In October, I attended two different accounting conferences back-to-back – the first industry events we’ve been able to attend in the last 18 months! Meeting, networking and learning from so many great industry partners and experts was quite invigorating. Importantly, I also left the conferences excited about the continuous evolution of our industry and the opportunities it creates for System Six to continue to grow. Here are the main takeaways from Thriveal’s Deeper Weekend and Scaling New Heights.
The currency of our industry is shifting. While transactional services still underpin everything we do, clients more and more expect and need value-add advisory services. Clean books will always be the foundation of quality accounting, but the rise of cloud technology has led to endless integration possibilities, making transaction management less cumbersome than in years prior. So what does this mean for bookkeepers? We’ve got to continue to build and lean into our relationships as agnostic, trustworthy advisors. We’ve got to continue to educate ourselves on all the problems our clients are facing – not just their accounting challenges – so we can provide advisory services beyond just finance. So for System Six, in the coming months and years, we’ll be working on finding new ways to deliver value to our clients, whether through deeper financial advisory capabilities, additional support for HR management, or even technology advisory. Ultimately, we hope to continue to deepen our relationships with customers so that we may best serve them and enable their success. Building this deeper foundation of meaningful relationships rather than transactional services is the future of our industry.
Innovation is the heartbeat of the tech world. In every industry, new services, programs, apps, and vendors emerge every quarter. At these conferences, I had the opportunity to hear firsthand about the latest initiatives, features, and products heading to market. Some will provide healthy competition for some of our favorite vendors like Bill.com and Gusto, who themselves continue to improve. At the same time, others are finding success in filling niche spaces in security or uncategorized transaction automation. We will keep tabs on several vendors as they develop and expand so that we can provide the best service to our clients.
Quickbooks is Reinvesting
While Quickbooks is still our go-to cloud-accounting software, they’ve gotten flack across the industry in the past few years. Whether from the launch of QB Live, a competitor to many bookkeepers, or because of less than satisfactory customer service, the ecosystem has been frustrated with them of late. Fortunately, they are focused on doing right. They are reinvesting in their accounting partner community by overhauling their customer service, reducing wait times, and providing robust training for firms. We look forward to continuing our partnership with Quickbooks and appreciate their efforts to better serve firms like System Six.
Great Industry Ecosystem
The business world often gets a bad wrap as having a cut-throat, competitive culture, but I was pleasantly surprised otherwise. Everyone I met was friendly, encouraging, and supportive. The atmosphere was full of camaraderie and different individuals championing one another. Rather than approaching the industry with a scarcity mindset, other firm owners recognize the endless number of potential customers and the wide variety of unique services in the market to differentiate firms. I left feeling immensely appreciative of “competitors” who treated System Six more like a partner, willing to share information, resources, and encouragement. Take heart; there are fabulous firm owners leading the charge into the next iteration of cloud accounting services.
One of our least favorite tasks is having to make changes in our critical professional relationships. Whether it’s shopping around for a new dentist, doctor, or accountant, the search and subsequent transfer of years of paperwork and documentation can be overwhelming.
However, there are numerous reasons why you may find yourself needing a new CPA as your business evolves and grows. While you may not be able to skip the tedious process of shopping for a CPA that meets your unique needs, you can save yourself time and overwhelm by beginning that search early.
Why You Might Need to Switch CPAs
There are multiple reasons why you might change CPAs. How do you know if it’s time for you to begin that search?
You’ve had a bad experience.
CPAs are part of the service industry, and you are the customer. You wouldn’t continue to go to a store or restaurant where the employees mistreated you. If a CPA is rude or inexperienced, you do not have to stay with them.
They can’t answer your questions.
Your CPA should be able to answer any questions you have without making you feel embarrassed or rushed. Look for a patient CPA who invests in helping you understand the whole process. This professional relationship is built on trust. If you are struggling to communicate with and trust your current CPA, it might be a good time to start shopping around for someone who can better meet your needs.
You need a CPA with specific expertise.
If you are in a highly regulated industry, such as insurance, medical services, or newer industries such as cannabis or cryptocurrency, you will need a particular CPA who is experienced and equipped to help you. Most US states have very specific tax codes and regulations at state level, in addition to the millions of rules at the federal level! If your company operates in several states, you need a CPA versed in national tax codes, as well as state laws. Make sure your CPA understands and is prepared to help you navigate these complexities.
They need to be able to grow with you.
