Tag: small business owner

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State of the Union: The Irrelevance of Good Accounting?

State of the Union: The Irrelevance of Good Accounting?

financeI’m a little concerned, and any professional in accounting and finance who works with small businesses should be just a little concerned, too.  Why?  Because there is a belief out there that some nifty software and Internet Of Things (IoT) approach to finance will ultimately eliminate the need for a small business to work with skilled, trained accounting professionals.  Remember the marketing slogan introduced by Intuit with QuickBooks – the one that suggested that, “if you can write a check, you can do your own books”?  Most accountants will tell you that it is not true, and the ability to operate a product like QuickBooks does not magically turn poor accounting and bookkeeping information into good business data.  In fact, it most frequently enables bad information to turn into bad business decisions – quickly.

DIY bookkeeping solutions have been around for a while, so why the distress about it now? Up until this point, it hadn’t been so overtly stated to small business owners that having less-than-great accounting data is very much OK, and that the role accounting professionals play in small business finances is more of a burden than benefit.  Consider the statement made by President Obama in his recent State of the Union address:

“Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford”

If I’m an accounting professional, I am pretty steamed up about that statement because I know how screwy business accounting data gets when the work is done by folks without the proper training.  Incorrect or improper accounting treatment can make a big difference when it comes to filing those taxes mentioned…. and not in a good way.  That transaction on the bank statement… Is it a cost of goods sold or a regular business expense? Is it an asset or supply item? Is it a reimbursement or revenue?  Is the payroll deduction before or after taxes?  Is that even a viable payroll deduction item?  These questions and more arise frequently in a small business, and the treatment for these items is improper as often as not.

There is a big value in what a trained accounting professional can offer a small business owner, and the value often translates to eliminating unnecessary tax burdens and the delivery of accurate reporting – both of which are really important when it comes to actually trying to grow a healthy and sustainable business.

Small businesses are often considered to be the fuel powering our economy.  Doesn’t it make sense for us all to recognize that smarter businesses are likely to be more successful, and that more successful small businesses means growth in the economy?  The importance of good fiscal and financial management and reporting – in business and in government – is not something to minimize, and suggesting that it takes no intervention or skill to do the job properly reflects poorly not only on the person saying it, but on the entire establishment.

jmbunnyfeetMake Sense?

J

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Lease Accounting Rules, Small Business Financing and the Cloud

Lease Accounting Rules, Small Business Financing and the Cloud

Cloud Service FinancingThere are changes in lease accounting rules that may have broader implications than expected.  Lease accounting, or accounting in general, isn’t exactly an exciting topic and generally doesn’t come up in conversation.  But the changes to how business equipment and other leases are accounted for and reported could become additional fuel for cloud adoption by businesses – small business looking for financing, in particular (= lots).

First, what does accounting for leases have to do with small business financing?  Quite a bit, actually.  The balance sheet is one of the things a lender will look at when considering a small business for a loan, and if lease obligations and leased assets are on the balance sheet, they’re going to want to talk about them.  They’ll also possibly look at asset turnover – trying to understand exactly how much in assets it takes for the business to make “x” amount of money.  Banks and other lenders like to know they’re loaning money to a business that is going to pay it back, and in a reasonable amount of time.  They will limit their risk potential as much as possible, and they do it by looking through the financials and related information.

Business value is generating sustainable cash flow.  If you run a highly efficient business, the more top-line growth you deliver, the more cash flow you enjoy.  For capital-intensive businesses (either through the need for capital equipment or working capital), growth can actually lower your cash flow and diminish your business value.   To understand which side of the equation your business resides, accounting professionals will often look at the return on total assets calculated over time, dividing the operating income for each period from the P&L by the appropriate period values of total assets from the balance sheet.  The resulting metric describes how efficiently assets are applied to creating earnings.

https://coopermann.com/2013/01/22/why-is-asset-management-important-to-a-business/

This can be a difficult conversation with the banker for new businesses, as they have little to go on in terms of historic data to show the bank.  The P&L (profit & loss, or Income Statement) only reflects current business performance, not what it can do in a few months or years.  By putting leases on the balance sheet, businesses are now reflecting a more realistic view of things, but are also introducing additional items for scrutiny and question by the lender; things which are often described more in terms of business strategy than in proveable numbers.  That makes getting the loan just that much tougher.

Previous rules relating to business leases didn’t necessarily require that the business recognize operating leases (leased items and lease obligations) as assets and liabilities on the balance sheet.  This is among the reasons why businesses lease equipment – they are able to obtain the item without having to record a single large capital expenditure.

