180: Financial Management and Oversight in Your Design Firm
Michele 00:00
Hello, my name is Michele, and you're listening to Profit is a Choice. Joining me on the podcast today is Peter Lang, owner of the designer CPA, Peter and I both have a heart for supporting this industry with good financial practices and understanding. And today we're going to talk about what we see as kind of the lifecycle, if you will, of bookkeeping and bookkeeping needs and the overwhelming hole and desire in the industry to have better bookkeeping practices. So I hope you enjoy the podcast and are able to see where you fit in the bookkeeping trajectory.
Michele 00:46
Every day, empowered entrepreneurs are taking ownership of their company financial health, and enjoying the rewards of reduced stress and more creativity. With my background, as a financial software developer, owner of multiple businesses in the interior design, industry, educator and speaker, I coach women in the interior design industry, to increase their profits, regain ownership of their bottom line, and to have fun again in their business. Welcome to Profit is a Choice.
Michele 01:20
Hey, Pete, welcome back to the podcast.
Peter Lang 01:22
Hi, Michele, how you doing?
Michele 01:24
I'm good, I'm good. I think we got like a really interesting topic to, to dig into today. We both work in the interior design space, and help people with their financials in different ways. And there's like a position between what I do and what you do that is so important. It's called bookkeeping. And we're gonna talk about how bookkeeping fits in to people's business I, I mentioned to you before we started, I wrote it down on my paper, it's really looking at the lifecycle of financial management and oversight in your firm. And so I, I know, you and I have joint clients we've shared before, and we, we work through a lot of things together. And this has come up on my radar as well as on yours. And so when, when you made a comment in one of our email exchanges, I was like, Oh, my gosh, we need you on the podcast and just talk about that. And you're like, yes. And I loved it, because you must have wanted to see like book the time immediately.
Peter Lang 02:27
Yeah, I mean, with the industry being the way it is being so busy this year, that it's, it's a problem that's even come more into light and for accountants, and financial coaches, and all sorts of people who are actually paying attention to our clients, we can see it's a glaring thing. So understanding and having an understanding of how this process works as your business grows. Hopefully, by the end of the episode, we'll, we'll have everyone feeling a lot better about where they need to be to, to get their numbers straight,
Michele 03:02
you make a good point that the busyness of 2020, the towards the end of the year and 2021. It has put it puts stress on businesses, right, because we're looking to what I would call grow and scale. And so when all the work comes, whether it's going to be the accounting, the bookkeeping, the financials, you're going to start seeing fracture points in a business, when the weight comes in, you're going to see the weak links, right? Just like in a building, if you built up, you would start to see cracks in the foundation if it wasn't set and ready to handle that amount of growth. And that's what I think we're also seeing in some of these businesses, that they're reaching pivot points and decision points with how they're going to handle financial oversight and management in their firm. And maybe they weren't prepared for that and didn't recognize it as such. And then now it just feels like we have these bottlenecks. What I keep hearing is we have bottlenecks everywhere, or things aren't being reconciled and we don't have the numbers and I don't know my not just I don't know my numbers. I can't even get my numbers to look at right. Let's start if you don't mind, I'd love for you to start. Pete And we've done this on other podcasts but I think it's worthy of repeating. Explain the difference between bookkeeping and what an accountant would do on from the from an accounting standpoint.
Peter Lang 04:29
Yeah. So okay, so a bookkeeper. A traditional bookkeeper will start by maybe just reconciling your, let's say, your bank statements and your credit card statements. So what that might look like is let's say for example, you use QuickBooks Online and you're you've got two or three different bank accounts, maybe a couple of different credit cards. Your bookkeeper is going to ask you for copies of those statements? And you might wonder, like, what exactly are they doing? Well, in QuickBooks Online, there's a reconciliation function. And all that is, is them typing in the ending balance, and making sure that all of the transactions that are on those statements are in the accounting software you are using but also just making sure that those are coded in such a way that they're in the right place. As far as is this an expense? Is this a capitalized improvement? Was this a transfer from a personal account, that kind of thing. And so that's the simplicity of how to start looking at what a bookkeeper does.
Michele 05:43
Exactly, I think, if we think about it, well, for those of us my age, I guess maybe a few years younger than me might remember it. But we used to have like the checkbook register for our own personal home. And we would write down the checks. And then we would get a bank statement. And we would sit down. And we would reconcile to make sure that our checkbook with our carbon copies or however, we kept up with the you know, the little register that went with it, we would make sure that the bank says what's in the bank is the same amount that we believe is in the bank. So on a personal side, that was, if you will, we were keeping our books up to be in alignment with what the bank said we had. And that is in a very, very tiny way is what is also happening here, but in a much larger way. I remember this. So when I was a senior in high school, I put all my money in the bank, I'd opened a bank account, I had been working and waitressing and putting money in because we were going to the beach for high school graduation. And the day before graduation, I go to the bank to pull out my money. And they tell me there's no money in my account. Okay, well, if anybody knows me, I'm like a math crazy person. So I can promise you I did not overdraw my account. And I'm standing in the bank saying to them, I did not spend that money. And they're like, Yes, you did. Maybe you don't know how to do the math. And I'm like, you are talking to the wrong chick. Like, that's not me. Thankfully, my now husband's mother worked at the bank. And I went and sat in her office tears pouring down my face, all my hard earned money, we're probably talking $500. All my hard earned money is gone. I'm supposed to be going to the beach for graduation, where I have no cash. Long story short, the bank, I remember when they give you those starter checks. The banks had given me a set of starter checks, while some other guy had opened a bank account. And they accidentally had a duplicate set of starter checks with the exact same bank number on it. So all of my checks were coming out of the account, and all of his checks were coming out of my account, oh my gosh, thankfully, they were able to go back and catch it, they put a hold and they put the money back. But my point and that is even with my own personal $500. If I had not been reconciling and watching and keeping up with it is easy for a mistake to come in, whether it's an overcharge on a credit card missing something, you know, you and I both have worked with clients where something wasn't accounted for and their overdraft or, you know, didn't have the money to pay for something because they forgot that they were supposed to a PO wasn't entered. And so they spent that money on something else. I mean, we've seen it over the years. It's just that same thought process of if we're spending it the money's going in and out account for it by keeping the books if we can think about it that way. And then to your point, the bookkeeper goes in and does reconciliations. And you know, reconciliations are on not just the bank accounts, but on credit cards, like don't miss the credit card reconciliation, right? Is it that's really just a small bank account that we're managing.
