Simple Numbers Weekly Accounting Rhythm – The Secret to Live Bookkeeping

Adequate information delivered reliably and timely is far more valuable than perfect information delivered late. This is a concept that’s regularly overlooked in the accounting profession. Live, real time data is what gives you the power to navigate difficult waters – if only because you can see that much further ahead. The secret to getting this gamechanging information may seem mundane, but it cannot be undervalued. It’s all in developing simple bookkeeping practices you can rely on.

It’s a challenge that’s come up with a lot of our clients recently: are you stuck in accounting hell, not getting your books closed and reports timely? It seems like there’s always a barrier, or an excuse, or a problem. When we really looked at it, we realized we live our lives largely on a weekly basis. We needed to come up with a weekly rhythm of every key, critical element of accounting that needs to be touched. Whether it be deposits, invoicing, payments, online banking, credit cards, or payroll, we’ve got a schedule for each of them. From there, you can use it to knock down the barriers to getting your reports timely. I’m going to take them section by section, and dispel all the myths and rumors.

DEPOSITS

We really believe deposits should be done daily. Every check that you get from a customer should be deposited the day it reaches you, whether that means taking paper checks to the bank, or logging into your online bank account to record ACH deposits. Never, ever think that you’re going to wait for the bank to send you that information at the end of the month. You have to make sure that your banking activity in your accounting system – QuickBooks or whatever you’re using – is a LIVE number. Only you know what checks you’ve sent out; the bank does not know that until they clear. If you’re relying on the bank’s balance information to be the live number, you’re just one overdraft away from disaster.

A key point of control here: the person opening the mail and scanning the checks should be a different person than the one who makes the deposits. If you have the ability to separate those duties, do so. Otherwise, if you can’t control it by segregation of duties, you have to control it by using insurance. Just make sure that you have a fidelity bond if you think you cannot afford to separate the duties. Your property and casualty insurance representative can make sure that you have that coverage and it is usually relatively inexpensive.

The second important rhythm is a daily email of the day’s deposits and bank balance that’s in your accounting records. It’s vital that this isn’t what the bank says, it’s what’s in your accounting records –this ensures you’re living out of your accounting system, because again, this is a live number. We prefer the deposit detail to be listed with the bank balance, unless you have a thousand people paying you daily, in which case you would do it in summary. But we think it’s a critical thing to know the pulse and the movement of your cash on a daily basis. It’s valuable to see the cyclical process – typically everyone takes a big hit when they run payroll, and then you see it build back up as you’re depositing checks. Even if you don’t get checks on a particular day, you’d still get an email with the bank balance, and a note that there were no deposits.

The other key to this – and we think this is important in all quick, flash reporting – is don’t do this report as an attachment to an email. You want it in a simple format, cut and pasted into the body of an email if it started as a word or excel document. Do not make it an attachment. People have every intention of opening that attachment, but it just doesn’t happen.

INVOICING

Invoicing should be done on a weekly basis, if at all possible. I get it that it sounds good that you should invoice once a month, but even if you have a monthly rhythm, I would highly recommend that you break those customers up into segments and have a weekly billing process. If you are constantly in the rhythm of billing, you will find that the quicker you send an invoice, the quicker you get paid. Now, if you’re in the services industry, and you’re doing billable hours, what you’re really doing is providing a staffing model. If you can bill those weekly, then great, but at least bill for those every two weeks, and you will see overall improvement in your billing process.

I love to remind people that accounting doesn’t have to be done by accountants. Accounting is a process, and as we say, we can teach a near vegetable how to use QuickBooks – and how to produce an invoice, too. The trick is defining the process. When the kid behind the counter at McDonald’s presses the button with the picture of the Big Mac on it, he’s done accounting. Because when he presses that picture, it goes through the POS system, telling it the cost of goods, the cost of labor, the cost of food, and how much change to return to the customer. All it takes is defining that process one time. Move the big rock, get that piece done, and you can have your sales people producing invoices. If you’re worried they won’t do it correctly, at least have them initially produce it and have someone else review it, because the closer you can get your invoicing to the actual function of the person doing the work, the better.

If your billing is done outside your bookkeeping system – and this is a common thing for people who have operational systems and don’t do their invoicing out of their accounting system – it’s very, very important that you reconcile those two systems. In our case, we have a time and billing system for our firm that is totally separate from our QuickBooks. The billing system is the first to know that the invoice is going to the customer. QuickBooks gets that information second, entered on an item by item basis. We don’t get the detail entered into QuickBooks, but we know the customer, the invoice number, and the amount. QuickBooks is then the first system that knows when a customer has actually paid, but then we have to take that data and put it back into the time and billing system. So those two systems should reconcile. Those are processes that really should work on a regular basis, and the key is the discipline of taking a specific day of the week for that process and making sure it happens week after week.

