased
thousands of dollars of products from vendors and had thousands of dollars
of credit card deposits every day. They also used several credit cards and
Lines of Credit for their business. All of these transactions needed to be
entered into their bookkeeping software which was QuickBooks. Just
getting the Accounts Payables cleaned up took many, many hours over a 1
year period. Because the main product vendors bookkeepers were also
incompetent, the clean-up was much more complicated and expensive.
Without an accurate A/P, bills were duplicated and paid twice, and credits
werent entered correctly, which directly impacted cash flow. There was no
way anybody could verify how much was really owed to their biggest
vendor.
The prior bookkeepers also werent entering the deposits correctly. In
addition, they were printing out hundreds of unnecessary pages (costing
thousands of dollars in printer toner and paper) every week. The credit card
balances and Lines of Credit balances were also incorrect and not paid
timely, costing the business extra finance charges and late fees. Even their
payroll had errors that caused their payroll taxes to be paid incorrectly
another potential costly situation since there are usually penalties assessed
by the taxing authorities.
Unfortunately, many small biz owners don't know the difference. They
assume since they were referred to a bookkeeper by their CPA, or they
have a great resume, or they are a relative, that
they are competent. Here is just one example of a
story that made my (Susan's) blood boil: a CPA had
met a QuickBooks bookkeeper through a highly
regarded networking group but had never actually
worked with her. Because the networking group
had a requirement to provide a certain number of
leads to others every single week, without doing any due diligence on her

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work, he took her at her word that she was a QuickBooks expert. Not
only did he eventually discover that she did not know what she was doing
in QuickBooks after he had referred her to many clients, he never called
those clients to tell them that this person was found to be incompetent. Do
you think I'll be referring any business to that CPA? If he can't do some
simple checking before he refers someone he doesn't know...one that can
do costly damage to a company...then he doesn't get my referral. Nor
should he get anyone else's.
These small biz owners kept paying this referred
bookkeeper until they realized this person had
just compounded the mess and caused even
more cleanup work. These clients then had to
pay me to clean up their books in order for their
tax returns to be prepared.
Another caveat for business owners if you send a mess to your CPA to
prepare your income tax returns at the end of the year, your CPA will need
to clean up that mess first which can be very expensive!
That is what happened to POA. There was no way POAs owners could get
accurate financial information, not for their own understanding of how
their business was doing, nor for any potential interested buyers of their
business or to get their income tax returns done correctly. Their frustration
level was extremely high when Marty brought me in to clean up the books.
Here is what every business owner needs to know when hiring a
bookkeeper:
1. Most messes that have been created by previous incompetent
bookkeepers CAN NOT be cleaned up. Every successive
incompetent bookkeeper just adds their own mess on top of the
prior bookkeepers, compounding the chaos in the books. A
bookkeeper that understands this will set up a new company file
from a date certain and bring over balances, etc., in order to have

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a clean file in which to work. It is only a waste of time and money
to try and clean up the old mess.
2. A business owner should always question the bookkeeper and
check references during the interview process. Here are some
very important questions to ask:
a. Do you reconcile the books to the bank statements every
month? What happens if you find discrepancies?
b. Do you provide monthly financial statements to the business
owner? Are they accurate?
c. Are you familiar with the reporting capabilities of QuickBooks
(or the accounting software being used)?
The same questions should be asked of the bookkeepers
references:
a. Does your bookkeeper reconcile the books to the bank
statements every month and what do they do if they find discrepancies?
b. Are you receiving monthly financial statements and do they
look accurate?
c. Are you receiving other important reports from your
bookkeeper and do they look accurate to you?
Here are some traits to look for when hiring a business bookkeeper that will
save a lot of money and keep costs under control.
1. Detail oriented;
2. Very organized;
3. Speed;

