Many people running successful businesses do their own books, but once your business is established, having someone else handle the details of the books is wise. For day-to-day bookkeeping, you hire a bookkeeper. (Remember, you don’t have to hire someone full time. Particularly in today’s economy, there are plenty of people who are willing to work a couple of days per week sending out invoices, preparing checks for you to sign, dealing with the payroll service, and so on.) For handling taxes and making strategic decisions, you have a high-powered accountant.
How do you know that you’ve got the right people for those jobs?
When my partner and I decided to change our ad agency’s business structure from partnership to corporation, our lawyer suggested a new accountant who charged $250 per hour, which seemed pretty high to me. But when I decided to use him to do my own taxes, which I always had done myself in the past, he saved me $8,000 the first year. I was sold.
Getting the right bookkeeper was harder, and I was never really satisfied. Our ultimate choice was a competent individual, but she had a mind of her own. I wanted to show my sometimes flamboyant partner how much we were spending on travel and entertainment, but our bookkeeper insisted on finding other categories for his expenses whenever she could because she couldn’t stand putting a number in a 50 percent deductible category (T&E) if she could find a 100 percent category (e.g., training). I finally gave up on that one.
The point is there are more gray areas in accounting than you might think, and you need to put some effort into understanding the choices your “money people” are making on your behalf. I’ll close this post with a joke I heard that illustrates my point.
There was a hot technology company back in the ’90s whose chief executive wanted to take the company public. He knew that his books weren’t in perfect shape; so he asked his CFO to select a prestigious accounting firm to prepare the company’s financials for an initial public offering. A week later the CFO came back with his choice. The CEO was curious about the selection process.
“Well,” said the CFO, “I interviewed eight different firms, and I asked them all the same question: What’s two plus two? Seven of the people immediately answered “four.” But the eighth, the one I picked, had a different approach. He said, “What kind of a number did you have in mind?”