PAYMENTS

You have to stay out of the noise of trying to pay bills every day. Our goal is to pay bills every Monday. Our admin person – she’s not even an accountant, we taught her how to do bookkeeping – posts all the invoices that we receive into QuickBooks on Friday morning, and produces a two-week cash flow report. That comes to me between two and three o’clock every Friday afternoon. You cannot underestimate the power of that report being issued on a timely and repetitive basis. It gives me a quick and simple look at two weeks out, giving me two weeks of warning if I see a problem coming up in our cash flow. It all starts with that weekly rhythm. We only release checks to pay vendors on Monday – so if somebody comes by and says “I need a check now,” we say, “Great, we cut checks on Monday, is that quick enough?” We almost never cut a check any other day. It would need to be an emergency. They key is using your accounting system in the way that best benefits you, not how you may think a field describes itself. Like the due date field – consider only using Mondays as due dates, if Monday is the day you’ve chosen to pay your bills. You would put the Monday before something is due as its due date, so that it gets to the vendor timely and you don’t incur a penalty. That makes your reports of when things are due very orderly. This also helps if you find yourself with cashflow problems. This happens a lot. You have good intentions, and your bookkeeper just cuts a bunch of checks, but you realize you can’t afford that. We don’t like that process. The way we do things, with our two-week forecast coming out on Fridays, before we cut the checks, I can see if we’re low on cash and tell our admin person which checks to print. For this reason, the two-week cash flow report should occur the business day before you print the checks.

Here’s another thing – turn off the automatic sweep feature on your bank account line of credit. Sweep accounts may seem like a great idea, but they create unnecessary noise and movement in your bank account and only junk up reconciliations and the like. I prefer an active process of setting up your cash position on a week-in and week-out basis. That’s the key, so that if I’m looking at my two week forecast and I see that there’s lots of bills coming up and I need to draw on my line of credit to keep bills current, then I set my position, I draw back on the line, and release the checks. If I have excess cash, then I make the decision to pay down against the line, and then reset cash position the following week. Those are key processes that make life a lot simpler.

ONLINE BANKING

Today we’re moving into a lot more electronic transactions, also referred to as ACH (Automated Clearing House) transactions. Again, don’t wait on the bank statement on these. The idea of waiting on a bank statement is utterly antiquated. You can log onto any bank, anywhere, any day. This is a critical process that we think is the first thing your accounting department should be doing each day: logging into your bank account and looking for activity that the bank knows, that you don’t know. You then take that information and faithfully input it into your accounting systems that day. And I’ll put in my plug for this – if your accounting department doesn’t have a two-monitor environment, they should. They can be logged into your bank account on one screen, and in your accounting system on the other screen, so that while they’re in the bank account they’re entering those transactions and making sure that it balances for that day.

You can also take advantage of the tremendous alert systems that banks have built into their online banking process. You can utilize these systems to notify you every time the bank receives a transaction that you might not have been notified of otherwise. The process of a customer sending you notifications when they’ve sent a payment, those are not necessarily trustworthy. We’ve had situations where a client had received advice of payment, but the payment didn’t actually show up until a month later. So those are flawed processes – but when the bank gets it, you know you have it.

Following these steps allows you to do a “soft reconciliation” – you can click off the items that the bank knows about, and you know about, and you both agree on. You’re essentially building a bank reconciliation on a weekly basis. Then when you get to the end of the month, you just reconcile that last week of activity, and you hit ‘reconcile.’ And you’re done. It really removes excuses. So next time an accountant tells you, “I’m waiting on a bank statement,” it’s not good. You can decide your own responses, but I wouldn’t be a happy camper.

