Episode Transcript
Glenn Harper:
Hello everyone. Welcome to another edition of the Empowering Entrepreneurs Podcast. I’m Glenn Harper.
Julie Smith:
Julie Smith. Go on, Julie. Well, you know, we have such an interesting topic today.
Glenn Harper:
Oh, that we do. Or something that we don’t find interesting, or most
Julie Smith:
people don’t find interesting, but— You non-accountants. We’re here to deep
Julie Smith:
dive into it. Well, I can’t wait to start. So I think,
Julie Smith:
you know, what we’ve been seeing, a trend we’ve been seeing is people are
Julie Smith:
not calling for taxes or things like that. People are calling and
Julie Smith:
saying, What about bookkeeping? And the
Julie Smith:
entrepreneurs, the companies that we’re calling, it’s just an interesting
Julie Smith:
dynamic because something to us that’s so second nature is
Julie Smith:
like, why are people needing this?
Glenn Harper:
Well, it all started back in the late 1400s. Uh,
Glenn Harper:
Luca Pacioli’s hanging out with his buddy Leonardo da Vinci, and they’re
Glenn Harper:
trying to figure out the math and all the cool things that they’re
Glenn Harper:
doing. And they’re like, you know, we gotta come up with a system. To account
Glenn Harper:
for money going in and money going out so we know if we’re making any
Glenn Harper:
money. So Luca, the godfather of accounting, basically invented
Glenn Harper:
the double-entry bookkeeping system to account for money in
Glenn Harper:
and money out. And so that is the start of
Glenn Harper:
how do we measure how our company’s doing.
Glenn Harper:
And so effectively, the definitions are very important when you run a
Glenn Harper:
business of who does what and how do we do it. And one of the
Glenn Harper:
first things is, is every company is probably going to have money coming
Glenn Harper:
in, we hope, and probably going to have money going out more than likely.
Glenn Harper:
And there’s 2 pieces to that. One side is you’re trying to
Glenn Harper:
figure out, well, as a business, where’s the money coming from and where’s
Glenn Harper:
it going? And so the bookkeeping is a function of
Glenn Harper:
taking money in and money out and putting it in categories to
Glenn Harper:
summarize those transactions. So if you have
Glenn Harper:
Staples expense and you’re bringing in some Amazon
Glenn Harper:
things that are going for the office and you’re bringing some coffee for the office,
Glenn Harper:
you’d probably put that all in office supplies. So those bookkeeping entries
Glenn Harper:
for office supplies goes into office supply category.
Glenn Harper:
That’s bookkeeping, is putting it to there. Comes out of your cash account and goes
Glenn Harper:
into that expense account. I hope into that expense account is some cream because for
Julie Smith:
whatever reason, we just can’t seem to get cream in our coffee for Starbucks.
Glenn Harper:
Swinging and missing on the coffee lately, but they’ll get it together. They’ll get it
Glenn Harper:
together. So you might have to expense that, right? Yes. Well, that’s another one. So
Glenn Harper:
where do you put that? So this is an example of money goes out of
Glenn Harper:
your checkbook and goes somewhere, and bookkeeping is how, where do you put it? So
Glenn Harper:
that’s the first step to do that. And then it’s also when you are billing
Glenn Harper:
a customer and want to collect that money, well, what customer did it come from?
Glenn Harper:
What kind of services did you do? Was it consulting? Was it selling a product?
Glenn Harper:
Was it a service? Could be anything, right? And you can break
Glenn Harper:
that down ad nauseam however you want. So somebody in your
Glenn Harper:
organization, usually if you’re a small entrepreneur, it’s going to be yourself. It
Glenn Harper:
might be a spouse, it might be a family friend, it might be just a
Glenn Harper:
local bookkeeper or somebody that’s just like, hey, just put these things somewhere and
Glenn Harper:
help us account for this. That’s step 1. So you put it
Glenn Harper:
all in there, but bookkeeping by definition is like, hey, I
Glenn Harper:
think it goes here. ‘Cause most people aren’t trained of how to do that. So
Glenn Harper:
do their best guesstimate of where to put that. The next thing you have to
Glenn Harper:
do, that’s a bookkeeper’s job is to kind of do that. And then you have
Glenn Harper:
this thing we call reconciling, which it says, hey, I
Glenn Harper:
wrote 25 checks out of my checking account and I made
Glenn Harper:
5 deposits. Well, the bank statement says, here’s what happened.
