Our Messy Path to Outsourcing Our Bookkeeping

The first time we outsourced our bookkeeping, we hired a woman in Texas. She explained that our books were a mess and promised to “clean them up.”

We knew our books were messy before we hired her, but it was manageable. Our doors were open, payroll was processed smoothly, and the bills were being paid.

But then one day bills stopped getting paid and vendors started calling. Payroll wasn’t submitted on time. Our monthly reports weren’t appearing as expected.

Ms. Texas claimed the clean-up was complicated and time consuming. We’d be happy, she claimed, once she got all the extra work done and things got back on track.

Ugh. Of course I just had to drop out of my accounting class in college. I had asked my professor why debts are on the left and credits are on the right. “That’s just the way it is,” he told me. How would I ever understand something so irrational? I took a sociology class instead.

Let’s face it. Accounting is made-up nonsense. It’s arbitrary, random, and often illogical. But we have to do it.

I had to get the bookkeeping done or face the consequences, so I pushed on with the wacky Texas bookkeeper and hoped for the best.

Step one: Get the bookkeeping technology right

Explainer: we're QuickBooks users. Back when we first outsourced the bookkeeping, we used the server version of QuickBooks.

Before we outsourced to a remote bookkeeper, we moved the data to a QuickBooks hosting service in Seattle. The hosting service kept QuickBooks running for a small group of users.

(We couldn’t use QuickBooks Online back then because the product was new and it lacked features we needed.)

Bookkeeping technology (there are lots of options now) keeps getting better and better. That's good, because the fundamentals of accounting haven't changed.

The interface, reporting, menu systems, and dashboards have all improved. Bookkeeping tools make it easy for dumb lawyers like me to understand the money.

We use QuickBooks Online now. Some lawyers are in love with Xero, which is slick-looking product. TrustBooks has made trust accounting easier.

Accounting doesn't evolve much, so software experts focus on making products friendlier and easier for users.

The first step to outsourcing your bookkeeping is to subscribe to a cloud-based accounting tool.

The idea of having a bookkeeper show up at your office one day a week for a few hours is like something out of a 1990s sitcom where the accountant is the butt of the jokes (Norm, from the show Cheers, was an accountant. Am I the only one who remembers Norm?). It's routine now for bookkeeping to be done remotely.

Which cloud-based accounting software should you use?

Ask your accountant and let them pick. They’ll probably insist on a certain format for your tax returns (eliminating a lot of tax-time frustrations). If that conversation goes poorly, it’s time to upgrade accountants.

Thankfully, my accountant is software agnostic. He doesn’t care which product generates his reports as long as they meet his requirements.

Once you’ve chosen the software product, find a bookkeeper who's competent with that product.

Whatever software you choose needs to be cloud-based and accessible to everyone. You, the bookkeeper, and the accountant all need access.

You'll want to use the tool’s dashboard to stay on top of your numbers. Using a cloud-based product makes it all quick, easy, painless, and inexpensive. You'll get easy access to your data, plus you'll benefit from constant software improvements and backups.

I still talk to lawyers who hesitate to move their accounting to the cloud. These same lawyers often use their iPhone to access all kinds of cloud services. It's all the same cloud.

You're using cloud-based services for your online banking, phone calls, or when you order your medical marijuana delivery.

Loosen up. Privacy is dead. Your accounting records will be fine in the cloud.

Cloud-based security is probably better than what you get from that $300/ month guy who maintains your seven year old server.

Avoid our mistake: Our books got borked in Texas

Back to the woman in Texas who planned to clean things up for us:

I'm sure we'd have been in great shape if she'd had the foggiest idea of how to do bookkeeping.

A common theme with plumbers, electricians, developers, and bookkeepers is that upon starting, they all tell you how big of an idiot the last guy was and how badly he messed things up. But don’t worry! The new guy will have you up and running the right way in no time.

Yes, our books were messy and our reports were inefficient, but we hobbled along with them just fine.

First, she told us she would clean things up.

Next, she told us that the way we did things was so complex and inefficient that cleaning them up would be a waste. She would build us new procedures and reports. They would be simple, easy, and done in a hurry.

Then we were told that rebuilding our system was taking longer than expected, so she would stick with our previous messy system, but that would require more hours each week to go through the motions.

With each interaction, she became more breathless and frantic. The cleanup was “complicated.”

It turns out that cleaning up was complicated because she was incompetent.

Unfortunately, we didn't know enough to understand how little she knew. She said magic words like “double-entry” and “accounts” and “debit and credits.”

It all sounded like accounting to my lawyer brain. Let's face it: If I understood math I'd have gone to engineering school instead of law school.

We began to realize our bookkeeper was an idiot when she started missing deadlines.

We reached a point where our profit and loss statements simply weren’t appearing in our email inbox. When we asked her about it, she made one excuse after another.

Then the vendors started calling about non-payment. That was frightening. Delays mounted and I started to panic.

Then came the big one:

“My numbers are off,” she said. “You need to put $45k in the account.”

Not exactly what you want to hear when payroll is due in two days.

I went to my accountant for help. He took a look at QuickBooks and told me she needed to go–fast.

Suddenly we found ourselves in limbo. The only verifiable financial data we had was the bank account balance. Of course, we had no idea whether any of that money was ours since we knew vendors hadn't been paid.

The whole situation pushed my capacity to cope with stress.

I knew we had some cash, but I had no idea if we had enough cash to pay everything. I didn’t know if I’d be able to pay myself anytime soon.

All the answers were buried in a mess with a woman in Texas.

I was very, very nervous.

If at first you don't succeed…

We were committed the idea of outsourcing our bookkeeping. We’d done it in-house for a while with mediocre results.

The upside to doing it in-house was that we could physically see when the books needed attention because paper invoices would pile up. We could tell when our in-house bookkeeper was on top of things or when she was more interested in online games.