CREDIT CARDS

Same process as for online banking. Keep in mind, every time you hand a credit card to someone for payment, or enter a number into a website to make a payment, you’ve written a check. Sloppy accounting is waiting until the end of the month to get a statement to then start chasing everybody down to figure out what was spent. Once again, almost every accounting system, including Quickbooks, allows you to download this activity on a regular basis. We prefer weekly. So once a week you’ll download activity, and if it’s a repeating vendor, QuickBooks will code it to the last code that was used. You can change that if you need to, or add descriptions, but you need to be putting every single charge into your accounting system, because if you get audited, the #1 thing they will go straight to is credit card transactions. And if that auditor is pouring through paper transactions, you are opening yourself up to a tremendous amount of scrutiny, and reaching much further back than is necessary. So we want to see you putting those transactions in your system. Plus, it gives you vendor accountability, and greatly simplifies reporting. You can pull reports to see what you’re spending with specific vendors, for example. If you don’t want your accounting department to have full access, you can provide read-only access. You don’t have to give a person ability to transfer funds or take out a cash advance. You can still accomplish getting the accountability you need from setting them up with view-only access.

PAYROLL

The last rhythm to get right is payroll. Once again, looking at things in simple terms, people live their lives on a weekly basis. People have monthly bills, but we find that the most common way to pay people is every two weeks. The only aggravation with that is there’s two times a year you have a three-payday month, and there’s techniques that we’ll talk about in later blogs as to how to deal with that aspect of it, but the two week payroll is the most common. The ones I don’t like are the monthly or semi-monthly payrolls, because those are quirky periods, they make it a challenge if you’re dealing with overtime, or other pay issues like that.

We like QuickBooks Assisted payroll services if you’re on QuickBooks. It totally automates the process and leaves all of your detail data inside QuickBooks. That way you can do analysis of payroll and point payroll to the right places natively inside QuickBooks. If you’re not using QuickBooks Assisted, we prefer using some other service, because otherwise you’re opening yourself up to the possibility of fraud. What happens is, the person responsible for the payroll tax returns prepares them just like you think they should be, but then they don’t send them in. And unfortunately, the IRS does a pretty lackadaisical job of following up if they don’t see a return. This is especially risky if this is the same person that intercepts the mail, because then even if you receive notices, that person can hide them, and this can go on for some time. One of the most common kinds of fraud in a business is actually payroll tax fraud. That’s why we really like QuickBooks Assisted. Because when you hit ‘transmit,’ they take out the net pay and the payroll tax deposit, send it to the appropriate federal and state agencies, and you’re done. Your W-2’s magically show up on your doorstep the second week of January. The same thing should happen if you’re using Paychex, ADP, any of the other big payroll services. Beware of PEO’s (Professional Employment Organization) that are small – because as well-meaning as they might be, if they get into financial challenges, and they fail to pay your payroll taxes, you are still liable. Same for any of the straight payroll services providers– as much as I like to support local businesses, with those things, you’ve got to be really careful. If you are going with someone local, check with your insurance company to make sure you can insure that risk. It can be an enormous liability that grows to dangerous levels before you even realize there’s a problem. So for that reason, there’s a general tendency to go with the larger, more established companies for payroll services.

Payroll tax deposits – don’t think that you can float these. If you do still intend to do your own payroll (which we don’t recommend) never, ever wait to make the tax deposit. Every time you make a payroll, make the deposit, immediately, and you’ll never have to know what the deposit rules are. That’s really the standard of care. The other thing is, if you have an outside service, you need to automate the handoff of the payroll entry. This is the problem a lot of people have – they just process the payroll and think they’re done. But with payroll, you have a big net number for the payroll itself, and a big net number for the payroll taxes, and those go to a lot of different accounts in your accounting system. The payroll taxes are some withholding, some pure tax, and the net pay is not truly gross pay, so it’s a non-analytical number – therefore you’ve got to record it correctly. Playing into our big concept of labor efficiency measurement, you’ve got to record gross pay correctly, and you’ve got to report it timely.

THE REWARDS

The result of following these processes is a marvelously uncomplicated month-end close. Say the month ends on a Wednesday, and you’ve kept everything live – on Thursday you can hit ‘print.’ We’ll talk a little bit in later blogs about how to improve your reporting, but first you have to get down this essential process of acquiring live data. Remember, it’s more important to have adequate information timely, than perfect information late. When people are taking a long time to get perfect information, you open yourself up to the possibility of fraud, where someone’s really cooking the books to tell you what you want to hear, until they can’t keep up the illusion any longer and the whole thing shatters.

Following these processes has been a real gamechanger for us, and for a lot of our clients. We know it works, because we’ve seen it work all over the country across a wide spectrum of businesses. Sometimes all it takes is you making a decision to remove a barrier that you’ve unintentionally put in the process, that’s causing a delay. Get all the gears turning right, and you will have a machine that reads you the heartbeat of your business, every single day.

Keep the numbers simple, and I think you’ll see your profits improve.