Glenn Harper:
And our QuickBooks is usually a good program that you can use. It’s not the
Glenn Harper:
best, but it’s the best one out there for people that want to do what
Glenn Harper:
we want to do. QuickBooks Online works really well for this. There’s multiple programs,
Glenn Harper:
but that’s probably the gorilla in the room that does this. And so
Glenn Harper:
you say, well, here’s the data I put in QuickBooks. Here’s what the bank said
Glenn Harper:
I did. The reconciliation is to make sure that what the bank
Glenn Harper:
says that the bank did matches to what we said
Glenn Harper:
we did in QuickBooks. And anything that doesn’t match up, we
Glenn Harper:
have to go, oh, that’s why. The check didn’t clear the bank yet. Or, oh,
Glenn Harper:
the bank charged me a service charge I didn’t know about. And you put those
Glenn Harper:
things together and you reconcile to say that’s a good balance in that
Glenn Harper:
account. So that brings me to another question is a lot of time entrepreneurs
Julie Smith:
start out, or, you know, even we’ve seen established companies, they have
Julie Smith:
a part-time bookkeeper or what you said is like a family friend doing it.
Julie Smith:
How do you know at some point, like, what does that look like from a
Julie Smith:
bookkeeper kind of maybe doing that role to maybe
Julie Smith:
transition, transitioning to work with like a firm like ours that
Julie Smith:
really specializes in what, So there’s a couple things to
Julie Smith:
that. So the software has evolved over the years, um,
Glenn Harper:
to really help. Before, we had to do it by hand.
Glenn Harper:
Double-entry bookkeeping was terrible. For all these that you can remember, it was no— it
Glenn Harper:
was horrible. You must have been back with Luca, huh? Way back. Well, we had
Glenn Harper:
cool clothes back then, you know, no air conditioning was cool. But now the,
Glenn Harper:
the accounting programs kind of do that for you. So it’s
Glenn Harper:
about— the hard part with bookkeeping is setting up the system. Setting up your
Glenn Harper:
QuickBooks to know what accounts do I want to have
Glenn Harper:
for my expenses? What accounts do I want to have to describe my
Glenn Harper:
income? So setting it up is the hardest part.
Glenn Harper:
Once you can set it up and know what to do, which is really hard
Glenn Harper:
for somebody to do who doesn’t do that all day long because they just don’t
Glenn Harper:
know. Should I have an office expense? Should I have telephone expense? Should I have
Glenn Harper:
fax expense? Like there’s all there’s infinity. Options.
Glenn Harper:
What does a nice high and tight, like little tiny financial statement that
Glenn Harper:
gives you what you want to know without making it 500 pages long? Because
Glenn Harper:
then it’s just too big. So setting up is important. So a lot of people
Glenn Harper:
will do this when they first start out. They’ll do their best effort at it,
Glenn Harper:
and they do. It’s okay. They’re doing their best effort, but it’s probably not
Glenn Harper:
going to be the iteration that they ultimately want. But it’s a great starting point.
Glenn Harper:
So they’ll set it up. The bookkeeper will set up, they’ll do what they do,
Glenn Harper:
they’ll reconcile it. But at the end of the— what ends up happening is most
Glenn Harper:
people don’t know which account it goes in, or
Glenn Harper:
they might be stuck on how to reconcile. Like, where’s this transaction?