The FASB changes demand that accounting for leases should be standardized, forcing the lesees to report all leases on the balance sheet, reflecting both the benefit (asset) and the cost (liability) associated with the lease.  Stated in a press release on the subject: “The new guidance responds to requests from investors and other financial statement users for a more faithful representation of an organization’s leasing activities,” stated FASB Chair Russell G. Golden. “It ends what the U.S. Securities and Exchange Commission and other stakeholders have identified as one of the largest forms of off-balance sheet accounting, while requiring more disclosures related to leasing transactions.”

“a capital lease creates a tangible right where you own the equipment; the liability in a capital lease is true debt…”

http://www3.cfo.com/article/2013/9/gaap-ifrs_lease-accounting-elfa-fasb-iasb-global-convergence

By understanding how these changes in accounting for leases impact businesses, cloud solutions providers now have an additional lever to use with prospective customers: leasing equipment isn’t necessarily the way to keep capex off the balance sheet any longer.

One of the big value propositions offered by many cloud solution providers is that their service is paid for as a monthly business expense rather than a large up-front capital expenditure and investment.  Businesses are able to use the solution and benefit from it without actually “buying” anything, it’s just subscribed instead.  All of this is really a fancy way of saying “renting but not owning”, but the result to financial reporting is the same: it’s not on the balance sheet, it’s on the P&L in chewy chunks.  This used to be a preferred treatment for leases, too, allowing businesses to reflect the usage and payment in little parts rather than a big one.  It was “gentler” on the balance sheet.  But leasing equipment and software for on-premises use won’t be competing with the cloud and subscription service any longer, closing off the “impact to the balance sheet” conversation entirely and making cloud IT just that much more important to small businesses who need cash to fuel business growth.

Make Sense?

Joanie Mann Bunny FeetJ

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Criteria for Evaluating QuickBooks Hosting Providers: Going Beyond Pricing

Criteria for Evaluating QuickBooks Hosting Providers: Going Beyond Pricing

When a small business elects to run their QuickBooks desktop edition software in the “cloud”, it makes sense to work with an experienced provider – a company with the people and the experience to keep the QuickBooks desktop software working properly and securely.  The keys to selecting the best provider for the business are often hidden in the experiences of others; experiences which reveal issues that may significantly impact vendor selection and which have nothing to do with the price of the service. Criteria such as system performance, responsiveness to technical issues, resources for self-help, and knowledge of support personnel – these are the things that more frequently and directly impact the customer experience and, ultimately, the customer’s loyalty.

While Intuit supports QuickBooks Enterprise in terminal server and Remote Desktop environments, they only support the license when it is deployed for the single business organization the license was issued to. If a business has lots of different users on the platform and those users don’t belong to the one company who “owns” the infrastructure and the license, then the implementation is non-compliant and won’t be supported. Intuit also doesn’t offer direct support for QuickBooks Pro and QuickBooks Premier editions in remote desktop implementations, yet the software will work perfectly well in that environment. There are a few quirks and tricks to using the software in this manner, however, so provider technical experience specifically with QuickBooks is essential.

When working with a company providing managed application hosting services and not just managed server platforms, it generally means that the provider is taking responsibility not only for the server/network/infrastructure, but also for the setup, configuration and maintenance of system users and security, and the installation/management/maintenance of the applications running on the server.  When a business elects to outsource this level of service to any 3rd party, there are a variety of areas in addition to pricing which should be thoroughly explored prior to signing the service agreement.

When evaluating potential service providers, research the provider’s offerings and performance directly as well as evaluating the public’s perception of them, considering these 4 areas:

  1. Technology
  2. Innovation
  3. Business Practices
  4. Customer Satisfaction

The technology evaluation relates not only to the systems and tools applied to the service delivery, but also to the systems or tools applied to assist the customer with dealing with the service.  Too often, providers pay more attention to their ordering systems than their service delivery, believing that a quality customer experience rests more with simple purchasing processes than with a functional and well-performing application service.  Others may focus on delivering the best and highest quality application service, yet relegate their clients to sending emails or making phone calls to place service orders or request service information.  The providers who score the highest points in this category are those who recognize that both elements – service delivery and service administration – are critically important to providing a quality overall customer experience.

The innovation evaluation looks at the actual service infrastructure and delivery. This includes features as well as limitations.  One of the pitfalls of being an application service provider is the inertia created with existing systems and customers.  Once the platform is in place and there are a bunch of users on the systems, upgrading and updating the underlying technologies can be a tremendous challenge.  I have often related this as being like trying to change tires on a moving truck.  Unfortunately, systems age and lose functionality, compatibility, support, etc.

