Bookkeeping services and options

I’m aware that many accountants provide bookkeeping services for their clients. In some smaller firms this is all part of the service. In others it’s done more as a necessity when a client’s recordkeeping is based on the practice of  ‘we throw all the papers into a bag or box and let the accountants sort it all out for us.”

I think it’s fair to say that many people are confused as they are unaware that anyone can call themselves an accountant (or indeed a bookkeeper). So small business owners do not know whether they need a bookkeeper as well as an accountant. And of course some accountants provide bookkeeping services as part and parcel of their accountancy service.  It can be helpful therefore to clarify with clients which approach to bookkeeping will best suit them (and you).

Some accountants are more than capable of writing up  a client’s annual accounts and preparing their tax return from a bag or box of what we used to call ‘incomplete records’ when I was training (many years ago!)  Other accountants get stuck doing bookkeeping for their clients simply because it’s one of the services offered when the practice began.  Is it the most effective solution for the clients? Is it satisfying for the qualified accountant whose expertise stretches way beyond that of a ’simple’ bookkeeper?  I mean no offence to bookkeepers here – I simply mean that their training, knowledge and expertise is, by definition less extensive than that of a qualified accountant.

So what are the options for small business owners when it comes to bookkeeping these days?  I think there are six alternatives.

  • DIY – best only attempted after recieving guidance from an experienced accountant or bookkeeper;
  • DIY using an online bookkeeping package such as kashflow;
  • DIY using a bookkeeping package on their computer – eg: sage;
  • Use a postal service – sending off their monthly invoices and receipts etc to a service provider who writes up their books  and then returns all the paperwork by post (eg: this service);
  • Engage an independent vetted bookkeeper who knows what they are doing – such as someone provided by this service; or
  • Let their accountant write up their books when they produce the annual accounts and tax returns.

Some accountants employ bookkeepers to do the work for clients. Again this probably makes more commercial sense than the accountant undertaking all the bookkeeping themselves – unless they have the time and inclination to do so.  Bookkeeping service provided by employed or sub contracted staff made available by the accountant may be the ideal solution – especially once the practice has grown such that the qualified accountant can focus on more rewarding activities themselves.

Historically it was quite common to ignore bookkeeping during the year and to simply produce annual accounts from the papers and records collated by the business owner.  This is no longer a sensible course of action – as I explained in a posting on the TaxBuzz blog last year: The end of the old paper bag jobs?

Continuing such an approach may deny the business owner the facility to claim they took ‘reasonable care’ in the event that HMRC identify any careless errors. The new penalties regime became law in 2007 but only really comes into effect as regards tax returns for periods ending on or after 31 March 2009. It’s now the case that where the taxpayer can show they took reasonable care to avoid errors HMRC are no longer allowed to charge penalties as regards consequential underpayments of tax.  So effective bookkeeping throughout the year now has another benefit to commend it. And so it makes sense to think through which approach you wish to advocate to your clients. Indeed this may be the perfect opportunity to encourage clients to adopt a more efficient solution than that which they or you may have adopted through default.

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What does Added-Value mean to you?

Many accountants and other service providers talk about providing “added value” to their clients.

A friend of mine, Marcus Cauchi (who is a seller who trains selling not a trainer who teaches sales) makes the point that:

“Added value” is only added value if the prospect acknowledges a real (or perceived) need for the particular aspect of the product/service.

This is a key point. Each client (and prospective client) will have differing needs and priorities.

Whilst some firms have a menu driven approach to services and fees, most adopt a standard approach. Thus their fee structure and approach involves all clients receiving the same “added value” service.

You may want to consider whether all clients and prospects perceive a need for and a benefit from these ‘value adds’ that you provide or promise. Some may cost you nothing. Some may really be intrinsic to your style and approach. And some may be expensive in terms of cash or time.  Are they really valued in the mind of those for whom they are intended?

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“I doubt I’ll sell my practice when I retire”

A smaller practitioner shared this view with me recently. He is 60 and his current turnover is around £120k. He said to assume his net profits are around £80k pa.

My friend had noted that were he to sell his practice he would be lucky to secure a capital sum of much more than £120k (being around once times his recurring fees).

After paying 18% CGT, at current rates, he would be left with, at most, around £100k (and this might only be received over a 12-24 month period).  If invested the annual income from this figure would be a very small amount as compared with his current £80k annual income. Of course one hopes he would also receive pension income too. However my friend had an alternative plan:

He reckons that it would make more sense to simply allow the practice to run down. As long as he feels comfortable and competent to continue servicing clients why bother trying to sell his practice? If he ends up with a practice that’s only one quarter its present size his net income would be around £25k. To achieve the same figure from investments would require him to have £1m in the bank.  There’s no way he could sell his practice for anything approaching such a figure.

I was wondering how common is such a view and approach or are there other options for my friend to consider.

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Is it worth the time it takes to learn how to use social media?

A lot of people choose not to explore social media as they don’t have the time. In effect they want to know if they will be able to identify a ROI for the time spent learning about and engaging with other people through online social media?

In the same way as you might ask the question – Is it worthwhile trying to learn a foreign language?

The analogy isn’t perfect – they never are. But I think it’s fair to suggest that you wouldn’t expect a good ROI if you spent time learning Chinese but never went to China, engaged with other Chinese speakers or read any Chinese books/magazines.

If you were to ask – Is it worth me learning to speak Chinese for business purposes the answer would probably be ‘NO’ – unless you anticipated that your customers, suppliers, or business would have some involvement with China and Chinese speakers in the future.

If you were uncertain as to how much business there might be in or with China in the future you would be unable to predict the ROI for the time it might take you to study, practice and learn Chinese. BUT, after a little investigation you would be right to weigh up the time, effort and money involved and to consider whether there might be better ways to invest it. Maybe there’s another language you would be better off learning first or instead?

And in the future, when you look back at the time, effort and money expended on learning Chinese you would be able to determine if it had been worthwhile. You might also be able to identify the value of orders and the profits that you can attribute to having learned Chinese.

I doubt that there are many people who take a crash course in Chinese but spend little time learning how to pronounce Chinese words, make a hash of writing Chinese characters and don’t attempt to learn anything about Chinese culture or the differences in the way that the Chinese address each other and approach business. Such people would be unlikely to ever achieve any ROI or benefit from their half-hearted attempt to learn Chinese. And if we’d known how they were going to approach it we could have predicted that outcome.   It’s the same with social media. Indeed I’ve heard it said that some people approach social media as clumsily as some people visiting a foreign country.  It’s like a Brit who visits China and tries to converse in French.

Anticipating the usual drivers for accountants I wrote a piece last year on Blogging myths for accountants. And then another explaining why I thought that ‘Twitter is not for accountants‘. I’ve since shared a range of tips and advice for those who want to experiment with twitter.  If you are inclined to experiment with blogging, to find out more about twitter or any other social media, online networking or business forums I would suggest that you bear in mind the analogy above.

The issue you then need to resolve is that if you want the investment of your time to be worthwhile, you will need to consider how you will ‘use’ the media.  However, until you learn more about social media you won’t be able to assess how you will ‘use’ it.  Catch-22?

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