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by The Bean Team on March 06, 2018
*Estimated Read Time: 9 1/2 Minutes
Being a business owner is hard work. You’re constantly working to grow your client base, market your services, finetune the work you do, adjust your fee model...and these to do’s barely scrape the tip of the iceberg. Many business owners work well over 50-60 hours a week, but it’s a labor of love. Financial planners who’ve launched their own RIA truly love the work they do. They love pouring themselves into marketing and client work. They love talking to prospects and helping to develop financial plans that will change lives.
But do you know what they don’t love? Bookkeeping.
In fact, the general consensus is they hate bookkeeping. A survey that TD Bank performed with over 500 business owners revealed over 50% of those surveyed deem bookkeeping as their most dreaded “business owner task.”
We get it - bookkeeping might not be fun in comparison to the other cool business-owner tasks you get to engage with everyday. However, as not-fun as it may be, bookkeeping is absolutely essential for running a successful financial planning practice. Because, at the end of the day, you need to know your numbers.
While we all know this is true, many financial advisors are still practicing some bad bookkeeping habits. These habits are bad for your business on several levels. First, they prevent you from maximizing your profits. Second, they prevent you from working efficiently to maximize your time. And finally, they’re hurting the way you view your business. Inefficient and ineffective bookkeeping strategies can quite literally bring your financial planning business to a grinding halt. Let’s go over the top eight bad bookkeeping habits we see in practice every day - and how you can kick them to the curb.
Bad Habit #1: Using Excel Spreadsheets
If you’re still using excel spreadsheets to track your bookkeeping, it’s time to step out of the dark ages and into the 21st century. We understand the motivation behind this bad habit: as a new business owner, you feel the overwhelming need to do everything yourself. Excel (or Google Sheets) is an easy - and cheap/free! - system to use. You probably use it in other areas of your business, too, which makes it even more tempting to slip into this habit without thinking twice.
What’s more, using an Excel-type program is easy. There are hundreds, if not thousands, of easy-to-implement Excel templates out there for bookkeeping. You can have your business’s books up and running in a matter of minutes.
Why It Doesn’t Work
As much as the Bean Team loves a good, cheap option to simplify the lives of our clients, we know using Excel spreadsheets to keep your business’s books isn’t a good idea. First, you’ll always run the risk of using a bad formula or an outdated template. These small errors, while easy to fix when they happen once, can compound over time. This could mess up your numbers and derail your books. It’s also important to remember that a simple spreadsheet isn’t going to scale easily as your business grows and becomes more complicated (i.e. when you hire team members).
The Bean Team Solution
Skip the spreadsheets and go straight for an accounting software. At FA Bean Counters, we use QuickBooks and find that it’s an excellent solution for most advisors. There’s no guesswork when it comes to formulas, and you can easily run reports to help better predict cash flow and more.
Bad Habit #2: The Dreaded Shoebox
Seriously - stop using a shoebox to store all of your receipts and paperwork! You may be questioning who could possibly have this bad habit, but you’re just as guilty if you have a sloppy method of filing receipts. It’s easy to accumulate paper invoices and receipts, especially as a busy advisor who might be traveling for conferences or meeting clients for coffee.
Why It Doesn’t Work
It’s so important to have a system for tracking your receipts other than just stuffing them into the proverbial shoebox. Having a system for your receipts can help you:
- Stay on top of your expenses
- Immediately account for expenses that are tax deductions
- Get a better understanding of your business’s cash flow
- Correct areas where you’re overspending
- Implement an efficient business budget (and track your progress)
If you’re still abiding by the old “shoebox” method of piling your receipts into a random receptacle and then promptly ignoring them, you’re likely missing all of these opportunities for your business to succeed financially.
What’s more - if you keep all of your receipts but don’t do anything with them, you’re likely to overlook small business expenses such as $10 for printer ink or $30 for a travel expense. These expenses feel small at the time, so you may not even bother keeping the receipt at all. You need a method for immediately capturing an image of the receipt, or you will struggle to accurately track all of the small expenses that add up over the course of a year. Although it may not be a $10,000 difference in your deductible expenses, it can certainly make a positive impact.