Keeping the platform updated isn’t the only element involved with scoring provider innovation.  Even more important than simple change management supporting status quo, true innovation speaks to efforts directed towards crafting a better, more functional and more useful solution delivery.  Many skilled technicians can set up a terminal server for remote access to QuickBooks using the “standard” tools available, but it takes more skill and understanding to create a service which offers more and better capability than everyone else.  The point isn’t that the provider is changing QuickBooks software in any way – that’s not really an option.  Rather, it is in how the provider elects to architect their systems and solution, and whether they are attempting to improve the experience and deliver with a unique approach rather than a generic one.

With increased competition and as some provider platforms experience challenges either due to age or capacity, certain “interesting” practices have emerged.  I now look at these business practices as part of the process of evaluating providers.  In the early days of hosting and application delivery, the business practices of various providers had some similarities, but not any more.  The practices which frustrate me most and which always cause me to score the provider with low marks in this category relate almost exclusively to transparency – or lack thereof.  Here are two scenarios which I’ve seen come up with some frequency, and which (in my opinion) are indications that the provider may not necessarily be one you want to work with.

  • A business has signed a one-year service agreement with a hosting provider, and has been required to prepay that annual contract.  The business was not provided with a demonstration or evaluation system prior to executing the service agreement; they simply trusted the information provided by sales.  After a few months on the service, the performance and support are so poor that the business wants out of the annual agreement, even though high service levels and support responses were part of the contract.  In order to be allowed to end the service agreement and stop paying for the service, the business was told they would have to not only buy out a portion of the remaining contract, but also sign an agreement not to communicate the service problems they experienced or the exit agreement terms with anyone. (*please note that I am essentially in agreement about having to buy out a committed term agreement, at least in part, but applying a gag order? Not so much).
  • A business is using the services of a hosting provider, and has a need to know details of their delivery (like server operating system version) in order to verify compatibility with a new software product they wish to purchase.  Before the business customer is allowed to obtain the information, the provider requires that they sign an agreement promising not to disclose the information they may receive to any other party.  (*note: While I recognize that this type of agreement is desirable to protect proprietary information, it is more often used to prevent the prospective customer from disclosing something potentially negative, and it certainly doesn’t do much in terms of building trust.)

The final evaluation is on customer satisfaction, where anecdotes and information is collected from both current and past customers of the provider.  Admittedly, much of this information I scour from various forums and discussion groups and interviews but it is truly amazing what you can learn about a business simply by listening to customer stories in various social venues.  The picture these stories paint is often (frequently!) very different from the “happy sunshine and rainbows” testimonials you find on websites and in marketing brochures.  Of course, who would buy from a provider who says their “support is great until you’ve been with us for a month, and then we pretty much don’t care about you any more”.  Also, people tend to be more vocal when they’re mad about something, so there is often more negative than positive out there in the social realm, so weight that carefully.  But the fact that certain provider names come up more often than others is the clue; when you don’t see the provider name come up in these discussions, it usually means they’re simply not making people mad.

There is a lot to consider in selecting the right service provider for the business, and the items listed above are just part of it.  While there are some (few) standards among application service providers, it is still what some might refer to as an “emerging” model and will continue to evolve with the market demand and technology.

For now, businesses just need to know that their solution provider is trustworthy and willing to communicate honestly and completely. Selecting the right provider – a provider who supports their business and model with full transparency to the client –  will help the business move forward just as the wrong provider is more likely to hold it back.  While pricing is an important and unavoidable aspect of the discussion, businesses should also put some focus on these other elements which help to reveal how the provider works with their customers, and to determine whether or not they can (or will even try to) meet your requirements now and in the future. 

Make Sense?

Joanie Mann Bunny FeetJ

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QuickBooks In-House Hosting Services for Accountants

QuickBooks Hosting Services for IT-Capable Accountants

DIY-SelfHostingSmall businesses in large numbers are looking to the cloud as a platform to deliver solutions for the problems of escalating IT costs, mobility, and remote access to business data. The cloud is also becoming the recommended platform for the delivery of services from accounting and bookkeeping professionals, as the benefits of remote data access and real-time collaboration nicely address the requirement for accounting pros to exchange and share information with their business clients. One of the popular “cloud” hosting solutions addressing a collaborative accounting model is a hosted application approach to using Intuit QuickBooks desktop products. While accounting professionals may be aware that QuickBooks can be hosted by 3rd party providers, many firms are not aware of what is referred to as the “self-host” model, which is a QuickBooks hosting model for accounting firms with some in-house technical capability.

For small businesses and many accounting service providers, working with a 3rd party hosting provider makes a lot of sense, as the host has the infrastructure and the support organization necessary to service large-scale hosted customer requirements.