Peter Lang 08:48
Yep, exactly. And we can kind of tell when we look at, you know, the financials pretty quickly, if all of the credit card transactions have been put into the system based on you know, the number that we can see. So everything Yeah, because you don't want to just, you just don't want to, you want to make sure that what I'm trying to say is you want to make sure you're recording those credit card transactions on the day that you actually get the charge, not the following month. It needs to be based on that.
Michele 09:24
So then, let's alright, so we know what a bookkeeper does, they're, they're doing that level work. Now, before we move on to accountant, I want to take one step back because you mentioned that as traditional bookkeeping, but I would go as far as saying it could go all the way back to putting in the invoices creating the pair's anything if you're talking really deep internal keeping up with everything, right. Yeah, yeah, I'm just talking about outsourcing potentially. Yeah, right. But I want us to understand that the the full lifecycle if you will, bookkeeping starts with entering the invoices to your point entering those credit card transactions, linking up the bank entering the purchase orders, keeping your QuickBooks your studio, whatever it is you're using to up with it, it is all the way back to there, right it is, every time we are entering something into that financial software.
Peter Lang 10:19
Exactly. And so whether it's you as the business owner or a bookkeeper, that is, you know, from the start, that it's so important to do. And also, unfortunately, based on what software that you use the time commitment to put all that information and could drastically be different as well. So if you use an accounting software where you're connecting the accounts, and you kind of have a headstart, where it's all in a dashboard, and you just need to make sure that you're categorizing them all and making sure they're all going into the register, versus maybe using another one where it's more of a manual process, that time commitment can vary, you know, based on which software you you find is best for your business, too.
Michele 11:04
Right. So bookkeeping, just a quick recap starts from the moment that we enter any transaction into our financial software, all the way through reconciliation, and I would go as far as saying that there could be some tax reporting for like sales tax or preparing some the financials for a Tax Overview or a tax analysis for the CPA, right? Sure. Share where a CPA or an accountant would pick up from where the bookkeeper kind of leaves off. Yeah. So
Peter Lang 11:39
based on I mean, when I see when I think of an accountant or CPA, someone who, maybe, well, let's just say an accountant, because I, there are some bookkeepers, who I would call a bookkeeper. And then there's some I shouldn't say bookkeepers, but it's muddy in there, it does get muddy. So now let's talk about someone I would call an accountant. That's someone who is paying attention to your accounts receivable and your accounts payable. So what do I mean by that? I mean, like, are the invoices getting to your customers? Are they getting done? And is someone paying attention to how long it's been before your customers are paying those outstanding invoices? Or do you have someone putting in your bills as you come in? And putting the details of your vendor bills in there, for example, a FedEx bill comes in that's due in 30 days, is that information getting put into your accounting system? Let's say within a day or two of receiving the bill and the due date is there so that the accountant is looking at that report and making sure that the bills get paid for you? And then, you know, the next step would be how much is that accountant looking at the overall financial statements for you, and just making sure that the numbers based on the work that the detailed work that they're doing? does all of that information on those financial statements look appropriate, based on where you're at in your business as well?
Michele 13:10
And then what about the CPA Tax portion? The next step from that?
Peter Lang 13:15
Well, so there's different CPAs, right, the tax portion, so I know some CPAs that will just kind of ask for the financial statements at the end of the year, and then just do that a tax return based on that, whether it's on the accrual basis or the cash basis. Um, but then there's other CPAs, who might you might have a relationship with that, actually are looking at your financial statements throughout the year, whether that's quarterly monthly, maybe a couple of times a year to do like a fall projection, they're, they're asking, ideally, a good CPA is asking the right questions, maybe even having a dialogue with the accountant or bookkeeper, and you as a business owner, to just make sure that they understand, you know, what the financials are staying saying at any given time, but also like, where the projects are heading, let's say by a given time, so we're recording this at the end of September and it's fall and so just kind of getting a good CPA is getting an idea of where the chips are gonna fall I say by the end of the year, meaning you know, what kind of if you've got if you're working on six different projects, which ones are gonna you know, not finished until next year, which ones are going to get done or and what you see coming in money in money out for the next like three months so that they can give you a good idea of, you know, where your salary is, if that needs to be adjusted, how you've done with paying taxes so far throughout the year, and how much you know if it's possible coming up with different tax deductions so that you are minimizing your your taxes legally and, and in a way that's most beneficial for you.
