With more than a decade of experience as an accounting professional in both the public and private sector, Erika Paul is a Certified Public Accountant and VP of Finance & Accounting at Greater Sum Ventures. With a knack for details and an aptitude for organization, Erika oversees financial reporting, works to integrate new acquisitions into best practice systems, policies, and procedures, and coordinates with the team to make strategic business decisions.
In a recent interview, Erika revealed her tips for managing the books of a small business…
Should companies commit to using a bookkeeping software?
Absolutely. I strongly discourage using Excel and Word for bookkeeping. Even for an experienced accountant, it’s difficult to keep everything straight. A platform like QuickBooks Online, which is typically more than enough for a business owner, starts at just $30 a month. It’s just not worth all the extra effort and the huge potential for error to not use an accounting software. QuickBooks is geared toward small business owners, those who might not necessarily understand the debits and credits of accounting.
A big time-saving feature of QuickBooks is that business owners are able to link most bank accounts and credit cards so that transactions essentially auto-populate in the system. This eliminates a lot of manual entry that would need to be done otherwise. Don’t worry though – nothing gets posted directly to the financials until the transaction is reviewed, coded, and deliberately added.
Do you have any other software recommendations besides QuickBooks?
Honestly, it’s by far the most used. There are other providers, but I like it because it’s online, which makes it accessible anywhere by multiple parties, and it’s modestly priced at around $30-$60 a month.
What advice can you give regarding billing?
Billing drives revenue so it’s crucial. From a business operations perspective, I recommend having a succinct product list. A lot of companies I’ve seen don’t have a product list, or it’s not very standardized. They say, “Oh, we’ll make a little adjustment here, a little adjustment there.”
You should boil it down the services you provide and the correlating price points. You’ll sometimes see tiers of pricing, like Light, Basic, and Advanced, so one product could have three different price levels. Each one of these price points would justify a separate product code. Fixed pricing allows you to run reports and get some clarity to see how many customers are buying the light vs. the advanced product, for example.
A defined product list also gives guidelines to sales. If you feel the product should be able to sell for about $250, and a rep is giving a $150 discount, then there’s a disconnect. Salespeople are going to be hyper-focused on selling, which is great! But understanding how the business operations side and the sales side relate to each other is important. You want to determine the product’s competitive market value, understand what the discount rate is, and know what customers are actually paying for the product.
Finally, you want to make sure the billing team, which is normally on the accounting side of things, is in good communication with the operations side of the business. If your billing team gets a request to cancel an account, you want to get that information to the customer success team to 1) try to save the account and 2) remove that customer’s access to the platform if they do proceed with cancelling. If you sign up a new account, you want to make sure the bill gets sent out, so you don’t start off on the wrong foot with a customer that thought they signed up, but then didn’t get a bill. This would lead to losing revenue and customer goodwill.
What is the difference between cash and accrual-based accounting?
Cash-based accounting is based on when the payment was actually made or cash received, and accrual is all about when the services were rendered or used. For revenue, when did they get the benefit of the product, and for expense, when did we get the benefit of their purchase?
What are the advantages to both?
Cash is easy to comprehend. It’s more tactile, in the sense that it is literal money coming in and going out. With accrual-based accounting, since you’re aligning the recognition of revenue and expenses based on when they occurred (not just when you paid them), it allows you to make more strategic decisions.
For example, you could just say, “I’m not paying invoices for three months because I don’t have cash.” Especially in a small business, your cash availability might not match the rest of your business operations. So, at the end of the cycle, when you pay everything, it’s going to throw off your P&L because you’ll see a huge amount of expense all hitting in one month.
Accrual-based accounting smooths out a lot of the noise from payment cycles. So rather than seeing 0-0-15, for example, you’ll see 5-5-5. It’s more consistent and aligns with the fact that we’re actually using that service for all three months.