Entrepreneurs and business owners are full of energy and passion, the necessary ingredients for success in business. Sometimes quick decisions are the way to go and other times they breed Invisible Expenses™, those expenses you don't know about that are killing your profits. Entrepreneurs find trouble when role switching into bookkeeping mode an area better served by virtual bookkeeping services.
Technician Trouble
The back office of finance, technology, accounting, tax, bookkeeping and processes are typically undervalued by businesses. Entrepreneurs are great technicians, people highly skilled in their respective trade. Michael Gerber's classic book, The eMyth Revisited, describes this phenomenon where the baker is great at baking, but terrible at knowing how to run a business. Here's the breakdown for success in a two component world:
Component Contribution
1) Technician (product of service expertise) 20%
2) Business infrastructure & operations (the back office) 80%
The Irony
A technician suffering from an entrepreneurial seizure, the sudden urge to jump into business for yourself, lacks most of what if takes to start a business. We can prove this is true because a true visionary simply hires great technicians to solve #1. They understand the importance of #2 and stay focused on it. Technicians are a dime a dozen. If you're a technician we're empowering, you to understand the importance of starting off right.
Bookkeeping Hat
Technicians typically hate bookkeeping and suck at it, however we acknowledge them for trying. The longer technicians work the books the more expensive and the more painful it will be in the long run. There's a laundry list of bookkeeping infractions that morph into Invisible Expenses™, but one of them stands out above the rest, commingling business and personal transactions.
Commingling Madness™
Everyone understands personal transactions are personal and business transactions are business. Almost no one understands mixing the two is an extreme violation. What's the big deal you might ask? It more than quadruples the accounting and while that may sound far fetched the negative impact is even greater:
Commingling 6 Pack:
Madness #1) Quadruples the work
Madness #2) Forces the books to be out of date
Madness #3) Weakens the corporate veil
Madness #4) Gives the IRS more ammunition
Madness #5) Creates 4 accounts instead of one
Madness #6) Reconcile 2 versions of credit card account
Quadrupling Example
Earl Smith has a personal Citibank Credit Card #3758 with 9 years of credit history. It has all kinds of special reward points and other irresistable perks. Earl loves this card because he's flown thousands of miles around the world for free. Citibank hasn't offered a card this good before or after Earl which is why they don't offer it anymore. One day Earl had one of Michael Gerber's famous Entrepreneurial Seizures and decided to open a consulting business called Chaos Consulting, Inc. He rushed into business without getting outsourced accounting services.
The Birth of Commingling
Earl financed his business operating expenses with the personal Citicard instead of opening a business bank account or business credit card. He's already incurring Invisible Expenses™ from his haphazard decision. If Earl used a business credit card for only business expenses, then all the transactions would be recorded in a credit card account within an accounting system. Commingling gives birth to quadruplets, four accounts instead of one.
The Quadruplets in Motion:
Chaos Consulting, Inc. Books:
1) Citicard #3758 credit card account setup in QuickBooks#1 (account #1)
2) Due from Earl Smith current asset (account #2)
3) Bank feed setup to import transactions
4) Business expenses are recorded to office supplies for example
5) Personal expenses are recorded to Due from Earl Smith account
6) All transactions are entered and the credit card is reconciled once
Earl Smith Books:
1) Citicard #3758 credit card account setup in Quickbooks#2 (account #3)
2) Due to Chaos Consulting, Inc. current liability (account #4)
3) Bank feed setup to import transactions
4) Personal expenses are recorded to groceries for example
5) Business expenses are recorded to Due to Earl Smith account
6) All transactions are entered and the credit card is reconciled twice
Comminlgling Bonus
The Due to Chaos Consulting, Inc. and Due from Earl Smith intercompany accounts must be reconciled. They're a mirror image of each other and the balance in each account must be exactly the same. The only way to get there is to reconcile creating a third bonus reconciliation.
Power
Reconciliation is one of the best accounting and bookkeeping tools in history. You know where the money went and the exact balance at all times. Commingling Madness™ takes this power away from you and your business. It's resource draining qualities are like kryptonite for bookkeeping. A business credit card used for business looks like this:
Chaos Consulting, Inc. Books: (the right way)
1) Citicard #3758 credit card account setup in Quickbooks#1 (account #1)
2) Bank feed setup to import transactions
3) Business expenses are recorded to office supplies for example
4) All transactions are entered and the credit card is reconciled once
The Stats:
Commingling Madness™
a) 4 accounts (2 due to due from accounts and 2 Citicard #3578 accounts)
b) 3 reconciliations
c) 12 steps
d) The Cost of Chaos™ (can't be measured)
The Right Way
a) 1 account (Citicard #3578)
b) 1 reconciliation
c) 4 steps
d) Peace of Mind (the ultimate goal)
The Time Has Come
Stop the madness, confusion and delay with The Ultimate Paperless Back Office™ by invizibiz.biz. We eliminate Invisible Expenses™ so you can focus on business development and having the life of your dreams. Don't forget inviziBLOG is required reading to keep you business on the rails.