People often point out that small business owners wear many hats, taking on the responsibility for marketing, sales, HR, technology, and other components of the business. But any business is only as strong as the people it hires to do the work. Thus, a small business with the owner taking on tasks in many of the business areas is only as strong as the owner's capabilities in all those areas. Many find out that their strength is not in handling the finance and accounting processes.
"A lot of small business owners are great at their business, but their books are a disaster," states Devin Miller, president and CEO of Premier Payment Systems, Inc. "This causes them to make poor business decisions that could sink their business. They may even be losing money and not know it."
Miller believes that there should be no difference in the mindset between Fortune 50 companies and entrepreneurs who open up a new business in their garages. "Both need to identify their strengths and find area experts or outsourced solutions to take on everything else."
So why don't most small business owners seek an outsourced solution for managing their bookkeeping or entire financial process? First, most small business owners have someone who gives them financial advice. Typically, Miller explains, it's a CPA, and they tend to advise owners to do their own books so they'll understand the finances of the business.
That's not bad advice, says the president of Bellevue, Washington-headquartered Premier Payment Systems (PPS). "But they have to do it well. The books have to be up to date and accurate to give business owners the information they need when they need it. Otherwise, handling the books themselves will be a business liability," warns Miller.
Limitations of the standard solution
The other part of the problem is that when small business owners decide to seek help, they usually turn to local bookkeepers and find only limited, often unsatisfactory solutions. A Google search reveals a shortage of individual bookkeepers in most areas of the United States. A bigger hindrance is the fact that most of them are small business owners too; so they're not usually bonded or insured, and their business is not scalable beyond a few clients. Further, the bookkeeper must be someone the business owner can trust.
In addition, sometimes this type of solution lacks professionalism. Miller cites an example involving a client with a small retail store. Before turning to PPS, the business owner hired a local bookkeeper. But the logistics didn't work. The business lacked office space, and the bookkeeper ended up standing behind the counter during business hours, doing the books for the business with customers going in and out of the store. The store owner wasn't impressed and figured he could find a better solution with greater capabilities and flexibility.
Drivers for an outsourced finance and accounting solution
Miller explains three typical scenarios that drive small business owners to turn to companies like PPS for an outsourced solution.
- Business owners who recognize they are too busy and don't have time to do the books
- Business owners who are great at their business but realize they are weak at finances, technology, or both
- Business owners who understand technology, try doing their own books - but fail - and as a result often have a financial mess to clean up
A typical example of the third scenario is a small nonprofit industry association. For the two women running the organization, it was a part-time job in connection with their full-time jobs in that industry. They managed the association's books through an Excel spreadsheet. Before turning to PPS for help, the board of directors challenged the women when they were unable to reconcile the books at year end and discovered thousands of dollars were missing. PPS found the error was an invoice marked paid twice in the books.
Another company's books were in bad shape and there was an immediate need to clean up the mess. It outsourced to PPS four months' worth of clean-up work that had to be finished within three to four weeks - much more time than a small business owner would be able to dedicate to such a project, no matter how crucial it might be.
Jim Manis is an example of a successful entrepreneur and small business owner in the first scenario. He has his hand in several businesses and has started several companies. When he first turned to PPS in late 2004, he served as global chairman of an international industry trade association intent on rebuilding the organization. "We turned a dead organization with 10 members into one with over 700 members," Manis recalls. With this quick growth, they needed to be able to keep accurate track of finances, and Manis needed to be able to focus on growing the business.
He turned to PPS again in March 2007 when he founded 1024 Wireless services, a consulting and investment business. "As a start-up, we needed reliable bookkeeping services," he states. He needed to focus on growing a business, so it was an easy decision to use PPS again, plugging in to high-quality finance and accounting services without having to do the work himself.
Now he is founder and CEO of another start-up business, Mobile Giving Foundation, a non-profit 501(c)(3) organization pioneering a new channel for philanthropic giving. While online giving currently raises billions of dollars, Manis says mobile is poised to open new fundraising and donor interaction possibilities. The Mobile Giving Foundation enables this effort. This time around, his business need for a finance and accounting solution was strongly based in his concerns about the nuances of bookkeeping for the tax-exempt organization. "I wanted to make sure we are in compliance with the reporting and other requirements of a 501(c)(3) business," states Manis.