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4. Must understand accounting concepts sees and
understands the big picture of the business - not just a data entry
person;
5. Must understand how to use the full functionality of the
accounting software package including entering A/P, A/R, entering
deposits correctly, Payroll, etc.;
6. Needs to know how to get the pertinent reports for the
business and understand them in order to help the business owner
understand them.
Are you going to be a responsible business owner so you understand the
financial management of your business? If you say, "I don't want to know,"
then you've got a hobby and you will always have
chaos in your books. The combination of a good CFO
and a competent bookkeeper will provide you with a
greater ROI and significantly reduce the stress of
creating a successful business that will last for years
and/or will increase the value to a potential buyer.
Accurate financial statements, which need to be reviewed monthly and be
completely accurate, will help business owners get a handle on their
business, tell them where they need to cut costs, show them how they can
grow their business and educates them as to what their business is doing.
Financial statements tell the Story of the Business -where it is at and where
it needs to go, so the owner can understand their business and use the
information to be successful. Bank lenders and investors expect you to
understand what's going on in your business.
Here is what every business owner needs to know when hiring a CFO:
1. Are they just a number cruncher who appears socially awkward, or are
they clearly a people person with proven leadership skills and someone
that people want to follow?

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2. How technical and systems oriented are they? If they don't know what
IM is, or aren't comfortable in information technology, find someone else.
3. Are they strategic and visionary? Many CFOs stuck in the number
cruncher mentality find it difficult to visualize the big picture, and look
strategically at the business. This makes it hard for them to be a trusted
advisor to the owner/CEO if they can't see the forest through the trees.
4. Do they have broad industry experience? If they've spend their entire
career in a few industries, they can have a myopic view of the world. Find
one that's worked in at least half-dozen industries, that way they bring
experience that may not have been applied to your industry giving your
company a competitive advantage.
Take a look at a previous cobizmag.com article for more details:
http://www.cobizmag.com/articles/six-key-questions-to-ask-before-hiring-
a-cfo-part-1/
When you don't have a good bookkeeper and a good CFO, there is an
exponential increase in costs. You can see that for a smaller company, it
costs less to take care of things. That's because there aren't as many
transactions and the complexity is typically less.
RELATIVE COSTS:
Company
Revenue
Books
Cleanup
Fix Accounting
Process
Fix CPA's
Work (Taxes)
Company Value
Before Accting
Fixes
Company Value
After Accting Fixes
$250K - $1M $ $ $ $ $$$
$1M - $5M $$$ $$$$ $$ $ $$$$
$5M - $20M $$$$$ $$$$$$ $$$$$$ $$ $$$$$$
$20M+ $$$$$$$$ $$$$$$$$$ $$$$$$$$ $$$ $$$$$$$$

From the chart above, you can see that as your company grows, it becomes
more costly and time consuming to get the books right. And when you do,

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your accounting people can provide you with the true story of the business.
Then you will look and act like a real business, which makes your company
worth more when you go to sell it or leave it to your heirs.
Conclusion:
After hiring a competent bookkeeper, we were successful dialing in to near
perfection the whole accounting process. As their part-time CFO, I could do
my job much better and provide extreme value to them. We were able to
help the POA business owners see and understand the story of the
business. They didn't have to spend hours and hours a week with their
noses in the books, keeping them from spending time growing their
business. Together, Susan and I optimized it all - from forecasting and
ongoing cash flow projection and budgeting to managing debt, accounts
payable/receivable. Helping POA keep their spending on track with the
budget also allowed them to hire new people as needed. They didn't have
to guess whether they could afford to or not.
The results of POA finally having a good bookkeeper and CFO speak for
themselves:
Compound Annual Growth Rate = 50.5%
EBITDA Multiple upon selling POA in Feb. 2011 = 19.1%
Return on their investment in great bookkeeping and CFO help = 583%
The real world is not the businesses that make headlines like Facebook and
Twitter, or the other social web companies that get valued at billions for
doing and producing almost nothing. The real businesses of today are made
up by you and us - the other 27 million small biz
owners. As business owners, we are the ones that
create 80% of net gain in employment. We are the
ones that own 99% of all businesses in the US. We
don't make the headlines. But, we want to grow to

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where a company or investors will buy our businesses for a nice amount
some day. Not for billions, but millions would suffice. That way we can build
our next big thing or spend more time and money with our friends and
families. That's our version of success, and it starts with a great CFO and a
competent bookkeeper.