Glenn Harper:
I don’t know what to do with it. I can’t figure it out. So sometimes
Glenn Harper:
the bookkeepers can handle that and do a great job on it. And sometimes they
Glenn Harper:
just like, hey, that’s beyond my pay grade. And that’s when you’d bring in the
Glenn Harper:
accountant. And the accountant says, hey, hold my beer, I got this. You
Glenn Harper:
put this here, you do that, you do this, you do this, this goes here
Glenn Harper:
and this happens there. Authority in the room and it just gets done. And the
Glenn Harper:
bookkeeper goes, wow, that’s great. So we just kind of take it that final mile
Glenn Harper:
of service and get it squared away. Well, I think, you know, just thinking about
Julie Smith:
things, of course I want to know how to write off my clothes and shoes
Julie Smith:
and all those things. And those don’t usually pass the sniff test over here. But
Julie Smith:
I think also what happens too is sometimes you have, um, someone
Julie Smith:
particularly doing that And you come to someplace like Harper and
Julie Smith:
you’re able, the person’s able to kind of see, okay, this is what all the
Julie Smith:
accounting looks like, but they can also kind of
Julie Smith:
forecast and be able to do some of that advisory portion of it with using
Julie Smith:
that knowledge to be able to say, hey, this actually needs to go here. This
Julie Smith:
has to go here. I think for the best outcome. Right?
Glenn Harper:
Right. So what happens is the people are looking
Glenn Harper:
for results. But they don’t know what steps you
Glenn Harper:
have to put in to get those results. And the results ultimately are,
Glenn Harper:
if you don’t have, again, in the bookkeeping accounting world,
Glenn Harper:
there’s really 2 financial statements that everybody wants to see. And this is your income
Glenn Harper:
statement. Some people call it a profit and loss. And it’s basically a
Glenn Harper:
statement that says, in a period of time, here’s how much money I
Glenn Harper:
brought in, here are all my expenses, and here’s my profit. How much money
Glenn Harper:
did I make? Okay? That’s one statement. And another statement that’s very
Glenn Harper:
helpful is the balance sheet. And the balance sheet is at a particular date,
Glenn Harper:
a specific date. As of this date, we have
Glenn Harper:
what we own, which are assets. Here’s what we owe,
Glenn Harper:
which are the liabilities, the people that we owe money to. And the difference
Glenn Harper:
between that is your equity, like how much you’re worth. So if you have $100
Glenn Harper:
in cash and you owe $75 for a loan,
Glenn Harper:
you’re worth $25. If you have $100 in cash and you have
Glenn Harper:
a $200 loan, you’re negative $100. Okay?
Glenn Harper:
So the goal of the bookkeeping is to
Glenn Harper:
ultimately create an income statement and a balance
Glenn Harper:
sheet so you can then measure how your
Glenn Harper:
company’s doing. People want to measure how they’re doing
Glenn Harper:
before they have good financial statements. And that never works because you’re using bad
Glenn Harper:
data to make Make decisions. So if you don’t have a good
Glenn Harper:
bookkeeper that’s doing your books every single month,
Glenn Harper:
closing them out, which means reconcile, make sure everything’s in the right category,
Glenn Harper:
and saying, hey, this is what really happened. This is the Bible. This
Glenn Harper:
is Luca’s accounting right here. If you can get that,
Glenn Harper:
then you can hand it to the next step. And usually that’s going to be
Glenn Harper:
an accountant, or if you have a little bit bigger company, you might have a
Glenn Harper:
controller. Somebody that can sometimes interpret the
Glenn Harper:
statements and go, yeah, this looks good, and they can
Glenn Harper:
analyze them a little bit better. And if you don’t have that control, then you
Glenn Harper:
would go to probably your external CPA who’s probably versed in
Glenn Harper:
this, if this is what they do, and they will help advise you, hey, do
Glenn Harper:
your financial statements look like good? And when I say
Glenn Harper:
good, meaning does everything look like it’s in the right place? Do you see any
Glenn Harper:
trends? Hey, why is your rent expense tripled? Oh,
Glenn Harper:
you put something in there that shouldn’t be in there. Oh, you had CAM charges
Glenn Harper:
this month that you didn’t have before. Like, there’s always a reason why the numbers
Glenn Harper:
change. And especially a small business, we really can’t control our
Glenn Harper:
revenue. It is what it is. If we’re successful, we bring in money. If we’re
Glenn Harper:
not, we don’t. But your expenses should pretty be spot on every month.
