Looking to hire an outside bookkeeper? Here are three red flags to look out for

About eight months into their new business, Pete and Dottie decided it was time to engage an outside bookkeeper. A friend of theirs met a guy at a conference who said he was looking to add more small business clients to his accounting firm. The friend passed along the guy’s card to Peter and Dottie and they called. The guy told them all about his company and the services they offer, and gave them an estimate for monthly bookkeeping less than half the amount of the other two estimates they had received. So they hired him.

Six months later their books were incomprehensible. None of their new customers had been setup. New customer payments were being credited to old customer accounts, so it looked like they owed old customers refunds. Unposted transactions were piling up and the ones that were posted were in the wrong revenue and expense accounts. A P&L report suggested their profitability was increasing month over month so they breathed a little sigh of relief…but then they realized rent and wages weren’t included in the P&L, so just how much money were they losing? They called the guy. He said he would check with Mary - because she was the one doing their books - and get back to them.

Names are made up, but it’s a true story. Fortunately, like Pete and Dottie’s guy, the bookkeepers that will almost certainly do a bad job for you, will tell you without telling you before you hire them in one or more of the following three ways.

These are the major red flags to watch out for when you are hiring a bookkeeper:

1) Competency Red Flag: They don’t get to know your business. 

The guy did all the talking (selling) and didn’t ask a single question about Pete and Dottie’s business. While all businesses have a standard formula - money comes in, money goes out, hopefully more of the former than the latter - small businesses in particular are all different. If the potential bookkeeper does not ask questions about your business: what it does, how it works, goals, challenges, etc., this is a big red flag that they don’t have the accounting competency required to keep accurate books, let alone tailor your record keeping to serve you strategically.

2) Integrity Red Flag - Their monthly rate is 40-50% less than other estimates. The guy’s price was almost half the other estimates Pete and Dottie got. Having owned several small businesses I know how tight margins are and I understand the temptation to go with the cheapest option. But bookkeeping services are like the internal wiring of your business and too important to be decided on cost alone. Good bookkeeping takes time and expertise and if the bookkeeper or their firm doesn’t charge adequately this is a sign they may be trying to sign as many new clients as possible without regard to the quality of their work. (It cost Peter and Dottie over $3,000 to have a competent accountant come in and fix their books, so don’t scrimp now just to have to pay more later.)

3) Communication Red Flag - The person keeping your books is NOT the person that you communicate with at the company.

The guy was not the person doing Pete and Dottie’s books, he may not have any accounting experience at all, and may just be a salesman. Having sales staff that is different from accounting staff is not a red flag in and of itself. It becomes a red flag when you’ve been led to believe that your contact at the firm is actually your bookkeeper. Good accounting firms introduce you to your bookkeeper and allow you to contact them directly.

Do you know if your bookkeeper is doing a good job? If you’re wondering what kind of shape your books are in, or you can’t make heads or tails of what you see in your accounting software, I offer a comprehensive books review, bookkeeping training, and full service bookkeeping services. Just email me for more information.