He describes the relationship with PPS as "successful" and adds, "I see no need to bring these functions back in house. PPS hasn't made any errors. The leadership is good, and they provide good customer service. They're creative in developing tool sets that support reports and good communication with me."
Trust is also a key factor in the relationship. Manis says he initially based his trust in PPS on the fact that "the company had processes and procedures in place to protect my business data. Over time, my trust grew, based on their actual performance."
Value outcomes from the PPS outsourced solution
Outsourcing the financial functions to PPS provides many benefits to small business owners. As is the case with outsourcing solutions for large companies, the buyer reaps the benefit of access to the service provider's resources, expertise, pricing model, and capability of being flexible as business needs evolve.
- Start-up mentality. Miller mentions Manis as an example of benefits to start-up companies. "As Jim goes out to get investments and line up partners, he can list our company as a part of his team. We're acting as the company controller. They can visit our site and see that we're bonded and insured. In a lot of cases, this helps get beyond the start-up mentality and gains investors."
- Back-up and disaster recovery. PPS has an outside firm do an IT and security audit annually. The company also maintains two server sets; it backs up each locally and remotely. PPS also has a disaster recovery plan and updates it periodically. "Our clients can have confidence in our infrastructure, plus they're getting a level of confidence that they can't afford to provide on their own and that many individual bookkeepers can't provide," says Miller.
- Single point of contact. PPS assigns a bookkeeper to each client. PPS does background checks on employees before hiring them, they work in the PPS offices in a structured environment, and are monitored and audited. The assigned bookkeeper gets to know the client's business well, but there are other people on the staff to answer questions if that point of contact is out of the office.
- Flexibility. With some clients, PPS houses the QuickBooks or other accounting file on its servers and maintains control over it; the client can access files or download reports through a secure site. With others, the client houses the file on its own servers, and PPS has limited access to it."We're flexible with our technology and how we set up the arrangement with a client," says Miller. "We establish at the outset the best method to work with a client." The same holds true for establishing service level agreements and operational agreements.Clients sign a contract for a one-year term but pay for the services monthly and can cancel the contract with 30 days' notice. "Small businesses fluctuate wildly, and it's not uncommon for one to tell us one thing that they need and a month later it's completely changed," explains Miller. "This is especially true with clients who tried maintaining the books on their own and failed."The pricing model is on an hourly basis. This accommodates businesses that have seasonal fluctuations, growth spurts, or need to scale back the original scope of services. "We have the size and scale that can fluctuate with our clients' needs," says Miller.
- Service offerings. PPS offers two solutions to small business owners: managed services and consulting. In the managed services model, PPS fully manages the outsourced functions for the clients. In the consulting model, the provider either helps a new business set up its books and technology and decide on the right tools and processes for managing the finances, or it goes in and helps a tried-and-failed company clean up its books. Sometimes the consulting model also transitions into a managed services arrangement.
- Business assurance. Miller says the best benefit to a small business owner outsourcing its finance and accounting process to PPS is assurance. "The owner can have the confidence that the accounting is correct and up to date," states Miller. "Knowing what the finances really are at a given moment gives business owners much more capability for not only real-time decision making but also accurate decision-making and, therefore, confidence in the decisions they make."
Lessons from the Outsourcing Journal:
- Small business owners need to "think big." Just like Fortune 50 companies, the small business owner needs to identify strengths and then find a solution for someone else to do everything else - outsource it.
- By outsourcing the finance and accounting functions, a small business owner can focus on growing the company.
- For small start-up businesses seeking investors and partners, showing that the company outsources its financial functions to a professional, bonded, insured service provider firm with secure technology will help potential investors realize the start-up owner is running the business well.
- Knowing what the finances really are at a given moment gives a small business owner much more capability for not only real-time decision making but also accurate decision-making and confidence in the decisions.