As an entrepreneur and business builder, your financial system is the lifeblood of your business. The financials tell the story of cash flow, which keeps employees, and you, paid and provides an investment to keep the business operating.
But what does a good accounting system even look like? What do you as an entrepreneur with growth aspirations need to have in place? Your spouse may be a great bookkeeper at first, but what about down the road when your business grows even more?
Before Kahuna Accounting existed, our founder and CEO Frank Lunn experienced every type of accounting system imaginable. Through this experience, he learned what separated a good system from a bad system, and built Kahuna Accounting to always provide the best possible service for our clients.
So how do we evaluate accounting and bookkeeping?
Learn to SURF!
At Kahuna, we’re all about surfing the waves that come our way.
We have come to use SURF as an acronym for evaluating and executing any objective, which stands for:
S – Survey U – Understand R – Respond F – Focus
SURF provides an outline and context for any decision.
Too many times we jump right into “respond,” without a true evaluation of what’s in front of us. And many businesses do this with accounting. There is no surveying, understanding, or even focus. To make any type of response, there has to be a firm understanding first, which comes from surveying.
Our goal here at Kahuna Accounting is to provide you with a framework and an analysis tool to evaluate your accounting system and make an objective evaluation. We’d like to introduce you to our Delta Framework.
Business is dynamic and constantly changing. Delta is the mathematical symbol for change.
To have any hope of business success, we need to be able to SURF waves of change and have a framework for evaluating processes that are never static.
At Kahuna, Delta Framework is how we SURF. It’s an analysis tool for evaluating a critical component of business when there are numerous variables to consider.
Do you evaluate your clients to know if they are good clients or could be better? If so, how?
Profitability is just one aspect of having a profitable and growth worthy group of clients. There’s also intrinsic information. Do they respect your time? Are they easy to work with and talk to? Are they needy? Do they send you referrals?
You could have a high paying client that’s a complete disaster, and you could have a low paying client who is worth their weight in gold because of the relationship and their dedication.
Delta Framework makes this evaluation make sense. Here is how it works.
Plotting the Quantitative Measure (Y Axis)
The Delta Framework will plot any relationships or business process on a graph to provide you with a score. First, you have the Y-Axis that goes up and down.
This is where you plot what you can measure. In the evaluating a client example this would be the profitability or revenue side. What you can measure, is quantitative or anything that has hard data can be used here. To keep it simple, plot it on a scale of 1-10.
Plotting the Qualitative Measure (X Axis)
On the X axis you need to go with your gut. You don’t have hard data, but you can measure this with accuracy with a little thought. What strategic value does the relationship have? Does the person make you excited to work with them? Is the relationship valuable at a high level?
These items aren’t measured with data, but are crucial in any evaluation. If we only go on base data, we’re missing all the strategic long-term value.
In our client example, this is where we’d look at referrals, their gratitude, how easy they are to work with, how much value they bring back to us outside of writing a check.
Your Delta Analysis in 4 Quadrants
When you combine the X Axis and the Y Axis you can now plot your situation on one of 4 quadrants in what we call the Delta Analysis Graph.
When you rank your X and Y axis between 1-10, you can now plot on the graph and will be in one of the four quadrants. We’ll explain the importance of the quadrants below, but for now it’s important to understand the power of this type of evaluation. What this does provide an analysis for your clients, or whatever you are looking at with a clear understanding of what is needed to improve.
If something is strong on the X axis but weak on the Y axis, you can find out why. This is much more valuable than simply evaluating as good or bad, profitable or unprofitable. It gives a dynamic way to plot your evaluation.
And in the case of plotting clients, you can come up with a scatterplot of all those you work with and evaluate the business as a whole!
Delta Framework to Evaluate Accounting
So how does this help with accounting? Like we said above, most business owners don’t have a framework or context for evaluating their accounting system. You just work with what’s there. We use the Delta Framework to break this down and put any accounting system into one of the four quadrants.
Our goal in this is to help you understand what is possible. Too often, we see entrepreneurs settle for mediocre. We assume there has to be a trade-off. Either I get something I want on this side, but have to sacrifice on the other side, or vice versa.
Or in the case of accounting, entrepreneurs often drift into a solution that is just OK, but then as they grow, it becomes a real problem. This evaluation tool will provide a path toward an accounting system that gets the essentials done, plus provides a strategic engine for your growth.