Glenn Harper:
Most businesses, it’s pretty level. So when you look at
Glenn Harper:
Say rent expense for January, February, March, April, May, June,
Glenn Harper:
it should be the same amount or very similar. And if it’s off, it’s easy
Glenn Harper:
to see what that is. But if you don’t put the things in there, reconcile
Glenn Harper:
it, and you’re trying to analyze it, you’re going to make assumptions on
Glenn Harper:
bad numbers and you’re going to make decisions and it’s going to really mess up
Glenn Harper:
your company because you’re making bad decisions. So you got to get the bookkeeping
Glenn Harper:
set up, this accounting system set up. You’ve got to have a bookkeeper
Glenn Harper:
that’s going to enter that data or not. And then the accountant kind of goes
Glenn Harper:
and reviews it from that lens because
Glenn Harper:
most people, most entrepreneurs, again, a smaller size
Glenn Harper:
company, you’re not going to have 500 accountants on
Glenn Harper:
staff, CPAs, and, you know, 30 attorneys on staff to figure out what you’re
Glenn Harper:
doing. You’re going to probably do this stuff yourself. So you’re going to have one
Glenn Harper:
financial statement that you’re not only going to look at how your company’s performing, but
Glenn Harper:
we take that statement, we also incorporate it into your tax planning.
Glenn Harper:
So when we say, oh, this is how much money you made, what does
Glenn Harper:
that look like on your tax return? So we can plan out how much tax
Glenn Harper:
you might owe. And bigger companies, they do all kinds of
Glenn Harper:
crazy stuff to make these adjustments. But most small businesses, we don’t have to do
Glenn Harper:
that. So we try to make that financial statement reflect the
Glenn Harper:
company, but also what it will look like on a taxable income standpoint. Okay.
Julie Smith:
So what do you see? And I think you kind of alluded to it, but
Julie Smith:
what do you see? What are, what’s one or two big mistakes that you
Julie Smith:
see come through the door of people who maybe You know,
Julie Smith:
haven’t quite made the jump to hiring a CPA or getting
Julie Smith:
outside reflection on, on that bookkeeping. It’s the same thing
Glenn Harper:
when I practice my dentistry at home on myself, right? I can
Glenn Harper:
probably get close, but at the end of the day, I’m probably not going to
Glenn Harper:
do it as well as the dentist is going to do. So when you have
Glenn Harper:
somebody who wants to do their books, but they just didn’t, they don’t
Glenn Harper:
know how to set it up right, and they don’t know really how to do
Glenn Harper:
it, They’re just not going to get the right result. So, when we see
Glenn Harper:
clients come in the door, it’s more like, oh my God, you guys did a
Glenn Harper:
great effort, but you just got to tweak this and this and this. And then
Glenn Harper:
they’re like, oh my gosh, nobody ever told me. And they’re like, yeah, you set
Glenn Harper:
it up like this. Now you do it like this. Great. You can have your
Glenn Harper:
internal bookkeeper do those things. We just come in over the top and do the
Glenn Harper:
accounting side. It makes it easy. But most people don’t set it up right and
Glenn Harper:
they don’t understand what it is that the statement, the financial statements are
Glenn Harper:
supposed to tell you for your company. So let’s say a client comes
Julie Smith:
into Harper and you sit down with them and, you know, you decide you’re going
Julie Smith:
to do, you know, A to Z for them. What does kind of that transition
Julie Smith:
of that bookkeeping look like for a potential client moving to a client?
Glenn Harper:
So it’s funny, the size of the company dictates what’s going to happen.
Glenn Harper:
And again, most of the time the owner is doing their own
Glenn Harper:
books. Because that’s just the cheap way. Is that a red flag when someone comes
Julie Smith:
in? No, it’s like it would be a red flag for me. As an owner,
Glenn Harper:
you don’t have the resources to pay somebody, even though you don’t realize that then
Glenn Harper:
what you would pay would save you gajillions in time. But you don’t think
Glenn Harper:
like that because you’re trying to be on a tight budget. You’re trying to do
Glenn Harper:
everything yourself. This is one of the things that an owner will do. And so
Glenn Harper:
they’re probably trying to do it themselves. Then eventually they’re like, I can’t do this.
Glenn Harper:
I’m going to hire it out. Well, if they have A bad accounting
Glenn Harper:
process, it’s not reconciled properly, they
Glenn Harper:
bring in a bookkeeper to then take over and nobody ever addresses that elephant
Glenn Harper:
in the room. Well, they’re just doing bad stuff going forward. So then here we
Glenn Harper:
are, the problem continues. So if you
Glenn Harper:
get lucky and you’re like, man, I don’t want to do this anymore, do I
Glenn Harper:
need a bookkeeper or do I need an accountant? Well, you probably need the
Glenn Harper:
accountant first To kind of see what’s going on.