Does your CPA use the same technology as you? Do you share visions of innovation? Are they planning on retiring in a year or two? These are all critical questions to consider as you look for the right CPA. It might not be worth starting a new professional relationship with someone on the brink of retirement or with someone who still works with paper-and-pen systems when all your files and data are digital. Keep the big picture in mind as you prepare questions for a prospective new CPA.
When to Secure Your CPA
Unfortunately, if you wait until January or February to secure a new CPA, you may be too late. Many CPA firms book up by January, and by waiting too long, you run the risk that your preferred firms will not have the capacity to serve you in time for the upcoming tax season.
If you need a new tax-preparing CPA, you need to start shopping around in the fall.
Ask for recommendations from respected friends and your professional network (certainly, ask us!). Then follow up with firms individually for a one-on-one meeting. Don’t be afraid to ask questions or present specific scenarios to gauge how well you would collaborate. Starting this process in the fall provides ample time to vet your options and onboard your company before the crunch of tax season.
Switching to a new CPA may feel like a daunting task, but you can set yourself up for success by beginning early and advocating for your company’s needs.
Is it just us, or does time seem to accelerate as we move into the fall season? It’s like the time between summer ending and the beginning of the holiday season turns into a busy blur, and before we know it, we find ourselves at the end of the year in a mad rush to get ready for tax season.
Fortunately, we know there are small, practical steps you can start taking this fall to have your business ready for the end of the year, so you don’t find yourself scrambling in January. That’s why for the rest of the year, we’re going to be focusing on “Getting Ready for Year-End,” sharing our most constructive ideas on how you can best support your CPA, bookkeeper, and business before the next tax season.
Separating Personal Expenses
Your greatest priority before the end of the year is to have clean books by January before processing documents for taxes. Separating your personal expenses from business expenses is a great place to begin, as it can be a time-consuming job – especially if you get a late start!
Many business owners have separate cards for their business and personal expenses, but sometimes the wrong card gets used. Sometimes larger personal purchases are put on the business card because it’s the one that gives back the most points or discounts with certain vendors. These switch-ups may not happen frequently, but that makes them easy to miss or lose track of.
Where to Begin
As you go through your books to separate the personal expenses from the business expenses, start large and work towards small. Identify the substantial expenses first, like travel and purchases of equipment or assets. Once those are appropriately categorized, move on to the smaller expenses, like meals and office supplies. Just like breaking household chores down room by room makes the work seem less overwhelming, breaking up this expense categorization into different sections makes a potentially overwhelming task much more manageable.
Home Office Deductions
If you are one of many business owners working out of a home office, you can deduct a percentage of your home utilities based on the square footage of your office compared to your house. This is another tedious task that can be easy to forget until your CPA is asking for the numbers in the middle of tax season. As you sort out your personal expenses, take the time now to figure out these square footage percentages before the end of the year. Your CPA or bookkeeper will thank you!
The best way to ensure you don’t miss essential deductions, big or small, is to make personal expenses clean up a monthly rhythm. Much like the dust piles up when you let too much time pass between sweeping your house, your books get “muddier” and more confusing the longer you let them pile up without separating them. Unfortunately, the muddier the books get, the greater the chance is that you’re going to make a costly error.
At the very least, we recommend making a fall month like October your yearly reminder to comb through your books. Avoiding the mistake of waiting until January will save you time, peace of mind and ultimately, dollars.
Last month, System Six founder, Jeremy Allen, was featured as the inaugural guest for Accounting Leaders Podcast. Hosted by Karbon Founder & Director Stuart McLeod, the Accounting Leaders Podcast curates the best resources in the industry through conversations with accounting’s most significant innovators.
Jeremy and Stuart talk about small-town living, from the culinary limits of the midwest to the blessing of living near family in a slower, tighter-knit community. Jeremy’s recent move from Seattle, WA to Holland, MI, opts for colder, snowier winters but relatively easy access to big cities like Chicago and idyllic towns like Traverse City. While COVID may have changed the work-home balance for many individuals, nothing radically shifted in the operations of System Six. System Six has always been a remote firm with team members across more than a dozen states. While other industries struggled with the forced pivot to cloud-based systems, virtual meetings, and communications logs, System Six carried on with business as usual.
