When an agency gets past $1 million in revenue, it gets harder for agency owners to ignore some of the back office operations that are starting to come apart. The agency’s
accounting bookkeeping operations is among the first to go and probably the least favorite problem for entrepreneurs to deal with – clients fighting about credit balances, your tax CPA giving you a hard time about your books every April, and you aren’t quite sure if you are enjoying the growth or if the growth is secretly killing you.
So an agency owner do what all entrepreneurs would do – hire someone to help – but the problem doesn’t go away, it gets managed, pushed around, and worsen over time.
That’s because an effective accounting operation often consist of four general roles that fall on different areas of the skill curve. A bit of a generalization here, but in my experience working with agencies between $1 million to $20 million in revenue, here’s a rough break down of the skills and efforts required:
A CFO a couple of hours a quarter, a controller a day or two a month, an accounting manager a day a week, and an accountant one to few days a week depending on operations. Each role delivering its skill sets to the agency at the frequency it is required. Which is exactly not what an agency typically does.
A typical entrepreneur turns to a single individual who is (best case scenario) costing the agency unnecessary payroll delivering his skill set as a CFO / controller 10% of the time and working down value 90% of the time. Worse, (and typically what we see) the person brought on board is priced like an accountant but work as a bookkeeper; failing to work up the skill curve because they simply lack the knowledge to do so. Costing the agency owners unnecessary grief, time, and money along the way.
All hope is not lost though. The outsourced accounting industry had matured a lot since we started five years ago and there are options in building your all-star accounting team:
- If you are adamant about hiring someone in-house and can only afford one, hire the best person you can afford one year from now. An overqualified person working down the skill curve is always going to cost you less than a person failing to work up.
- Outsource the entire accounting team (not just the bookkeeping.) There are a ton of outsourced “bookkeeping” firms out there and without the top down direction / strategy of accounting – they are practically worthless. You are better off getting help from your tax CPA for now and save up for the right solution later. If you don’t understand the difference between accounting and bookkeeping – we need to solve that first.
- A hybrid approach where you bring on board a firm to help you set up your own team over time and cover the basis right now. The goal of this approach is to “lease” the expertise you need to help build up the machine your team can run. Always communicate this up front so both you and the experts you bring on board have a clear understanding of where things are going. Avoid any firms that do consulting only who will not eat their own dog food by operating what they’ve built. Most things are easier said (designed) than done.
What do you think? How are you tackling your financial issues and what are your results?
DeepSky is the Entrepreneur’s Accounting Department – helping agency entrepreneurs turn goals into numbers so we may track our progress and improve accordingly. While we actually run 95% of the accounting systems we built – we’d be more than happy to chat with you to help you figure out how to move forward from where you are at. We’d love to help you get a strong accounting team in place, even if the solution doesn’t involve us.