Glenn Harper:
Sometimes as an accountant, we can do those bookkeeping functions
Glenn Harper:
mixed with the accounting functions together. So you don’t really need a
Glenn Harper:
bookkeeper anymore. But sometimes you have so many transactions, you have
Glenn Harper:
a lot of day-to-day things that goes on, you should have a bookkeeper. There’s no
Glenn Harper:
reason to pay an external CPA to do that, an external accountant. So
Glenn Harper:
we will work with you either way. We can take over doing both of those
Glenn Harper:
things or we can work with your bookkeeper inside and teach them what they need
Glenn Harper:
to do. Because if they don’t know, it’s, again,
Glenn Harper:
they’re putting everything in, the owner’s looking at it, but it’s not giving them, they
Glenn Harper:
have no, it’s not been reconciled and tied out to what they’re looking at is
Glenn Harper:
just bogus. It doesn’t tell them anything. So if someone’s Googling
Julie Smith:
bookkeeping, bookkeeping services, accounting,
Julie Smith:
what’s one thing you would want everyone to know?
Glenn Harper:
If you think your books are messed up, they are. What
Julie Smith:
if I think they’re perfect? They’re still messed up. As
Glenn Harper:
a general rule, until you’ve handed off, just like
Glenn Harper:
whatever you do for a living, you’re a doctor, a dentist, a financial advisor,
Glenn Harper:
everybody’s going to do their thing the best that they know how to do, but
Glenn Harper:
it probably isn’t going to be as good as if you had a professional look
Glenn Harper:
at it. Even if it’s just a one time to take a look at what
Glenn Harper:
you have and say, oh my gosh, You’re right, it is perfect. Very rare, but
Glenn Harper:
it does sometimes happen. Or it’d be like, you know, you’re close, or, oh
Glenn Harper:
my gosh, we have to scrap this whole thing and build a new one ’cause
Glenn Harper:
this is so messed up. And we’ve had clients A to Z on
Glenn Harper:
that. So it just depends. So it’s worth your while if you think
Glenn Harper:
things are messed up, you’re just not sure, takes a while to get your books
Glenn Harper:
closed out, you look at the statements, it just doesn’t make sense, your bookkeeper can’t
Glenn Harper:
really tell you anything, Probably you need somebody to come in and just do a
Glenn Harper:
deep dive and kind of fix it. And then
Glenn Harper:
you either decide you want them to keep training your bookkeeper, which is perfectly fine,
Glenn Harper:
we do that all the time, or just like, you know what, let’s just move
Glenn Harper:
to the professional to kind of handle that. It ends up there’s a
Glenn Harper:
cost benefit for everything for a business owner, right? Sometimes it’s more cost
Glenn Harper:
effective to have a bookkeeper do all these transactions and the accountant just review it.
Glenn Harper:
Sometimes it’s more cost-effective the accountant just do it. Just depends on your
Glenn Harper:
circumstances. And sometimes if you’re big enough, you’ll be lucky enough to have
Glenn Harper:
accounts payable person, accounts receivable person, a controller,
Glenn Harper:
and maybe even a CFO. And if you don’t have all those, you’re not big
Glenn Harper:
enough to have that. The CPA at Harper, that’s kind of our role is to
Glenn Harper:
be that controller, CFO,
Glenn Harper:
external CPA, be on your board of directors to help advise you on those things.