“For the first seven years, we had to convince people why the Cloud was good, but COVID accelerated that,” says Jeremy. Remote, streamlined technologies are not just a slick option; they are essential to day-to-day business. Offering a work-from-home option for employees used to make System Six stand out among the crowd. High-class talent sought out the rare opportunity to provide quality CAS from the comfort of their homes. But the shift to at-home work for the entire industry means that System Six no longer offers something exclusive. Stuart points out that this shift, paired with the scarcity and challenge of finding and retaining talent, could pose problems for System Six’s growth in the future. Jeremy acknowledges that, in this case, company culture will probably emerge as their unique differentiator.
Growth and innovation have always been in the DNA of System Six. Jeremy founded the business with neither experience as a bookkeeper or training in accounting. What he was keenly aware of, however, was the day-to-day frustrations of navigating finances as a small business owner. Having launched several businesses before System Six, Jeremy found processes for payroll to be antiquated and lacking in technology advances of parallel industries. While accountants were helpful during tax season, they weren’t always supportive throughout the year and lacked the patience and expertise to provide holistic advisory services. Without someone “in the books” from week to week, financial records would become muddy, late, or disorganized, and only the business owner was left to clean up the mess. Amid his own frustrations birthed his most successful business.
His experience not only resonated with other small business owners but non-profits, churches, financial firms, and high-net-worth individuals. He quickly realized that managing the minutia of receipts and payroll brought immense relief. Their services were both systematic and highly “sticky.” While System Six loves innovation and technology, “slow and steady wins the race” for Jeremy Allen. Stuart asks about the future of System Six, and Jeremy shares exciting opportunities for acquisition or acquiring another business. “It’s always nice to get asked to prom,” jokes Jeremy. Entertaining invitations for mergers is flattering, but the fit has to be more than financial. For Jeremy, the highest priority will always be if a suitor is right for the employees, families, vision, and mission of System Six.
If you’ve ever gone through the process of selling a house, you probably know about that in-between season that lies between living normally in your house and handing the keys over to the new owner. It’s a season of cleaning up and making necessary improvements so that when you eventually do put your house on the market, it’s being presented in its absolute best light.
The same is true when you’ve made the enormous decision to sell your business! Even if you are confident in its value, a season of catching up and cleaning up your financial operations is essential to getting the most value out of the sale of your company.
Of course, like haphazard cleaning and cheap improvements to your house before selling won’t add value to its sale, making last minute improvements in your business’ financial operations won’t pay out – in fact, the opposite may be true. Savvy buyers are on guard for unorganized, sloppy bookkeeping. If your books don’t add up, or there are expenses that can’t be categorized correctly, you’re going to lose value in the sale.
There’s also the matter of reputation to consider here. You’ve invested years into creating what your business is today. What do you want the sale of it to say about your company? What do you want it to say about you?
You could be seen by potential buyers as an “old-school” unprofessional, or you could be seen as someone whose confidence in the value of their business shows clearly in the way you pay attention to even the most minute detail in your business’ bookkeeping
The choices you make in this in-between season before selling will not only impact the value you get out of the sale, but will also affect your legacy.
We’ve honed in on three specific areas that should be top priorities as you get your business’ books cleaned up and ready for a sale.
Every dollar needs to be accounted for in as much detail as possible.
When you’re preparing to sell your company, there is a ton of information you will need to have ready to show potential buyers. These include your financial records, a minimum of three years worth of profit/loss statements, net income statements, tax returns…the list goes on.
It may seem obvious, perhaps, that all these numbers need to be properly balanced and accounted for. What may be less obvious is the value of breaking down these numbers in greater detail than you might assume necessary.
You may be used to using one Quickbooks entry for your company’s “expenses,” but breaking those expenses down into specific, detailed categories (such as regular salaries vs. overtime pay, differentiating travel and entertainment expenses from regular expenses, highlighting parts and labor, etc,) will give potential buyers a lot more confidence in the true profits and expenses of the business.
Identify and remove personal expenses you’ve been running through your business.
Sometimes business owners try to “add back” the value of the personal expenses that they’ve written off through the company, such as family health insurance or personal travel expenses. Problems arise, however, if you have insufficient data to prove to your buyer that these expenses were truly personal.
We recommend identifying and removing these personal expenses from your books, ideally 18 months to a couple of years before putting your business up for sale. This protects your reputation as being transparent and honest, and lessens unnecessary confusion when it’s time to show your statements to potential buyers.
Identify and stop occasional expenses that aren’t recurring.