On the other hand, there are a lot of accounting and bookkeeping firms which have skilled in-house IT personnel who are more than capable of creating a hosting environment to serve not only their internal needs, but also to meet basic requirements of the QuickBooks-using clients they work with. It makes sense to explore the possibilities of implementing a “self-hosting” model for client access to QuickBooks, overcoming the cost and other barriers involved with 3rd party hosting services.

When an accounting firm works with a number of clients with QuickBooks desktop edition files, the firm has to install and manage not only their own software products, but also the relevant QuickBooks software products in use by the various clients (must have the right QB program in order to open the QB data file). This often puts an undue burden on the internal IT systems of the practice which has its own internal-use software and systems to support. With an internal hosting approach, the firm can provide standardized/centralized application hosting services to their clients, building their own “economy of scale” on the platform and reducing the IT management while achieving all the real-time and remote access benefits of an outsourced hosted model. The firm does not experience a retail cost for a hosting solution, and the cost to host the client is generally offset through the efficiency gained at the firm level through direct access to client data and applications.

The technical model for delivering hosting services to a relatively small client base is not overly complicated. Commercial service providers have complex architectures because they must serve a large and diverse client base, and they never really know what sort of devices (computers and printers) or connectivity the customer may have. Commercial providers have to be prepared to deal with any and all situations, where a “self-host” firm needs only to concern themselves with supporting their particular client users and use cases. Additionally, when the solution is offered as part of the accounting or bookkeeping service, the support requirements of the customer tend to be focused during mutual working hours, as opposed to the 24×7 support demanded of the commercial host.

As accountants and bookkeepers search for solutions to improve efficiency, increase profitability and differentiate services, it makes sense for those serving QuickBooks desktop clients and having an in-house IT capability to explore becoming a QuickBooks self-host. It is one possible way to eliminate cost as a barrier to working closer with QuickBooks desktop clients while providing the mobility and collaboration businesses need.

 

Make Sense?

Joanie Mann Bunny FeetJ

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Why Accountants and Bookkeepers Use the Cloud

When businesses do business, they generate a lot of information. In most cases, this information has a relationship to a financial transaction of some sort, like a bill from a vendor or an invoice or sales receipt for a customer. It can be difficult for a small business owner to find the best way to manage the information about customers and products and suppliers, and figuring out the best way to handle the bookkeeping and accounting is often a secondary issue. Sure, it’s important to know how much money is in the bank, but online banking helps with that. For a small business owner trying to keep their operation running, the biggest problems are the ones they face every day, like remembering which customer likes which products, or knowing which suppliers will deliver in a pinch. Bookkeeping just isn’t a huge focus other than during tax time because it doesn’t help them get business done.

It is this question of value in daily bookkeeping and accounting work that business owners and their accounting service providers alike struggle with. Certainly, most business owners recognize the necessity to get the books done, but it is generally for compliance purposes alone. Payroll taxes, sales and use taxes, personal property taxes, income taxes – these are the items that business owners think about when they think about accounting. If you see it through the eyes of the business owner, accounting = paying taxes. It’s a tough value proposition for the accountant, when you think about it. The business owner has to pay someone to figure out how much they have to pay someone else. Yeah, try to sell more of that, and good luck.

The cloud, on the other hand, is helping accounting and bookkeeping professionals change this perspective. It’s a relatively new working model for some even though the idea has been there for a long time. Better information helps business make better business decisions, and accounting professionals can help businesses implement the controls and processes which ensure that the information is complete and accurate; they can help make the information better and more meaningful.

Remotely accessed and hosted desktops and application models have been around for quite a while, too, but only recently has the market begun to realize the full potential of the hosted model. We have the investment in SaaS solutions to thank for this; they blazed the trail for online application adoption and created awareness of the possibilities around hosting and anytime/anywhere access. The SaaS and “true cloud” applications continue to gain in popularity and acceptance, yet the hosting model is providing businesses with the ability to retain use of their business applications and data yet benefit from the same managed service and remote access that other online solutions provide.

When you look at how public accountants and professional bookkeepers work with their clients, the concept of creating shared access to accounting applications and financial data makes a lot of sense. Time and distance are the real issues to be solved – the business owner and their accounting pros generally work from different locations, and likely need to access the information for different purposes at different times. If they aren’t in the same place and using the same tools, how efficient can the collaboration truly be? With the cloud, on the other hand, collaboration is fully enabled and allows each user to do what they need to regardless of the location and time.