Michele 15:05
Okay, so we've got bookkeeping that we would say. And of course, we're looking at all of these in very detailed ways. But there is a lot of murky muddiness, meaning there are positions and companies that do bookkeeping, with like taxing tax accounting, there are some that don't do projections, all they do is take what you have, look at it, put it on the forms and send it in. There are some that that CPAs and bookkeepers that are more consultative in nature. So it all shifts and changes. And that's why we have to really know what we need and when we need it. And those needs change. And so we wanted to start with just kind of this overarching, what does it look like, you know, life cycle of getting the numbers in and putting them in the right places, reconciling that they're in the right places, and then making sure that we account for them properly, internally, and to the government through taxation, and whatever that tech strategy looks like, and then checking salaries and All right, so really just watching the overall financial health of the firm, where we want to dig in deeper today is, here's what I'm seeing. And here's what Pete, I know that you said you're seeing as well, we're seeing people that are starting off. If we were to just high level it and then let's this bullet point in detail through it high level, most people start off either with a very small version of let's say, an accounting software, a small QuickBooks, or they start off managing through spreadsheets, Google Spreadsheets, Excel spreadsheets, something where they're just writing it down and keeping up with it. We used to laughingly call it the shoe box method, right? Everything's thrown in a shoe box, you bring it to the accountant. But these days were a little bit more savvy. And so most people are starting with something like that. If they're usually if they're a smaller firm starting as a solo, they're keeping up with everything on their own. And they're turning over their spreadsheets to their accountant, they don't even have a bookkeeper, they are keeping their books, they turn it over to the accountant usually in the year and figure out what needs to happen. The next stage is they are growing enough that they recognize it more transactions are coming in, they can't keep up with all of them. So maybe they hire a bookkeeper or they bring somebody in but mostly they they outsource bookkeeping, because they realize there's a bottleneck. Internally, they're usually still entering the POS and entering the invoices and you know, perhaps paying the checks or doing some of the money internal management, and they are letting the bookkeeper categorize, reconcile and perhaps do sales tax. Right. Then the next phase is oh my gosh, so much is coming in that this is where I start to see them jam up and they start asking the bookkeeper perhaps an outsourced bookkeeper? Can you do invoices? Can you do POS management team, you do some of that level of bookkeeping that we are having to do internally? Because the transactions are so heavy, can you help us do billing time billing product billing, can you help with that. And then what we see is the business grows so much that what the needs that they have from an outsourced bookkeeper become so expensive, because there's so much that they need to really be able to, like you said, to have the answers within a day, within three days within a week to be able to stay on top of it. It's almost like they need a full time person in house to do a large portion of it where they can get the answers by turning to the left and asking the designer sitting over there, instead of waiting for an email chain back and forth, right. And then perhaps having an external bookkeeper who truly reconciles double checks and just make sure everything's in the right place. And so that's kind of that lifecycle of bookkeeping that I've seen in that you've seen. And the muddy area is kind of right there in the middle between that two and three, where the bookkeeper is the external bookkeeper is so overwhelmed, because the business has grown so quickly. But let's go all the way back to starting on their own and with a spreadsheet, because there are some there. What would you say to them is the pivot point when they know that it's time to take that next step and get an external bookkeeper or even if they hired an internal person, but they are handing off that particular work as the owner, they're no longer going to do all of that work. Where is it that it should be like ding ding, ding, this is your sign. It's time to move on and hand this off.
Peter Lang 19:48
I would say I don't want to say right away before it even starts because that's not that's not fair. That's ideal, but it's not always feasible. Always feasible, right. I get worried that one little thing You'd miss in a spreadsheet could, you know ruin the whole thing, but I would say, if you are finding yourself either getting up earlier, or working late into the night to make sure that the spreadsheet is up to date, while you do the things that you do as a designer, as a business owner during the day to help your clients, or if you're like, in the back of your mind, knowing I haven't updated that Excel spreadsheet, and over a week or two weeks at the most, it's definitely time to find at least someone who can help put transactions in and reconcile your, your statements because you're going to burn out, or you know, you're just going to get even busier. And you know, I've said this many times before, but you also didn't start your business to do accounting. So investing and fine putting that work into with someone who actually is someone who likes to do that kind of stuff, and can help you is the way to go.
Michele 21:06
I kind of think that honesty needs to be one of the first hires, whether it's internal or external part time, I think the first hire is to get the financials in alignment. And this just me that the financials handed off to somebody who loves to do that, like you said, because otherwise, how do you ever really know if you can afford to do the next things that you want to do? And that's when people always call me they're like, I've got all the numbers, but I don't know if I can afford to ABC or XYZ? And it's because the numbers aren't accounted for, or they're just in a spreadsheet. But do you really know what they mean? If they're not interpreted into an income statement or a balance sheet? They're just numbers in Excel?
Peter Lang 21:47
Yeah. And you can budget that out when you you know, if you're thinking if you haven't even started your business yet, and you're coming up with startup expenses, you want to maybe call a couple of bookkeepers and just get an idea of what they think, are they going to charge, you know, the same amount on a monthly? Do they have an hourly rate, and therefore you want to know approximately how much how many hours it takes a month for them to that they think that they're going to do that? Because the other thing is, is that if you say to yourself, Well, I'm just starting out, and I'm gonna work at night, I'll bust my butt to do it. And I can't afford that right now. A lot of times, what ends up happening is, I've seen it where business starts out, we're gonna do it on our own. We're gonna hire, you know, a lawyer to set everything up. We think we only have one project. But before you know it in three or four months, now we're on four projects, we don't have time for this, we hired a CPA, we need to pay taxes. But I've had people where I'm like, okay, but until your numbers and your information is in some sort of accounting software and, and done, and then it's like, Okay, I did that. No, you didn't, because it doesn't agree to the statements, I'm seeing that kind of thing. It costs more money to eventually find that person that knows what they're doing, and go back 3, 6, 9, 12, sometimes 18, months,
Michele 23:08
Forensic accounting, forensic accounting, and it's just like anything, right? Anything we have to go back and redo is more costly than if we've done it right the first time. Yes. And here's the challenge that this I want to throw in there. It's not just that it's more costly is that it takes an exorbitant amount of time, and you are in financial limbo, to some regard until that back, and historical financial data gets settled and accounted for, you're in limbo right now. Because it's all moving forward with you. So it's a it's a, it's a terrible place to be.