Glenn Harper:
Because now we have good information because we’ve trained your people how to do that
Glenn Harper:
to the extent that they can. So obviously I hear things
Julie Smith:
differently, but something I think that I, I heard though is
Julie Smith:
bookkeeping is the foundation and you have to have a good
Julie Smith:
foundation to have a good, to be able to advise someone, to
Julie Smith:
be able to run a good business, to be able to have a really good,
Julie Smith:
I don’t wanna say outcome on your tax return, ’cause that business tax return’s probably
Julie Smith:
gonna affect your personal tax return. And so it’s just this, trickle-down effect that if
Julie Smith:
you don’t get this done, probably the rest of your business is in a
Julie Smith:
little bit of a disarray. And so it’s really, really important to
Julie Smith:
get that bookkeeping function under control. I, I can’t believe you actually understood what I
Glenn Harper:
said. This is a miracle. Everybody write this down. But yes, the
Glenn Harper:
bookkeeping function, and included in the bookkeeping function is the setup of the
Glenn Harper:
accounting process in the QuickBooks, say QuickBooks Online, chart
Glenn Harper:
of accounts, everything. If you set it up right, Do your bookkeeping. Most
Glenn Harper:
people don’t have that. If you can just get that, at least we can get
Glenn Harper:
to the next step. But that exactly, I can’t believe you understood it.
Julie Smith:
You know, every now and then I can get it. And if you understand it,
Glenn Harper:
everybody else will. Hey, I don’t know about that. Any other parting words again in
Julie Smith:
regards to that bookkeeping or what entrepreneurs need
Julie Smith:
to know in regards to that and to move forward with that? I would
Glenn Harper:
say that if you are gonna run a business and you’re gonna say, I have
Glenn Harper:
a budget line item, to pay my rent. I have a budget line item
Glenn Harper:
to pay my, I got to pay some office
Glenn Harper:
expense. I got a budget line item to pay my telephone. I got to pay
Glenn Harper:
my Wi-Fi. Put a budget line item in there to do your
Glenn Harper:
bookkeeping, accounting, whatever, at the bare minimum.
Glenn Harper:
Because if you don’t have that, you can’t tell what’s happening. So
Glenn Harper:
make it a priority. It is
Glenn Harper:
so far so highly unlikely In fact, I’ve never seen
Glenn Harper:
it happen where if you don’t, if you don’t do your books properly,
Glenn Harper:
it is impossible to tell how your business is doing. All right, you may be
Glenn Harper:
making gajillions of money and you’re just spending like a drunken sailor, and that’s fine,
Glenn Harper:
but you have no idea how you’re actually performing, all your metrics. You don’t know
Glenn Harper:
if you’re making money, it’s great. If you start losing money, now you’re up against
Glenn Harper:
the wall. So bookkeeping, accounting for your money, and that is the
Glenn Harper:
number one priority. After that, we can then building blocks on
Glenn Harper:
top of that to interpret that data, do some tax planning, do some advisory
Glenn Harper:
work, and help you achieve your goals. But if you don’t have good numbers, it’s
Glenn Harper:
really hard to do any of those things. Bookkeeping sounds like the health of your
Julie Smith:
firm. It’s the start. It’s the first step. So if you haven’t, if you don’t,
Glenn Harper:
if you feel like, hey, my books are just out of whack, I’m looking at
Glenn Harper:
my income statement and I can’t, that can’t be right. My bank account doesn’t
Glenn Harper:
look right. How come I can’t get anything done here? And it’s 3
Glenn Harper:
months after the month end and I still don’t have my financials. You
Glenn Harper:
probably need to look at that. Some good information that maybe I understood.
Glenn Harper:
I don’t know. This is crazy. So, hopefully that’s helpful.
Glenn Harper:
And so, again, what’s great is you might already have that. Just bring in a
Glenn Harper:
professional to take a look at it and help you with it and make sure
Glenn Harper:
it’s okay and put their blessing on it, if you will. And Luca would be
Glenn Harper:
very proud of you if you can get this to work right. If you’re like,
Glenn Harper:
don’t have any of it, Again, bring in the professional to help you set it
Glenn Harper:
up. They’ll help you evaluate if you can do it in-house, if you need to
Glenn Harper:
have somebody just coach you with it, doesn’t matter. As an accountant, we don’t care
Glenn Harper:
who does it, we just need it done, right? Somebody’s got to do it. So
Glenn Harper:
if you can bring in that professional help, that will be helpful on that. And
Glenn Harper:
once that gets done, then you can see how your business is going, but you
Glenn Harper:
got to do step 1. So hopefully that’s helpful.
Glenn Harper:
Another positive rendition of the Empowering Entrepreneurs Podcast. I’m Glenn Harper.
Julie Smith:
Julie Smith.
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