Thursday, May 28, 2009

A Small Business Competitive Advantage: Outsourced Finance and Accounting Solution

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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.