Peter Lang 23:44
And you also need I mean, this is why we were kind of talking about the differences between the three people, you also need to have an idea of who does what, right. So you could have a CPA that you know, of, or you hired that that's going to help with your projections and your tax returns. And I've had where it's like, you know, can you just, you know, can you fix everything, so that we can get that? Well, if it takes three, three months to fix everything? Well, we've already lost three more months. So we use those three months to catch up. Now we're behind the three months, it took us to do that. And it's just this reoccurring thing where we're always kind of behind, and CPAs and accountants in our industry were, you know, just as busy as other industries where it's like, we're not bored just sitting around and everything's gonna get caught up in a week, right? So the longer you wait to start, the longer it's going to take to fix and then it's just like a snowball that you just want to, you don't want to get there. So starting off on the right foot and making sure that you find the right person and asking them what exactly and if, if, if you're thinking about it, and you're doing it on your own right now and you're like I don't even know where to start asking if you Find a good bookkeeper that you think could work, you know, going through this and being like, do you, you know, would you be willing? Or do you have the time capacity to also enter invoices and bills? And that or do you just, you know, reconcile accounts. And that's it. That way, you have an idea.
Michele 25:17
And there's an educational component to though, because there are some that that will say, Let me teach you the process to do this piece so that it shows up correctly when I get it. So you know, you could always do that. I would also say, a couple things to enter that find out if those bookkeepers are willing to start with you at a smaller investment, perhaps only doing reconciliations and sales tax. And then as your business grows, do they have the capacity to grow with you to kind of move into this stage two that we're talking about. And the other thing I want to say is, don't forget that you all can charge admin fees. And so if you increase your rates to include some administrative costs, or to really have a true understanding of what it takes to run your business, you can build in into your fees you should build in to be able to have the support for somebody to do the billing and the reconciliation and all of that. So just make sure you're not under charging in a way that doesn't even allow you to have support to run the business. Okay, so now they move into the second they've hired a bookkeeper, they're no longer on their own spreadsheets. And this is where we're seeing the biggest kind of smack down, if you will, is they have a bookkeeper. Let's say the bookkeeper primarily did reconciliations. And here's what I see a lot from our clients, they'll get from their bookkeeper monthly Reconciliation Report, they'll get an income statement or p&l a copy of the balance sheet at the time of reconciliation, they might get an AR accounts receivable report and accounts payable report. And then sometimes we might perhaps based on the business, get an inventory report, or we might get a report of prepays, how much money sitting in prepay accounts, or you know, that we're going to be using just so that we can balance. That's an area that gets unbalanced a lot. And so, you know, kind of here's what's happening, that real quick snapshot five, six reports, that's what they get. But when it gets so busy, this is where we're seeing them go. I can't even get all of these products, like they've got entire houses that they're trying to order and procure. That's invoice purchase order payment, what account does it need to go in? Because are we going to save it a cogs account? Are we moving it over here? And when do we claim the revenue on that? It gets squirrely and messy. And there's so much work, the backlog is overwhelming. Is that and I know that's what you've seen as well.
Peter Lang 27:52
Yeah. Wait, I'll just do a quick story. Because this happened just a couple of weeks ago, because September 15 is a time when people do estimated tax payments. And I'm getting I'm asking for the reports and the bookkeeper. Because it's just a bookkeeper and the situation, sent the reports to the client, and then just kind of said, well, you're in a loss. So I don't know why he even cares. But she had about $190,000 in proposals that the project was done. It's just that the bookkeeper only reconciles and does sales tax. They don't know what how your projects are going. They haven't gotten to that level. And it's not their fault. There was no, there's no communication, that's not what they do. But they're just like, hey, you know, like I, I know what a balance sheet is. And I know what a p&l is, and I'm looking and you're at a loss, but they're ignoring the 190,000 in profit that needs to move over. They just didn't know to invoice it. Well, now all of a sudden, we went from a loss to a very big gain. And, and so that that stuff matters. And I think so that's a good way to kind of explain it that whether it's a bookkeeper or an accountant at a certain level, I find that with a lot of projects in the design industry and where they're at and also a supply chain delay and where everything is in the project. They don't have that information, most of them to be able to say, Oh, wait, you know what, like, if I'm looking at the details of the client deposits that have come in and proposals, I should have, you know, we should have invoiced that or someone should have invoiced it but that person who's going to do it maybe isn't, doesn't know that they need to do it or you don't you haven't found that right person yet who can help you do that.
