Is your accounting a mess?
If your accounting is in bad shape, we can connect you to some recommended resource for making it simple and and actually working for your business.
Trust us, it’s likely a mess!!Discover Your Accounting Status
When we first meet a lawyer or entrepreneur, this is what they tell us about the state of their bookkeeping. “It’s a mess, and I need someone to help me fix it.”
Fortunately, a mess is not impossible to get out of and it can be turned around.
On the other hand, we know a lot of small law firms and businesses who have just accepted their fate and believe a mess is the only way to handle their financials. We encourage you today to NOT be satisfied with a messed up or broken system for bookkeeping. It’s adding to your stress, limiting your opportunities for success and costing you time and money.
It’s time to fix the mess!
Step 1: How to Know You Have a Mess
Determining if you have a mess is the easy part. Chances are you are already well aware of the mess. If not, these are some common indicators.
• Thinking of talking to your tax preparer makes you want to cry
• Your tax preparer thinking of talking to you makes him or her want to cry!
• You have a stack of paper and receipts on your desk
• You can’t pull a Profit and Loss statement on demand
• You use a practice management system or invoice system, but it has no integration or alignment with an accounting system
• You are re-typing invoices or having to double-entry all of transactions
The list goes on and on, but for most attorneys, small law firms, and entrepreneurs with a mess, this is your reality. You’re looking backward, playing catch-up and never have a true sense of where you stand financially.
Step 2: Prioritize Fixing the Mess
As stated above, many of you are aware of the mess, but aren’t exactly motivated to fix it because of one of three reasons:
1. You believe that’s just how it is and have accepted it
2. You believe it’s too hard or expensive to fix the mess and would rather not deal with it
3. You haven’t yet been burned by the negative outcomes a messy accounting system can have on your business
Let’s break down the cost of the mess and then we’ll get into how to fix it and hopefully you’ll start to prioritize making a change. Here are 5 reasons your bookkeeping mess is killing you:
1. It is costing you money
At Kahuna Accounting, we have so many cases of bringing clients into our system and once we’ve dug through their history, they find invoices that were never paid from long ago. With a mess, things will fall through the cracks and you will lose money.
It also costs money at tax time when you aren’t able to get strategic advice and you spend money on getting the mess cleaned up.
2. It is costing you time
This is the most obvious, but when you have a mess, you spend more time chasing paper, searching emails, calling vendors, entering data and trying to figure things out.
3. It is raising your anxiety
When you don’t have a good system in place for your bookkeeping, your anxiety goes through the roof. You are not using a disciplined approach but instead are reacting and playing catch up.
4. It is putting you at risk
We covered this topic in-depth in this guide, but when you have a mess as an attorney you are putting your firm at risk to mishandling funds within your IOLA or IOLTA trust account. More commonly, your business could be at risk by falsely reporting revenue. Get a good system and reduce the risk.
5. Your business is suffering
When your bookkeeping is a mess, you don’t have the ability to see margins or understand what part of the business is performing well. This lack of insight puts you at a huge disadvantage because you aren’t able to make informed decisions with hiring, marketing or anything else to build the business.
Step 3: Fixing the Mess
With those 5 reasons in mind, let’s hope you’ve committed and said, “I’m tired of this mess, I’m ready to get it fixed. What do I do now?”
Let’s again break this into 5 steps:
1. Proper setup
The reason so many law firms and small businesses currently have a mess for bookkeeping is 99% of them never got started correctly. And when you’re off from the start, it’s only going to get worse over time.
The first step in getting on the right track is to stop and start over. That might not sound like the easiest fix, but your accounting system has to be built on a strong foundation, just like a house built on rock instead of sand. You need a new system with a clean slate and to start rebuilding the transactions. How to get that setup will be covered in the next points.
2. Proper tools
Attorneys are likely very reliant on a practice management system. For internet-based entrepreneurs, invoicing systems serve the same purpose. Many of the attorneys we work with love using Clio to manage their matters and serve their clients.
To complete proper bookkeeping, you need accounting software to setup and document all transactions.
You need to get into an accounting system you are comfortable with and that works well with the practice management system you are using. Invoicing is not enough. If you’re using Clio, you can integrate it with QuickBooks Online or Xero for a comprehensive financial solution. However, the nuances of this integration can be confusing.
3. Chart of Accounts
When you are getting your fresh setup, what you need to create in the accounting system is a chart of accounts. Your chart of accounts is the structure of your business’ accounts where you can book transactions to the proper accounts.
4. Reconcile Regularly
Once you are setup properly, meaning you are in accounting software, your bank accounts are integrated and you have a chart of accounts, you are way ahead of the game.
Now the goal is to regularly reconcile transactions so your financials are up to date and helpful.
What this means is you need to categorize every transaction that happens – everywhere that cash moves. When you receive a payment, you need to tie it to a revenue account and invoice. When you pay a bill, you need to reconcile it to an expense account and tie it to a receipt. You would have set up the expense and revenue accounts in your chart of accounts.
Bank reconciliations are something that requires discipline. Many business owners get lost here because they let things pile up. Reconciling your transactions is like doing the dishes. If you do a little bit every day it’s not a big deal. But if you let them pile up, now you’ve got a real mess.
When you reconcile regularly, you’ll have access to real-time information and financial reports that are extremely helpful for guiding your business. If you can reconcile regularly, you’ll have everything you need to complete your bookkeeping and have an easy tax season by providing the proper reports at the click of a button.
5. Get help when you can
Even though the steps of fixing your mess are simple enough, at some point, it’s good to recognize your time is not best spent reconciling transactions.
A best case scenario is to find someone who can do the setup for you, integrate your systems and who will reconcile transactions regularly and send you financial reports.
Ultimately, however you choose to solve it, the key is that you are prioritizing fixing your mess. A financial mess will choke your business and keep it from growing and thriving.
If you’d like help, Kahuna Accounting specializes in turning bookkeeping messes into beautiful, simple accounting systems. Reach out to schedule a call and we’ll talk about how we help.