Driving blind. That’s how Bill Ward described a business that doesn’t generate monthly financial statements. A managing principal of Management Engineering Assoc., a Camas-based organizational consulting and planning company, he has six employees and has done his own accounting for 22 years.
Even the smallest business needs to get serious about accounting, he said. First, it provides a record of income and expenses, which comes in handy during loan applications, discussions with investors, and tax audits. Second, well-organized financial information helps business owners know where they are now and where they are going.
Small businesses utilize a wide array of accounting and bookkeeping resources – in house and out. But figuring out the right way to go can be tricky.
From pen to PC
Twenty years ago, everyone kept their books on paper. But computerized accounting has gained much ground.
“QuickBooks has really changed accounting,” said Bobbi Bindreiff, a Vancouver CPA.
Some of the advantages of computerized accounting include easier tax preparation, increased productivity, central data source and enhanced forecasting ability.
Switching from a manual system to a computer program isn’t always easy, though. Randall Salisbury, principal of downtown Vancouver’s DSP Architecture PLLC reported that his firm, which employs about 12, switched from a manual ledger system to Sage BusinessWorks less than a year ago.
“We’re still ironing the bugs out,” said Salisbury. One of the most frustrating areas, he said, was trying to get the computerized reports to look like the old, manually-generated reports.
Betsy Ward (no relation to Bill Ward), office manager for Camas-based Columbia Litho Inc. remembers when they switched from ledgers to a computer, about 17 years ago.
“We really dragged our feet at first,” she said. “No one likes change.” But now, she said, she loves the computer: “I do one entry and it does everything.”
Here? Or there?
Columbia Litho, which has about nine employees, outsources its accounting. Betsy Ward estimates that she spends about three hours per month doing basic bookkeeping; she then sends everything to their accountant, who prepares the financial statements.
This approach works well, she said, because it’s easier for a professional accountant to stay on top of all the changing rules and regulations, and it costs only “a couple hundred bucks a month.”
“It’s definitely worth having someone else do it,” she said.
Other firms prefer to keep all their accounting in-house. For example, Shannon Van Horn, vice president of human resources and finance at Washougal’s Workshed Creative Agency, said her company prefers to do its own accounting.
“It’s nice to have someone you can trust, and it’s also less costly,” said Van Horn.
Two main factors seem to influence whether a small business outsources their accounting. First, said Lorrie Conway, a local CPA and owner of Camas-based NW Accounting Services, businesses that involve a lot of field work, like landscaping or glass repair, tend to outsource, while service-oriented, desk-based businesses such as legal firms and medical offices tend to go in-house. Also, the growth rate of a company can affect its accounting approach, said Jason Beatty, vice president and owner of Techjet Imaging.
“As a start-up, owners think ‘why pay someone when I can do it on my own?’,” said Beatty. “Then, as they grow, they start to think ‘why am I doing this myself when I can pay someone else to do it?’”
Firms can also choose to do some accounting in-house, and outsource other pieces. For example, Workshed outsources their payroll. Bindreiff said payroll services are a “good bang for your buck” because they know the rules and provide their services on time.
The challenge for small businesses is balancing cost and reward. Conway said that it was hard to quote a “going rate” because the fee depended on how complicated the firm’s finances were. But, she said, a round figure would be something less than $500 a month. Pattie Gowing, owner of Express Accounting in Washougal, said her rates start at $125 per month, with a firm with 20 employees running about $800 monthly.
Accounting is getting more expensive, said Bindreiff, because of the “Enron fallout.” That is, the accounting industry is subject to an increasing number of rules – to the extent that some small businesses simply can’t afford to outsource their accounting.
“It really affects small businesses,” said Bindreiff, “because even if they have only one employee, I still have to do all the same things.”
Something all businesses agree on is using a CPA to prepare their tax return due to the growing complexity of tax preparation. Also, even those businesses who do their own numbers keep a CPA on call for “tricky issues” and software help. Jerry Colson, who has been a CPA for 36 years, stated that many of his clients call with technical questions about their accounting software, while Conway joked that she has a “love/hate relationship with QuickBooks” because clients had so many questions about using it.
For those companies who do their own accounting, there are a couple common pitfalls. Colson said that some people simply don’t know the difference between a balance sheet and an income statement. Also, he said, the smaller the business is, the more likely it is that business financials will get mixed up with personal finances.
The bottom line with accounting, especially for small businesses whose margins are small, is to gain an accurate picture of their financial situation.
“Most know their gross, but not their net,” said Gowing. “What did they really make last month, versus the month before, versus last year?”
WHICH PROGRAM SHOULD YOU GET?
According to Access Markets International Partners (a market-intelligence agency), accounting software is the often the “first strategic business application” that a small business acquires, and is an “important on-ramp for other business applications, which need to integrate with the accounting solution.”
But selecting the most appropriate small business accounting package can be a challenge for many businesses. And just because a friend recommends a program, or a program is the top-selling package on the market, doesn’t necessarily mean it’s the right choice for your business.
In February 2007, SmallBusinessComputing.com conducted a survey of popular accounting software; QuickBooks was the clear market leader, getting more votes than all the other competitors combined. Local data supports the survey’s results – all but two of the companies interviewed for this story use some version of QuickBooks.
Sage’s Peachtree software claimed second place in the online survey. Another, somewhat newer player is Microsoft’s Office Accounting 2007, which has about a five percent market share. Other, less-popular packages include Microsoft’s MYOB and Sage’s DacEasy, Accpac and BusinessWorks. Then, there are industry-specific accounting packages, such as for construction companies and medical companies, as well as custom-built software applications.
To determine which application is right for you, determine your business needs first, then evaluate the programs to see how they meet those needs. For example, do you need to manage inventory? Are you going to do payroll in-house? Do you need online payments and invoicing? By systematically ranking how well each application meets each need, you can choose a program that is the closest fit.
Other factors to consider when comparing software are:
Ease-of-use – is there good customer support? Does it mesh with your CPA’s system as well as your other software and hardware? Is there adequate documentation?
Scalability – what if your company grows 75 percent next year? Will the software you buy today be sufficient then?
