Before I go any further, let me start by saying I have no affiliation with Intuit the publisher of QuickBooks, nor do I own any stock in their company. I have not been asked to write this blog, nor am I receiving anything for doing it. Having said all that…
Ten years ago a commercial bank loan officer would have frowned upon a business using QuickBooks as their accounting system. Professionals didn’t consider QuickBooks a “real” accounting system. Most accountants wouldn’t help you try to make it work and had no incentive to advise you on using it. Still, businesses used it because it had a short learning curve and because it was affordable. I have seen many companies get into trouble using QuickBooks because they didn’t really understand accounting, not because they didn’t know how to use QuickBooks.
Over the years since the early versions, the value QuickBooks provides to users has dramatically increased and more accounting professionals have learned to support it rather than fight using it. Although not a user myself, I am consulting with several companies who do use it. QuickBooks is still only as good as the bookkeeper using it and the value of the data being generated is only as valuable if small business owners are willing to learn some fundamental accounting knowledge and integrate that knowledge into reading their QuickBooks reports.
Recently my partner and I have been assisting a small family run construction company obtain a real estate loan to refinance their commercial real estate. When I saw their financial statements the first time, I asked them what software they were using. They told me they were using a 15-year-old version of a very basic program that was popular at the time. During the course of working with them, it was clear neither the owner nor the bookkeeper had any knowledge of basic accounting. The owner said his business had been profitable for the last five years, yet there was negative retained earnings on his balance sheet of $250,000. When I asked him about it, he couldn’t explain why it was there or when it was accrued. He really didn’t even understand the concept of retained earnings.
My client may be very good at his trade, but unfortunately as a business owner he must also be good at cost accounting, bidding jobs to make a profit, and seeing the results in his interim and annual financial statements. He must take the time to learn these things or find someone who can help him with some or all of his needs.
In researching the most cost effective way to help my client, I decided to recommend that he upgrade and change his accounting software to QuickBooks Pro – Construction Version. I also advised him to work with a QuickBooks ProAdvisor to help him get his books converted and to help him find what I believe to be a huge error in his retained earnings.
One thing Intuit has done that has added dramatically to the value of their software is to institute a certification called “ProAdvisor.” Obtaining the certification is fairly difficult if you aren’t already a CPA or experienced bookkeeper, so it helps establish a fairly high minimum level of skill to earn the certification. Many ProAdvisors are CPAs. I searched the ProAdvisor site and found six ProAdvisors in his small community that specialized in construction.
The advantage of using a ProAdvisor is they can look over your shoulder while you do data entry yourself. CPAs can also prepare compilations more easily and acquire your financial data for preparing a tax return more easily. Most importantly, these professionals bring a level of accounting knowledge to your business that you need. They can provide affordable peace of mind and also coach you on managing your company’s financial component. My recommendation to my finance client is to engage his ProAdvisor to provide monthly phone coaching on changes in the company’s financial situation from month to month. After the year end has been closed, they plan to do the same for the year just completed.
Some business owners consider keeping books a nuisance that is required by lenders and the IRS. In today’s volatile economy you don’t want to be one of those businesses. See your financial statements as one of the most valuable intangible business assets you have.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.