Truthfully, we weren’t very good at supervising the bookkeeper. She knew we didn’t understand her work; that we were ignorant of her responsibilities. She had lots of freedom to do things her own way.

We imagined a world where our bookkeeper was really a self-motivated small business owner. She would see us as a valued customer and want to keep us happy. She would handle our work on time and maybe even send us a box of pears from Harry & David for Christmas.

My fantasy bookkeeper would be amazing.

 

At this point, things had been out of our hands so long that nobody in the firm could make heads or tails of our accounts. Nevertheless, we couldn’t let Ms. Texas anywhere near our books.

With no other option, we severed all ties and started hunting for a replacement bookkeeper immediately.

We ran an ad on Craigslist and got a quick response from a woman nearby.

She was a stay-at-home mom just gearing up her bookkeeping practice as her kids were going back to school. She sounded good, had some good references, and she knew all those words like “double-entry,” “accounts,” and “debit and credits.”

I was impressed, so I had her speak briefly speak to our accountant. He was impressed too.

She explained that our books were a mess (that conversation gave me a déjà vu feeling), but she started cleaning things up.

Suddenly our reports appeared–on time–and vendors stopped calling about overdue invoices.

Life was good.

Picking a good bookkeeper is tricky

It's shockingly challenging to pick a good bookkeeper.

Asking the right questions is hard when you’re ignorant about the candidates’ expertise. How do you gauge whether they know their stuff if you don't really understand what they do?

You can gain some insight by asking the right questions. Do a little cross-examination and see what you learn.

Then do some double-checking. Trust, but verify, by talking to some references. It makes sense to do a criminal background check as well.

Ask about software proficiency. Most bookkeepers focus on a single software product and become certified by the vendor. Ask what they use and what certifications they maintain.

Then ask how they stay on top of changes and new information. What do they read? Do they attend continuing education? How do they stay abreast of new features in the software?

Ask about how they’ll service your account. How frequently will they interface with your data? How often will they update numbers? What is their monthly process?

Get the candidate to walk you through their monthly process. When will you get reports? What reports can you get? Can those reports be customized?

Ask about their other clients. What kinds of businesses do they service? What problems are unique to those businesses?

This is a good time to get a list of their clients to speak with. Checking references for a bookkeeper is essential since you're going trust them with your vital information, as well as access to your funds.

Look for specificity in all their answers. Bookkeepers need to be precise and literal. You’re not looking for creativity.

We landed in bookkeeping nirvana

Fortunately, the second time was the charm for us.

Our new bookkeeper cleaned up our old data going back more than a year.

She repaired issues from the old in-house bookkeeper as well as Ms. Texas. It took her awhile, but she cleaned us up while simultaneously providing our monthly reports on time, keeping us up-to-date with current financial information, and paying our vendors.

After updating everything in QuickBooks, she suggested closing our old trust account and starting fresh. She wasn't an expert on lawyer trust accounting but she was willing to learn. She took a course, read the rules and handbook, and perfected our process.

She even helped us document our bookkeeping and accounting systems so we'd have records of how to handle things if she left us.

Then we upped our game and refined our dashboards. We created an extensive dashboard system that allows us to make quick decisions by glancing at the data, in much the same way that we use the dashboard in our car to make driving decisions.

Our financial dashboard became central to our decision making.

Our bookkeeper evolved to handle all of our financial issues. She manages all invoices and vendor relations, she deals with client billing, credit card and bank issues, payroll, bank statements and reconciliations, etc.

She may not work in the same office us, or even the same city, but she’s a fully engaged member of our team. She communicates with us on Slack. She receives all invoices via a law firm email address. She has a law firm phone line forwarded to her and she is automatically alerted by our practice management system when payments are recorded. She even transmits all vendor payments and writes all checks, to be printed in one of our offices.

She does it all for us (well, she doesn’t do it personally–she has a small team, but she manages everything seamlessly so our firm never bumps into financial problems) in fewer than eight hours per week.

That includes daily, weekly and monthly reporting delivered consistently and on time. It's amazing, but it’s also the product of lots of hard work, innovating, planning, automating, and technology.

Great bookkeeping is boring, predictable, and seamless

It turns out (in retrospect it's obvious) that bookkeepers work according to a schedule.

A clear sign of bookkeeping incompetence is failure to adhere to the schedule.

We should have known our Texas bookkeeper was headed for disaster when the first deadline slipped.

Bookkeepers live to do certain things on certain days of the month. It's how they roll. It might be that they're tightly wound, or O.C.D., or whatever, but if they don't stick to the schedule, the wheels come off, both personally and professionally.

Their work involves rigid monthly, quarterly and annual deadlines. They must get things done on time.

You can tell things are unraveling when the bookkeeper alters the schedule. There’s very little art to bookkeeping. It’s tight, systematic, and exceedingly boring to most lawyers.

Watch the schedule like a hawk because it's the perfect indicator of performance.

If your bookkeeper isn't delivering on time, it's time to look for a new bookkeeper.

Great bookkeeping isn't simple, but it's predictable. And great bookkeepers love it. They like following the rules.

You too can find a great bookkeeper and get yourself into bookkeeping nirvana. Today, it’s easier than ever to outsource your bookkeeping and find that magically boring, predictable person.

We outsourced our bookkeeping long ago, when outsourcing was less common. There were fewer platforms for finding, communicating with, and paying contractors.

The world has evolved rapidly.

Today it's possible to find someone quickly, check their online reviews, and have them up and running nearly instantly. The nature of communication today makes it easy to find someone next door or on the other side of the planet.

Increased competition and the global marketplace often reduce the price. Many Rosen Institute members have their accounting done in India at a substantial savings over what they might pay in their home country.

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