Michele 29:41
Or it could be a person that's not as aware of the tax implications. And they're thinking I'll move it over at the end of the month and not paying attention right to the dates because to them they don't know or it's not, it's not their area. And where are you so when do we think that interior designers, Pete, that are the first that let me back up, the first thing I see them do, from my experience is usually if they have a really good bookkeeper, right that they really like that they can talk to. And we'll talk in a minute about again, making sure that you have the right fit. But if they've got a really great bookkeeper, there's a lot of trust there, they feel like they're keeping up with it. Usually, the next conversation before they hire internally, is they say, is there anything else in the other service that you can do to take some of this off of our plate? Right. But I want to be really clear here, because I've heard a lot of chitchat all over the place, it's a lot of work. And when you are paying outsourced dollars, you're paying more for something than if you were paying quite often an employee that came in to do that same work, right? Correct. It just, it's just a matter of the way that it works.
Peter Lang 30:54
And also, if it's a bookkeeper or an accountant, who maybe you know, has a few interior design clients, or maybe even a lot, or none, whatever. And they're like they're trying to be, they're trying to help you in every sort of way. And so they're agreeing to it, they might not realize, well, a lot of times they don't, they don't realize the amount of time that it's going to take. And so they're one of two things happens, either they're, they're billing by the hour, they're working like crazy, and then all of a sudden, your bill shoot up, or if they've agreed to a fixed monthly, you know, rate, then they're like, hey, you know, this isn't going to work out, because I'm doing all this extra work, I can only do this. And so to your point about like, when that kind of happens, I see it happening a lot based on the size of projects. But if you're starting to juggle maybe three, four projects at a time, now, all of a sudden, no, there's no way that that one person can handle all of that plus their other external, you know, clients that they have. And so they don't understand how much time it's going to take. And it just kind of snowballs, the same thing where it's like, things start to back up, and then all of a sudden, you know, you're not getting as accurate of reports as possible, because they're so overwhelmed with the amount of work that they have to do.
Michele 32:21
It is a very, very detailed part of our business. I don't think anybody would argue that, and with the level of detail, and, you know, dare I say perfection that needs to kind of go into it. So that things do balance out. It, it takes a lot of time and effort and energy and oversight. And I think that is that's when it should start getting your attention is when your if you have outsource these things to an external bookkeeper, when the price every month keeps going up, up, up, and I'm not beating up on the bookkeepers, because it is no different than a designer not really understanding the scope or wanting to help and then realizing oh snap, and they send this large bill to their client who has a coronary or they offer a flat rate. And then they're kicking themselves. And now they hate that job and hate that word when it really was an under estimate of the time, right or at the investment. We all can do this no matter where we are. But when we start seeing 1000s and 1000s and 1000s go out to bookkeeping, because what we're asking them to do, and I would almost hesitate to say three or four projects, because three projects at $10,000. Each is very different. Yeah, 350,000. But I think when you get three or four large projects that are multi rooms, full homes that are heavily transactional, that's when you you're going to see this this backup. Because what what you're really saying is you need somebody half time, three quarters time, and it is going to be very hard to get that level of resources from an external source without paying a lot more money for it.
Peter Lang 34:07
Yes, yeah, absolutely.
Michele 34:09
So when all of this happens, I really like to see unless it is somebody who will let me do it this way. How about there's an interim step? I think there's an interim step. Pete, I'd be interested to hear your thoughts on this. When I am bringing somebody in because some of my clients we're doing this we're now bringing in a if you will, a live person to work in the business even if it's still remote, but it that is more of employee based, let me come in and help in that that area between procurement and bookkeeping, because that's the muddiness internally of all the transact this works so transaction heavy. When they do that, we still sometimes keep a bookkeeper as an overseer. That does the reconciliation so that we make sure that we have somebody else double checking that we're putting things in the right place, doing them in the right timing. And we allow them to be now more like the financial oversight of that with the high level checkoff. Instead of putting every single thing on that one new person who we've just brought on. So and then over time, sometimes that person might stay in that role. Sometimes we might bring it in house, but kind of that interim step is to go back to what we started with, but hire somebody internally to do the transaction management.
35:32
Absolutely. Because it also, I'm just thinking, it's also another, a second set of eyes external to the statements, if they're still doing the reconciliation, they can still look at the statements and kind of ask questions and hopefully, build a relationship with that internal person who has a pulse on how the project's going. And, and where you know, where things need to be. As far as as far as where the project is going. I like the idea of hopefully, having someone who, you know, on a weekly basis is meeting with that internal person, and just making sure that when they're looking at the x, when the external person is looking at those financials, they have an idea and a comfort to have, you know, yeah, these these numbers make sense, from a money in how the projects going, does this need to be invoiced? How is this project Oh, it makes sense to have a higher number here, because we're waiting on some things, that kind of stuff. So if everyone is still communicating on the team, and there's that level of communication, then, you know, I think that's the best, most beneficial thing.
Michele 36:50
I also would suggest, as you're looking for resources to help you whether it's a bookkeeper or an accountant, or coach, or whatever, you want somebody that has an avenue for allowing you to ask some questions to get them answered. Whether it's you are paying your accountant for what I would almost call a little bit more CFO services, right? So that it's more than just the transaction of doing the taxes. But it's more of looking at the business as a whole and really being consultative in nature. In the bookkeeping, is there a way I mean, and they may give it to you, like within a package or within a limit or whatever. But I think that anytime we get to a point that we don't think we can ask questions, we're putting our business in danger. And I'm not talking about over asking not doing our own education and due diligence. But the whole reason that we hire experts in our business, whether it's an attorney, an accountant, a bookkeeper a coach, it doesn't really matter who it is, is so that they know more than we know, and they can take us where we can't go ourselves, they can do what we can't do so that we can go focus on what we do. But we have to be able to ask the questions if we have them. Because a lot of times, that's gonna clear the path. So I say that because I've worked with clients where they pretty much weren't allowed to reach out to their accountant or to their bookkeeper, until it was time for a report. And they just they it wasn't a can we get together and talk, you know, a lot of the really great bookkeepers that that I've been running into lately, they have a financial meeting with the client, after the reconciliation, to say, here's what happened. Here's what I see. Here's what this means. Do you have any questions? Or here's what I see coming or this was different, like they point things out, right? When you start looking at accountants that are more CFO or more future focused in nature, not transactional. They're the ones like up that say, less, meet once a quarter or less meet two or three times a year and make sure that we have your salary and your distributions in alignment. Let's make sure that we're covering with taxes or, you know, what, what are the changes that you're looking to make? What's the best way to do that? And so, really building that team where you feel like their own your own your side, you know, is super important.