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Selected Testimonials:

The work we did together is priceless for me as Marty had me think twice on important matters, he also asked
the right and tougher questions to make sure I knew what I wanted. As an extra to all the work we did
together, I learned a lot from his past experiences simply by having hours long discussion on different topics
such as financing options, the way to structure the company, how to approach the market, and much, much
more.
I definitely plan on working with Marty from now on with this venture as well as the next ones I will eventually
create. I strongly recommend him to any entrepreneur as he adds a lot of value to a company. ~ Martin
Bittner, CEO of Elements. Quebec, Canada

"Thank you so much! We were running our company by the seat of the pants. Thanks to CxO To Go, we got a
$600K revolving credit facility and are able to grow at higher velocity so we can sell in a couple years for the
maximum possible." ~ Mark Boyle , CEO Primo Products, Denver

I have been a CPA for 23 years and as such have a lot of experience with QuickBooks, bookkeepers and
business accounting/finance. Susan Commins' speed and accuracy make her a BARGAIN! Yes, there all kinds of
supposed QuickBooks experts, but I have yet to encounter any that are as quick, comprehensive and
accurate as Susan. Her knowledge of the QuickBooks software, her understanding of business accounting
processes, her attention to detail and her energy level, allow her to quickly and efficiently produce the
financial information you need to run a successful business. I have referred my clients to All About Accounting
LLC and would not hesitate to do so in the future. I highly recommend AAA to any business using QuickBooks.
~ R. Neal Kohtz C.P.A. - M.T.Kohtz & CO. CPA, LLC

Susan Commins is an excellent bookkeeper for any business. She is extremely punctual and accomplishes an
extraordinary amount of work in just a few hours. She has a sound understanding of accounting, and is
responsive to the needs of any owner. She is capable of accomplishing her work without direct supervision,
and is equally effective in a variety of work settings. Her efforts resulted in reduced expenses and increased
revenues improving my company's bottom line by $100,000. I highly recommend Susan Commins of All About
Accounting LLC. ~ Jim Smith, President, Redstone Venture Partners, Inc. dba CareFirst EMS

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Authors:
Marty Koenig is Founder and CEO of CxO To Go LLC. He
loves what he does for a living, because he gets to work
with so many great, world-changing people and help
them succeed in their business. His team is dedicated to
building financial, operational, strategic, technological
excellence for small/mid size business owners and
entrepreneurs. Marty has over 29 years of diversified
experience in private and public companies, from
startups and mid-size firms to multinational Fortune 30
companies including AT&T, General Electric, NCR Corporation and
StorageTek. Marty performs in roles such as CFO, COO, COO and CIO for his
private clients. Marty is an author, educator, and speaker. See his fiverr.com
gigs at www.fiverr.com/users/bizgrowthcoach. See his and his partner's
recent books at Buchanan Publishing or visit www.cxotogo.com and
www.crowdfundenergy.com. Read his professional blog at martykoenig.com.
His private email is mkoenig@cxotogo.com.
Call 888.745.8516
Susan Commins, owner of All About Accounting LLC, is
a recognized QuickBooks expert and a business
management consultant that specializes in the
financial management of businesses. Susan's business
management experience includes 20+ years: first as a
law firm administrator in Los Angeles, California, then
as the owner of a law firm/business management
consulting firm in Los Angeles and Sedona, Arizona, before relocating to
Denver in 2005. Susan specializes in improving cash flow, cash management,
and profitability for all types of businesses using QuickBooks as the financial
management tool. She believes that Smart Business Management through
Smart Accounting is what makes a business successful and profitable,
especially in these difficult economic times. She creates all the reports that
make it easy for business owners to make educated financial decisions to
enhance profitability. Susan has been using QuickBooks since its genesis as
DOS.1.0. Her website is AllAboutAccounting.net. Call 303.471.1007