As the accountant or bookkeeper is able to work more closely with their client (using the same tools and the same data in real time), information can be processed more regularly and with a higher degree of accuracy. Outsourced accounting and bookkeeping providers are then able to give their clients more timely and accurate financial information which supports making better business decisions all the time. Helping with the organization and processing of information as business happens, fewer gaps are found in the data and the improved controls protect against data loss or misclassification. The data becomes more useful in that it contains more details, is more accurate and complete.

For the accounting professional, the benefits are many. Not only is the professional in a better position to deliver tangible value to the client (much higher value than just a tax bill!), the value is delivered more frequently which increases the overall value perception of the service being provided. Note the word “value” is used a lot here; it is the basis for billing clients for the useful nature of services provided and not on the time it takes to provide them. Internally to the accounting or bookkeeping business, the increased efficiency introduced with real-time application and data access means that processing workflows and resources may be more streamlined and handled with a great level of efficiency, which drives improvement in profitability and the consistency of service delivery.

There are a lot of new and exciting products and services emerging: cloud application services, artificial intelligence and automation, and the Internet and Interfaces of Things.. and businesses are being encouraged to adopt these solutions for a variety of reasons. For accountants and bookkeepers working with small business clients, there is no doubt that the cloud, hosting and online collaboration are the keys to helping get more and better business done.

Joanie Mann Bunny FeetJ

Read about Hosting All My Applications in the Cloud

or more about the Collaborative Online Model for Small Business Accounting Professionals

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What’s Motivating Small Businesses to Move to the Cloud?

When information technology professionals tell their small business clients about cloud computing, it often sounds even more complicated, risky and expensive than in-house networks and business Internet access once did.  Business owners are faced with discussions about hosted or SaaS or hybrid and ask what will I do when the Internet goes out? and how secure is it? and will it work with my iPad?… and often get one of two responses from their local IT guy:

  1. The cloud is just a way for software companies to make more money.  I can keep your IT running better in your office and save you a lot.
  2. If you move to the cloud you have to do a lot to make sure it is secure, and you won’t be able to run all your applications (but we’ll back up your data to the cloud so it’s safe).

Now, you can’t really blame the local IT guy for being a little bit wary of some cloud solution offerings because these local IT guys really are (in many cases) trying to operate with the best interest of their client in mind.  It’s just unfortunate that sometimes a lack of information causes them to revert to their comfort zone, which is selling servers and performing on-site installation and break-fix work.   What information are these folks lacking?  An understanding of the various options and capabilities available with hosting services and cloud solutions, and how the IT provider can continue to be the advocate and IT manager for their clients even as those clients move their primary information technology to the cloud.

For many years business owners have relied upon their trusted local IT professional to help them find solutions to various business problems.  Answering questions and helping procure and implement computers and networked systems, software applications, backup solutions and more, the IT professional serving a small business customer base has necessarily become the one-stop-shop for everything related to computers.  Smaller IT service companies often rely upon regular sales of server equipment and network installations to pay their bills.  It’s no wonder that these companies have a hard time accepting hosted solution models, as they see their revenue potentials dwindling as fewer servers and networks are sold to small businesses.

The interesting trend being viewed these days is that more business owners are looking beyond their IT professional to find solutions to the problems they deem as high priority for business technology: mobility and remote access.  It is not necessarily that the self-service technology model makes more sense for small businesses (businesses can still benefit tremendously by getting training and implementation support from their local IT guy), but simple and affordable cloud solutions have addressed many of the small business IT challenges that were previously big revenue streams for local IT service providers.  Savvy business owners will find solutions that work for them, and will look beyond their immediate advisors if those advisors aren’t providing the right answers.

When a small business owner talks about mobility and is looking for answers to the remote access question, they are not thinking about GoToMyPC or other remote control technologies and simply connecting to an office PC.  Small business owners today are talking about central access to information at any time from any place and with whatever computing device they happen to have available at the time.  For a small business owner, the benefit of the cloud is a largely emotional benefit – being able to stay in touch with the business at all times.  The real benefits may be improved security, simplified management of information resources and pay-as-you-go pricing for business applications, but these are often value statements which fall on deaf ears just as the cost/benefits of upgrading the server every 2 years did.

It is tempting to focus on logic and reason, discussing the tangible benefits of any business information technology model or approach rather than how it makes us “feel”.  Productivity metrics, best practices in security, total cost of ownership… these are all the right areas to pay attention to when selecting any technology solution for a business.  But really, when it comes to selecting technology for small businesses, the business owner is in the driver’s seat, and that owner wants one thing: to see what’s going on all the time.

Make Sense?

Joanie Mann Bunny FeetJ

read more about The Psychology of Small Business IT Adoption

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