39:21
Yeah, having some Yeah, I mean, I'm a CPA who focuses I mean, I'm a tax guy, I was, like, you know, versus auditing and that kind of stuff. But I also now, I kind of pride myself on just being that that overhead person that 10,000 feet up looking down and I can kind of ask questions and for the most part, the clients that I have, I can you know, send them an email or forwarded to the accountant or bookkeeper and get an answer, or even kind of say, Hey, I think it should look like this based on what I heard from my client. but it's the it's the situation, you know you whether whoever that is on your team, you want to make sure you have someone on your team who is doing that. And usually what happens is if I ask those questions to a client, or they say they're not allowed to ask the bookkeeper, then I'm like, Okay, you flagged it. Exactly. Yep. It's either. Either the bookkeeper is overwhelmed and won't know the answer and is offended. Like, why are you asking me that? Or, you know, or other reasons, right? So if I, if I've asked questions, or five pointed something out, and the person you know, cuz I'm not trying to tell people like what to do, or I'm smarter than you or anything like that. But if I get like a snotty answer, or no response, or figure it out yourself, or that kind of stuff, that's definitely a red flag where I'm like, as hard as it is to find a bookkeeper, you you can do better. And I you know, you don't? Yeah, you don't want to deal with that.
Michele 39:49
to stay in that. No, yeah. You know, the whole thing here is for us to all be collaborative and work together, we're trying to work towards the same end, you know, if we're really in it together, let's talk for a minute, Pete. And I, well, what I want to do is I'm going to jump in and give you a two second on how I fit into the picture. Because people are probably going well, what are you doing now. And then what I'd love to do is talk about how to find that bookkeeper, because or even how to find an internal person to do bookkeeping, right? Because that's really what we're here same today, as there are many of you that are listening, that your businesses are bursting at the seams. And perhaps you're with a bookkeeping firm, that you were asking so much, and it doesn't fit within their business structure to be able to support you at that level, I think that's fair. Some of you may work with a bookkeeping firm that has the ability to bring on additional resources to help with that. And that's awesome if you have that. And you can work like that. And you're still getting your reports on time. And things are still saying updated. And it's correct. Keep doing it. Like nobody's telling you not to do that. But Pete and I definitely have seen the cracks and the fissures, if you will, in the bookkeeping, space for interior designers that were growing, growing, growing and couldn't keep up with all that work. So before we jump into tell you how to find a bookkeeper, I like that, the way that I look at my role in working with clients is they're coming to me to help build strategic plans to look at the business in a holistic way, not just the financials, right, I'm looking at your marketing, I'm looking at your client experience, I'm looking at how you hire how you fire, how you do what you do, so that you can be a better business manager, business owner, CEO, integrator, whatever piece of that you need and want to be. But there is a financial component. And so because I love I'm nerdy, and I love all the financials, and that's the piece that I see, as a great place to start to see what's important. And to see choices that have been made, I look at the p&l on the balance sheet. And when I look at them, I can understand the cumulative effect of every choice that has been made in that firm, because it shows up there, they're in on your calendar, that's the two places that are, you know, our time shows up in our calendar, how we spend it, and how we spend our money and the choices we make shows up. And so when we look at that, and we I usually ask the questions, are you where you want to be? Or where else do you want to go? We can look at how you're making financial decisions, because that affects like the hiring, I'm gonna see that in salaries, marketing, is it working? Is it not working, and to see that in a marketing budget or on a marketing strategy, call that you know, in your calendar, we can take any part of your business and tie it to that p&l And see if it's supportive of what you're doing and where you want to go. That's where I command is digging and pulling those pieces apart. To then give you information to go back and ask your bookkeeper, here's information to go back and ask your accountant. Here's information that we need to talk to your financial, you know planning or wealth management advisor and pull in your account and in pulling your bookkeeper so that we can all support you. Here's what you need to go talk to your attorney about. Like I see myself as like a Pete would say 10,000 level looking at financials and an overall view of the business as well. I'm maybe moving up to a 50,000 but then dropping all the way back down to a 2000 are in the weeds and going up and down, up and down and across. And so it's just a little it's just another view. Let me let me explain it this way. This is the way we talk about it in my coaching. Imagine that you're we're at a football stadium or you could be at a concert, right? There's something happening on the field. Pete's not sitting in my chair, and I'm not sitting in his. So the way Pete sees the action on the field is one slice one view of the action where I sit I have a different view where the bookkeeper sits, she or he may have a different view, we all have a different view where best say our client, the designer, is on the field with their team and with our clients. We're all in different places in the stadium. So we all are watching the same thing happen, but we're looking at it through a different lens or from a different seat. And so it gives us information to share with each other to help our clients play their game better, right? That's really what we're talking about here. And I think it helps when you think about it that way. So they're all important views. They're just different. So Pete, anything you want to say on that, and then we'll jump in talk about how to find bookkeeper?