In that same vein, identifying random, occasional expenses will go a long way in helping clean up your bookkeeping. Perhaps you paid a large, one time payment for a marketing campaign, or sank some money into updating your company’s website. These aren’t recurring expenses for your company, but it can be hard to prove that to potential buyers as they’re looking over your books. We recommend starting to identify and stop spending money in these one-off categories at least two years in advance of selling your business. This will increase your profitability, which will help you sell for a higher value!
Is the reward worth the extra effort?
It’s a simple yes. With clean books, you’ll be a more trusted and therefore desirable target for buyers.
But, don’t just spend time ahead of your sale simply cleaning up your books. The next buyer is likely going to come in and implement updated, efficient systems to the business’ financial operations when they take over. This saves them time and money and therefore increases the value of the business right from the start. They’ll make sure you’re using the latest accounting software, and leveraging good third party tools for efficient bill pay and payroll processing.
Why leave this work for the next buyer? While you are cleaning up your books, also take the time to modernize your financial operations, thereby saving you time and money and increasing the value of your business.
The value you gain will be more than worth the extra effort – and you don’t have to do it alone.
At System Six, we are here to help. Day in and day out, we are helping businesses manage their financial operations and bookkeeping efficiently and accurately. And we love helping organizations get to that point – nothing gives us more joy than sitting back with a client after a few years of hard work and seeing decreased stress and increased profitability as a result of improved bookkeeping.
Are you looking towards the future, and considering what you can be doing right now to get the most value out of your company when it comes time to sell? Consider letting us help you improve your bookkeeping and the overall efficiency of your financial operations.
The decision to sell your business is a massive one. It will not only require practical time and energy but an emotional and financial investment. You will need to pay lawyers and other advisors, and it will demand time from your chief operators and directors. As you collectively navigate this significant transition, anxiety will heighten, and questions will fly. Many owners start down the path towards a sale, only to get cold feet and determine that “the time just wasn’t right.” This can be detrimental to the stability of the business, the team, and future sales. So before you begin the process of preparing your business to sell, pause and ask yourself these questions to make sure you’re truly ready to say goodbye.
1. How much of your personal fulfillment do you derive from your business?
Perhaps you built this business from the ground up, tooth and nail. Or maybe you purchased it in a fledgling phase and nurtured it to success. Whatever the path, you put in years of focused, dedicated energy and care into building a structure, team, and business that you are proud of, and rightfully so! It has probably become more than just your job; it is part of who you are. So how much of your self-worth, identity, and happiness comes from it? How much joy do you get from walking into work on Monday morning, solving complex problems around your conference table, or coming up with a unique solution for your clients? Would you miss the travel, the pace, or the challenge? Who are you when you aren’t at the helm? It’s essential to recognize this business’s role in your personal life – not just the time it takes but the sense of worth it brings you. If it plays a massive role in your personal life, and really defines you, actually handing it off at the end of a sales process may be a lot harder than you anticipate.
2. What will you do with your time?
Elite athletes call this “visualization.” They imagine step by step, moment by moment, the perfect swing of the bat or spin of the dive. Being able to picture something clearly in your mind helps bring it to fruition. It allows your brain to rehearse what it will think and feel when the behavior comes to pass. Can you imagine retirement? What will you do? Where will you go? What does your family imagine? How will you fill your weekdays? What will you do with the money? If these images are vague and incomplete, it might be a sign that – when push comes to shove – you won’t follow through with a sale because you don’t know what is coming next. We are creatures of habit, innately designed to prefer routine to change. Knowing exactly what you’ll do that first Monday morning when you don’t have to set the alarm is an important step to preparing your mind for a shif
3. What problem are you solving?
Sometimes a complete sale is not the solution. But to know this, you have to articulate your problem. Do you want more time with your family? Is the leadership responsibility bringing you too much stress? Is your industry growing rapidly, and you recognize you don’t have the skills (or desire) to scale? These problems can be solved in many ways through partial sales, staffing changes, or operational restructuring to alleviate your actual pain point while retaining your involvement in the things that still bring you life. Selling your business doesn’t have to be an all-or-nothing decision. But you need to know what type of sale/transaction you are looking for before you go down the path.
As modern accountants and bookkeepers, we are here to ensure your accounts are for whatever “next step” you envision for your business. But we aren’t only your outsourced finance team – we are also trusted advisors and partners in your success. If you know you’re nearing the time to sell your business, reach out to us. Of course, we can help you prepare your financial records to ensure you get the most value from what you have worked so hard to build, but we also can help you think through some of the non-financial considerations at play when selling your business. We’ve seen it before, done it before, and are here to help.