The Bean Team Solution
Find an accounting software with a mobile application. Most accounting software programs now have the capability to snap a photo of the receipt or invoice on your phone (or screenshot on your laptop) and upload it directly to the transaction record in your books. This completely erases the need for holding on to the hard copy, and you’ll always be on top of recording your expenses correctly.
In the long run, not only will this keep your business much more organized, it will also help to save you money as you claim deductions on your business taxes and help you stay on track with your budget by keeping your spending top-of-mind.
Bad Habit #3: Failing to Set “Due” Dates
Raise your hand if you’ve ever scrambled to get your business taxes paid and your personal taxes filed by the federal government’s due date. The truth is, most financial advisors experience this at one point or another.
Why? Because they don’t have any “due dates” of their own when it comes to their bookkeeping. Without self-inflicted due dates for keeping your receipts organized, running financial reports, and staying on top of your quarterly taxes, you’re more likely to scramble come year-end and at tax time.
Why It Doesn’t Work
While there’s nothing wrong with sliding in just under the deadline, it’s definitely not an efficient way of getting things done. When you don’t set personal “due dates” for things like attaching receipts to transactions in your accounting software, tracking expenses, adjusting your business budget, staying on top of invoices that clients haven’t paid, paying quarterly taxes, or looking over financial reports - you lose track of the big picture.
You won’t be able to have a clear grasp of your business finances unless you have regular check-in points to make sure everything is up to date and on track. If you only truly check in once a year, you could be missing major problems with your spending or missing big chunks of deductible expenses.
Not only do you lose track of the big picture, you also waste time. By scheduling “due dates” for yourself to keep you on track, you become more efficient in your bookkeeping practices. In short: you get to spend less time doing the bookkeeping tasks you hate and more time actually engaging and thriving in your business.
The Bean Team Solution
Haul out your planner, calendar, or scheduler of choice and block out a chunk of time every month to go over your finances. Start with an hour or two each month, and slowly try to pare down over time. The more you stay updated, the more you’ll perfect your process.
Bad Habit #4: Skipping Procedures
We all know that having clear and documented procedures in your business operations can help things run smoothly. So why is it that so few people set good bookkeeping procedures for both them and their teams to follow?
The truth is many of these bad habits tend to compound. If you wait all year to organize your business books, it’s tough to have a documented procedure in place for getting (and staying) on top of things. Your procedure may be: pull several all-nighters until this is done, breathe a sigh of relief, wait until next year, repeat. Even though this means your bookkeeping is technically getting done, there’s definitely a better way of doing things.
Why It Doesn’t Work
Having a clear method of knocking your bookkeeping tasks off your checklist is incredibly beneficial. It makes your life easier come tax time, it helps you get a big-picture view of your business finances, and it keeps you on top of things in case something goes wrong with your budget.
More than that, though, if you don’t have clear bookkeeping procedures, it will make scaling your business more difficult. It’s hard to bring someone in if you don’t have your financials organized, and it’s even harder to pass the “bookkeeping” baton to another team member if they can’t step in and seamlessly follow the procedures you already have in place.
Finally, skipping bookkeeping procedures is a bad idea because it’s a waste of your valuable time. If you approach bookkeeping in a non-systematic way, you’re likely to spend more time than needed on these tasks. Respect your time as a business owner and you are likely to be more profitable and more fulfilled.
The Bean Team Solution
Start documenting your procedures. When you block out a chunk of time each month to work on bookkeeping and business finances, jot down a list of tasks to run through each month during the allotted time. Stick with it, and adjust as necessary if you find more tasks pop up.
Bad Habit #5: Not Checking Reports
If you’re not regularly reviewing financial reports, how do you assess the health of your business? Regularly keeping tabs on what’s going on with your books helps to set goals, see the big picture, and move toward success.