Peter Lang 45:43
No, I was just gonna say, you know, that's why there's times where I contact you based on, you know, what you're helping clients with and say, Hey, this is what I'm thinking, is this kind of what your what you would be thinking to? And there's times where you do that to me, and there's, you know, we have a working relationship like that, where you could have a different CPA who's like, who are you? And why are you asking me those questions? And then we've had some of those. Yeah. And so that's a bummer, too. Yeah. Yeah.
Michele 46:14
So and that's what I say, because what is our goal, ultimately, I mean, I'm a support person, you're a support person, bookkeepers are support people. So to me, our job and our role is to support what is best for that client to give them information, to help them understand so that our clients can make the best decision for where they want to go in the business and what they want to do. So why would we not work together for the betterment of that client? Right, right. Exactly. Right. And it's nice, because some, I mean, we certainly have clients that are not in common, and I do work with other bookkeepers and other accountants and other people. And I'll say probably seven out of 10 are fine to work with. But there are those three to four that that get their hackles raised and get angered if you come in and ask them anything, because they think you're questioning their authority and their ability, when many times you're just trying to understand. And so I'm going to say if that is the relationship that you have with the people that are helping manage your financials, you need to find new people. Yeah, I just think I wouldn't have my life. Somebody that was helping manage my business that wouldn't talk to me. Yeah, definitely. So how do we find these bookkeepers people? Because this is this is a, we got a little hole in the marketplace right here. So how do we help our people find these bookkeepers? Because I know like you, I've reached out to some, and they're like, We're three months out, we're six months out, we're a year out, we're on waiting.
Peter Lang 47:49
I wish I had a better answer. But I will say that, the best thing to do is to kind of think about what you need, completely meaning task wise. And just as you're getting to know, a potential new bookkeeper, just asking them, Hey, would you have capacity to do this, that and figure out, okay, this person sounds like this person could help me with all of these things. Or maybe some of these things have these things. And if they say no, you know, on some of this stuff, then it's just a matter of finding someone else to do it. I always say, the person doesn't necessarily have to just work with designers. But it would be helpful for them to have at least a basic understanding of the details of the industry and what it's like to deal with the life of an entire project from beginning to end.
Michele 48:40
I have found success working with bookkeepers who understand the construction industry. And like landscape architects, because they're doing the same kinds of things that we're doing like landscape designers and landscape architects, they've got a beginning to an end with plants, and they're building hardscapes. So I have seen huge success working with them, because they understand to your point, a project, they understand cost of goods, along with service hours and design hours. They understand job costing, if that would work to be necessary or project costing. And so those would be two other industries that if they understand and have a good, they're able to wrap their arms around kind of the pass through and the process of those who construction and landscape architect or landscape design. I just think those would be others to consider. Are there any other industries like that, that you have seen that have like a parallel with how we do things?
Peter Lang 49:44
No, I think those two are the one if there is something that would just be like some sort of job costing but construction and, and landscape architecture seems to be the most, the closest one so Yeah. So how else do you find a bookkeeper? You know, I don't give up, I really think I've, there's just so much frustration out there of there is nobody who can help me. I mean, you also, you know, based on the software's you use, there are options where you can kind of look on their website, and they have partnership program. And I know that some of the software programs are trying hard to find newer, new partners as well. Because just because a lot of the partners that they've had are at capacity. And now if you're gonna also use that, if you can talk to someone from the company, just kind of see if they, what their, their vetting processes on how you become a partner, is it just like, hey, I'm gonna pay this much money, and now I'm a partner of yours, and you're gonna put me on my website. Or, for example, I know I've, there's years ago, I had to, I said, I wanted to be a partner, it made sense to be a partner for software. And I had to take a very quick test. It was very easy, but it's just I was impressed by this more than Stryker chair. Yeah, I was impressed by that, that it was like, okay, it just wasn't like, Hey, pay this amount. And we'll put a badge or an icon, you know, next to your name, and you can use it on your website, typically,
Michele 51:19
Well, and you know, into that point, I'm Profit First certified and it's an investment of money. But it's an investment of time for the entire certification process. That's months in the making, you know, it's not, it's just not a quick, here's some money. And here's what I think it's also important to ask, if you were looking for a bookkeeping firm, and let's say you find one on one of these sites, based on the project software you use, I think it's worth asking them what their educational background is, and how they bring on other bookkeepers. And what they are they QuickBooks certified? Like, what is it that they have, because I've seen quite a few bookkeeping firms where they're hiring people and not educating them properly. And then the books are a hot mess, and our clients are paying for it. So I know you have that as well. But
52:10
Yeah, and not to put more stress on the business owner. But just because you have a great situation today doesn't mean it's gonna be a great situation in three months from now or next year. So it's just something that you want to make sure that you are staying on top of and pay still paying attention and having those conversations and figuring out what those questions are, if you are meeting with someone, or if you're getting a package, being able to ask at least simple questions. So that you know that that and of course, if there's another external person, that you can have a look at your stuff to just confirm everything's being done properly. It's just another another, like we said, another set of eyes, so that we all are on the same page, and you know that you've what you've got is accurate.