Y Axis for Accounting
In evaluating the Y Axis in accounting, we call this Bookkeeping Bandwidth and Accounting Acumen (choose your alliteration). Essentially this side asks the question, do you have someone on your time who understands accounting and crunches numbers?
Ways to evaluate this are questions like:
Do your invoices always get out on time?
Can you track exactly who has and has not paid you and what your accounts receivable are?
Do you have financial reports every month?
Does your bookkeeper have a strong understanding of the technology tools you are using to reduce friction and data entry?
Is tax season simple and easy or a nightmare?
The Y Axis is the typical, boring stuff we associate with accounting. Is it getting done and done right as efficiently as possible?
X Axis for Accounting
Like anything with business, your accounting is dynamic, changing and more than just number crunching. We also have to look at the intrinsics.
We call the X Axis the Dream Driver component of the evaluation, meaning how much does your accounting solution align with your vision and dreams for the business. How is it helping you achieve victory?
Is your bookkeeper someone you trust? This is your financials after all.
Does your bookkeeper/accountant get you and where you are trying to go?
Do you feel like they are part of your team and helping you where you want to go? Do they help you look forward and make better decisions or only backward to tell you what happened in the past?
Plotting these measures is very telling in evaluating your accounting. However, when you combine them, you have an amazing insight into your business situation.
Red = RUN!
This also shows itself in situations where there is fake support and fake skill, while they are embezzling and destroying your dreams while padding their own with fake expenses or misaligned expense allocation or outright theft. Sad, but happens so often and what is worse is the entrepreneur is the last one to know. To paraphrase a popular credit card commercial’s tag line, “Who’s in your wallet?”
This is why, for many, accounting is just a necessary evil. It’s a task that has to be done, but is painful and quite frankly – it sucks. The accounting provides no strategic value or insight for growing the business or building something for the future.
If your situation is in yellow, it’s kind of, “Meh.” It can get the job done, but if you are serious about building a business, you’ll quickly find yourself being held back by this stifling process.
Blue = Bless Your Heart…
Many businesses start here, because you need to find someone you trust to help you out – and you can’t afford to bring in professionals. So you do it yourself, or you let your spouse do it, or you have a trust office administrator role who wears 27 hats- and bookkeeping gets added on.
This might be good for a time, but it is not sustainable. Unfortunately, when it ends or you have to move on, the intensity of the initial enthusiasm converts to negativity and discord. What little good might have been done initially (most likely to try and save some money) ends up costing more in the long run.
The problem with all of these examples is whoever is in the role lacks the accounting insight to help you with the business. And as the owner, this adds pressure to you, because you don’t know how to manage the role or how to improve it.
Green = GREAT!
This is the best of both worlds, where you have the accounting off your plate, handled by technically proficient professionals, but you also get it broken down into your language aligned with the specific goals you are trying to reach.
The books are done, you are seeing reports, you a proactive and forward-looking and tax season is a breeze. No this is not a myth – this is what all businesses should aspire toward – an accounting solution in the Green Quadrant!
What is the ROI of Getting to Green?
The sad truth is too many business fail and they fail because they run out of cash. Your accounting system holds the insight you need to track your cash and profitability to ensure your business is healthy for today and the future.
Even with that in mind, many businesses settle when it comes to accounting. We see businesses every day that are in the Blue, Yellow, and often Red quadrants. That’s because we aren’t aware of how big of an impact it has.
Getting your accounting system to the green is about getting your business and a track for victory. It’s about aligning your business with the goals you have with a true game plan.
Too many businesses say they want great things, but don’t put in the systems in place to get there.
If you are settling with your accounting, you are making a trade-off somewhere. If you trade off in competence, you’ll always be worried and eventually things could come crashing down. If you trade-off trust and strategic value you’ll never get a clear picture of what’s happening and could be at risk of theft or embezzlement.
Success in business is about not having trade-offs, but the best of all worlds together.
That’s what the Delta Framework provides and when applied to accounting it can mean peace of mind about the future and a renewed commitment to achieving your dreams.
How We Built Kahuna Accounting to Always Be in the Green Quadrant
At Kahuna, our solution is entrepreneur-centric, built to always be in the green. We do this because we are fluent in accounting and in entrepreneur.
We have a full team of accountants, bookkeepers and CFOs who can crunch the numbers and provide insight into what those numbers mean to ensure victory.Read More About our Accounting Solution for Entrepreneurs