Why It Doesn’t Work
As a financial advisor, you know how important it is for your clients to understand how much cash they have flowing in and out. The same principle applies to your business.
By running regular financial reports, you’ll have a better picture of your day-to-day expenses. You’ll be able to identify room for improvement, foresee potential issues as your business grows, find ways to save money, and identify where in your budget you have room to spend a little more.
The Bean Team Solution
When you build your bookkeeping procedure document, add a list of reports you want to run monthly, quarterly, and annually. Make a few bullet points about what information you want to take away from these reports, and what you want to do with the information. For example, you could adjust your budget, or the salary you take, after checking a quarterly cash flow statement.
Bad Habit #6: Not Knowing Your Deductions
This is one of the biggest bookkeeping bad habits we see financial advisors make. It’s a fairly common conversation to hear in advisor networking groups. However, you can’t believe everything you hear. Taking random advice on what expenses are tax deductible can hurt you in the long run.
Why It Doesn’t Work
If you’re DIY-ing your bookkeeping, you may be relying on your own limited knowledge to qualify expenses as tax deductible. Whether you’ve always assumed something is tax deductible or not, it’s worth taking a step back and using a professional bookkeeping service or accounting software to categorize things automatically as tax deductible (or not).
So many business owners fall into the trap of making assumptions when it comes to their expenses. They assume they know what category an expense will fall under and they assume they know what they can declare as tax deductible. As a result, many financial advisors miss deductions and therefore lose out on money. On the other side of the coin, just as many advisors miscategorize an expense and assume it’s deductible when it’s not.
The Bean Team Solution
Talk to a professional bookkeeper about your expenses. They’re up to date on what’s deductible, what’s not, and how to categorize expenses to maximize tax savings. It’s not your job to know everything about your business taxes. Taking the time to speak with someone who does this for a living can help to ensure you have everything categorized correctly.
Bad Habit #7: Failing to Integrate Bookkeeping Tasks
Do you invoice and process payments using a different program than you use to track time or to organize client information? Which one do you use to keep your books up to date? In an era of all-in-one technology, you don’t need to use more than one tool to do all of your bookkeeping-related tasks.
Why It Doesn’t Work
Redundant technology can be a fast way to drain your budget, but managing multiple programs is a waste of time and energy too. You start each day with a finite amount of energy. Once it’s spent, you don’t get it back. If you over-complicate your accounting, you’re overspending your energy on a very small aspect of your overall business.
The Bean Team Solution
Modern accounting software can integrate the management of timesheets, mileage, expenses, quarterly tax payments, invoicing, receipts, reports, and more. Again, at FA Bean Counters we use QuickBooks for invoicing and bookkeeping. However, Advice Pay (an XYPN-affiliated company) is a new accounting software on the market for financial advisors and it’s the first of it’s kind to abide by all custody regulations.
Bad Habit #8: DIY-ing Everything
Being a business owner requires you to wear many hats for the sake of your business. You want to see your practice succeed, so you’re willing to learn basic web design, marketing, sales - you name it! Often times, bookkeeping falls under this do-it-yourself umbrella. While we encourage advisors to be in the loop with their business accounting, taking a 100% DIY approach to your bookkeeping is a bad habit that can hold you back.
Why It Doesn’t Work
You’re busy and we all know what happens when you get busy - things slip through the cracks. It doesn’t matter how amazing you are when it comes to your business accounting. You could have beautiful procedure documentation, stellar software integration, and have a firm grasp on your cash flow, but if you’re busy, you’re bound to make a mistake eventually.
Some mistakes can be forgiven. You can recover from missing a blog post or taking an extra day to respond to a prospect email. But a bookkeeping mistake? Even small slip ups can cause problematic damage that’s difficult to remedy.
The Bean Team Solution
We love working with financial advisors on their bookkeeping and we understand each practice needs a different level of involvement from our team. FA Bean Counters offers several bookkeeping solutions so you can pick what’s best for your business today with the option to adjust as your business grows or your needs change. Contact us today to break your bad bookkeeping habits!