Michele 53:00
You know, one last thing I want to say, as a consideration is, there's nothing wrong with hiring a new accountant out of school, who wants to work in a small business. And then having them trained with a bookkeeper. There are bookkeeping firms out there that will help you train in the interior designer in other areas, so that you can have that interim a person, especially if they're going to be providing the oversight. Many times they'll help train an internal person on how to do some things that will help you later. So it doesn't mean that you can only go after resources that have, you know, 20 years of experience in interior design. Honestly, it's a willingness to learn our industry and a willingness to say, I'm willing to be humble enough to let somebody show me how to do this, and not, you know, so cocky that they know it. At that point, you could hire somebody around you, who's either right out of accounting school, or who has a bookkeeping degree, or who's QuickBooks certified and is willing to learn it. That's the difference. They got to be willing to dig in and learn it, and not just kind of rush it through.
Peter Lang 54:08
So I'll tell you, I've been doing this for 20 years, and I was nine years in before I finally went out to my first interior design studio for a client and I was thinking, you know, my boss was just like, well, they need to help whatever, you know, you're, you've got 10 years of experience, whatever. And I got there and I got on the computer and I was in design software that wraps accounting in and I thought to myself what is going I was clueless. It was a humbling experience from someone who was like, you know, this dork accountant that thinks I know everything. But I you know, I found it interesting and it was something new to learn and I kind of picked it up and that kind of stuff. But even you know with that much experience I had to learn and be willing to learn but it didn't take long you know once I learned the new wants is of everything. As far as the industry was concerned, I kind of picked it up, but I wanted to. So yeah, that willingness is huge, exactly if they're if they don't have a lot of experience, but they have a willingness. And you have someone, either it's yourself or someone else who can kind of give them the detailed information they need and the willingness to train them properly. If it's an internal person, then it could, you know, it could it could be something that works out,
Michele 55:29
I'm going to throw out just one more situation that that I've currently seen with a client and that's one where the bookkeeper is not managing the recognition of revenue. And the let's just say the invoice cycle, the way that the accountant believes that it needs to be done to be able to be accounted for properly and taxed properly and manage properly, you know, for the business owner. And so, if you are bringing in a new bookkeeper or bringing one in, there's nothing wrong with having a conversation between the bookkeeper and the accountant or you and the accountant on what is the best practice that you have set up as a strategy for accounting for your firm that will make taxation easier, payments easier the oversight the pieces that pay you said the accountant does having the conversation with what does the accountant want to see in the best way, and then adapting your bookkeeping policies to match that sort of bookkeeping doesn't need, in my opinion, bookkeeping doesn't need to drive accounting, the way you need to account for it needs to drive the way you keep the books, right?
Peter Lang 56:40
Even if you were like, Hey, this is our process, whether it's money comes in, we invoice that day, or we don't invoice until we deliver the goods. Well, if it's product related. That's our process. What do you think of that? And just to see what they said, and they might say, oh, yeah, okay. All right, that's your process. That's how we're gonna follow it. They could be like, Oh, that's all wrong. And you have to do it like this.
Michele 57:04
And then we're in this state, I mean, let's be in this state, this needs to be recognized this way. I mean, it can very well change from place to place. So having it having, let me add that in, and then we'll wrap this up. But having a bookkeeper and an accountant, who understand the laws of the state that you are in, is also very important, especially as we're going more and more virtual, they just need to be aware of what's happening in your state, and how things need to be done, because they're not all the same. Absolutely. So be felt like we just beat up on the fact that we need more really great bookkeepers. So if any bookkeepers out there listening, and you want to really have an eye killer business right now, if you learn interior design, and what we do and how we do it, and I would say starting QuickBooks, if you start there, I think you get I think you could just about make a business what
Peter Lang 58:00
I know you can. I know you can.
Michele 58:03
If you're good, and you can do bookkeeping, I can refer you.
Peter Lang 58:12
To me,
Michele 58:12
Well exactly. Who are you? I'm waiting, call me, call me. Thanks, thank you for having the conversation. It was not always an easy one. But we, we also want to let people know, we recognize that that's difficult. We recognize the difficulty is not in my wheelhouse to solve personally, and it's not in yours. Neither is it in our business plans. But we are trying our best to work with clients around it and to give you resources and ways to think about it. And when to recognize in your own business, that it's time to pivot and either bring somebody else and ask for more resources. What might that look like? What can I expect? So we can't personally solve it. But we can certainly put a shout out for all the design good numbers. And we
Peter Lang 58:57
Also know that, yeah, when everyone is doing that, and working, and that's all happening, we all are giving the client the maximum value. So that's why having the perfect team when it makes our lives easier, because our whole point of going to work every day is to bring value to the client.
Michele 59:15
So exactly. Well, thanks for coming in and having this conversation. I appreciate it. And if I find by all the best bookkeepers in all the world, then I'm going to call you I'll share him with you.
Peter Lang 59:26
Sounds good.
Michele 59:27
All right. Thanks, Pete.
Peter Lang 59:28
All right. See you soon.
Michele 59:30
Thanks so much, Peter, for joining us today, I really had a great conversation. You know, it's hard when we look into our business and see a hole or when we look in the industry and see a hole. But what it also allows us to do is be creative and find a way to solve that problem. So I hope that this has inspired you to at least think about that in your own firm, what can be done and what is the best practices and ways to accomplish that. I also want to ask that if you are interested in learning more about understanding your financials that you take a look over on my website at ScarletThreadConsulting.com, look under the resources tab and you will see the three financial courses that will absolutely help you move your business forward and financial fluency and understanding. Remember, we have to choose to be profitable because profit doesn't happen by accident. Profit is a Choice is proud to be part of the designnetwork.org where you can discover more design media reaching creative listeners. Thanks for listening, and stay creative and business minded.