Keeping clean financial records is an essential practice for any entrepreneur. Obviously, great books are necessary for your taxes, but they are also a treasure of rich data from which you can gain useful insights about your business.
Even though we all know we should keep pristine books, not many entrepreneurs actually enjoy the process of managing their finances. We look at it in the same way that we look at going to the dentist: We’ll do it because it’s good to do. And most of us will do them only once or twice per year.
That’s why most entrepreneurs hire a bookkeeper. So how do you separate the good, honest ones from those who will hurt more than help? In my business facilitating the sale of online startups, I review a lot of financial records, and unfortunately I can attest to the fact that there are many low-quality bookkeepers. Through this time reviewing books, I’ve gathered four questions to help separate a quality bookkeeper from a low-quality one, which will help your business in the long run.
How Will I Be Able to Access My Books?
Even though the bookkeeper will be working on your books most of the time, you as the owner should be able to view them at any time and have administrative control. So you should ask the potential candidate how you would be able to see your books if you decided to hand over the reins.
- Which computer program will they use? The recommended product in this area is Quickbooks, so give points to the candidate if they immediately and confidently give that reply (most will).
- Will the accounts be kept online for easier viewing? Online accounting software has come a long way over the past several years and offers a great way for you to collaborate with your bookkeeper.
- How often will they update your books? There is nothing worse than getting an email from you bookkeeper asking you to remember a $30 check you wrote eight months ago. Your bookkeeper should keep your books up to date on a monthly basis at a minimum. You’ll want to have quick and easy access to your books so you can view the growth of your business.
- What would happen if you fired them and had to hire another bookkeeper? Would you still have administrative access to your books? Can they guarantee a seamless transition to their replacement?
How Would You Handle This Scenario?
Now it’s time to test their professional skills by giving them hypothetical scenarios and asking them how they would deal with them. The point is to test them with the vagaries of your business. A good bookkeeper will understand that your financials aren’t just for the IRS — they’re also for you. So they should be motivated to record your businesses financials in a way that tells you the story of your business.
Some possible scenarios you could put to them include:
- What is better for your business, accrual or cash-based accounting?
- You want to loan money to another startup you invest in. How would they record this?
- How would you track multiple expenses that occur out of a cash withdrawal?
Can You Explain the Difference Between a Few Things?
How well can your bookkeeper explain difficult concepts to you? Whenever you hire a professional, they should be willing to help you understand a unique area of your business. An excellent way to find out how well your bookkeeper can explain foreign concepts is to ask candidates to explain the purpose of the balance sheet. Most business owners don’t have a firm grasp of a balance sheet, but your bookkeeper should. It’s often ignored, but it’s an important document.
The final test is to crack open the books and let the candidate inspect them. Ask them to point out actual and potential problems. When you are interviewing multiple bookkeepers, they will give a variety of answers and will help you to decide which one is the best fit for your business.
Your financial reports contain an absolute wealth of information and data about your business, but most business owners don’t have a solid set of financial records to reference. Therefore it pays to have the right bookkeeper who will do a first-rate job from day one. And then, when the day comes to sell the business, those books will help to ease a smooth sale.
A version of this post originally appeared on the author’s site, here.