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Why Do Accountants and Bookkeepers Limit Themselves?

November 14, 2012 | By | 36 Replies More

I was training a bookkeeper in QuickBooks this week and she referenced a well known book in the industry and told me that she “..knows she should just focus on a few industries and get really good at those.” I stopped her and asked her if she wanted to know why I disagreed with that statement entirely. She said yes and I thought some others might like to know my answer as well.

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When you REALLY understand the accounting fundamentals that underlie a business then it doesn’t matter what business you “plug in”. The basic accounting is the same. Only descriptions and other details change. We have two basic business models that we are concerned with as accountants and bookkeepers. Service based businesses and product based businesses. Then of course you have your hybrid businesses which encompass both models. Nothing new, just a combination of services and products to sell.

Let’s look at the service based business. When I talk to a prospect for the first time I ask them to walk me through their “typical” transaction, from the minute the customer walks in the door to completion of the job, or as the case might be, until it get’s into “maintenance mode” which means everything is set up and now we are providing essentially the same on going service each and every month. The basic model is the same. What I am doing when I am listening to the prospect is I am thinking in terms of how I would translate their operation into financial transactions. How might I set up their items. Before I can think about that I have to think in terms of what their balance sheet and P&L should look like.

In a service based business you are selling a product. Oh my G-d what ever do I mean by that?! It’s a service, not a product!! The product we sell in a service based business is time. We’re selling hours of our time and charging a fee for it. Then we bring in other people to help with some of the work. Now we are paying them for their time. We are buying the product from them and then marking it up and billing that back to a client. So if that “time” we are buying and selling is for a bookkeeper, a lawyer, or an engineer does it really matter in terms of the accounting? At the core level I think not. The items will be described differently and depending on what they do operationally (ie. what outside software they might use) some of the dynamics might be different, but in the end the accounting is the same. There is a cost (someone’s time) and I have to figure out how to get that cost onto the (eg.) Direct Labor line item on the P&L. I also have to decide if that cost will be classified as “Cost of Goods Sold” or if I want it in the “Selling, General, and Administrative Expenses” section of the P&L. For tax purposes you can never really have “cost of goods sold” without having actual inventory that you sell, but for financial reporting purposes in a service based business we like to see “Direct Labor” as Cost Of Goods Sold so that it shows up as a direct write-off against income and we can see that we are making a profit (Gross Profit) on our main product – time.

If you haven’t already watched it, the video above will demonstrate an example of what I mean.

Now lets look at a Product Based business. Does it really matter whether my items are called T-shirts, Earrings, lug nuts, or donuts? It matters to the customer, yes. If someone walks into an auto supply store and asks for lug nuts and you give them a donut they might enjoy it, but they will still be wondering where the lug nut is! For accountants and bookkeepers I am going to say that it makes absolutely no difference whatsoever except in how you set up your items. The core accounting does not change and you can plug in ANY product model to the following and it fits:

  • I buy inventory and it goes onto my balance sheet as.. well.. Inventory!
  • Then I sell the inventory and I have a sale (income) and the inventory moves off the balance sheet and onto the P&L (Cost Of Goods Sold).

Again some of the dynamics change but the basic accounting flow for any product based business is no different, regardless of the product.

But wait!! What if I am manufacturing my products? Here we have an added layer of complexity in terms of where I am getting the products from. I am still buying the raw materials from somewhere. Then I am assembling them into a finished product. Then I am selling that for more than what it cost me. Again does it really matter accounting-wise if those products are jewelry or lemonade? The only difference in reality is what I am calling my items.

When I listen to the prospect describe their product based business to me, no matter what they are selling I am thinking in terms of what that will look like in QuickBooks. What do they need to keep track of and perhaps most importantly, what information will they need to get OUT of QuickBooks or any accounting software for that matter. Then I know how I want to set up the items so that I get the best possible end result – Balance Sheet, Profit and Loss, and Statement of Cash Flows as well as any specific reports that I define with the client so that they are getting their needs met and getting the most out of the fees they pay me. Each Friday my clients get a set of reports e-mailed to them.

I am living proof! I have handled clients from so many different industries because I have learned to look at every business from the core. I have worked with affiliate marketing management companies, jewelry manufacturers, plumbing, general contractors, marketing companies, restaurants, web designers, IT Companies, business coaches, and many more businesses in very unrelated industries. I have also already helped many many bookkeepers and a few CPAs to learn things from this perspective. If you are an accounting professional and you are reading this you most likely already have the knowledge right inside of you. You just have to shift your thinking a bit.

So again I ask. Why do accountants and bookkeepers want to limit themselves?

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Category: Expert's Corner, For Consultants/Accountants, QuickBooks Tips/Tricks, Seth's Video Blog, Success Tips, Working with QuickBooks

About the Author ()

I started Nerd Enterprises, Inc. in 2003 and continue to work with individuals and companies to cure their financial headaches. Training, writing, blogging, social media and generally building communities around these areas as well as technology has become another passion of mine.

Comments (36)

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  1. Ken Bostrom says:

    I agree with you to a point. Accounting hasn’t really changed in 500 years. A Debit is still a Debit and a Credit is still a Credit. We are still asking ourselves those age old questions of “What do I have? and where did it come from?”.

    I have found that a lot of accountants that go out to hang up their shingle have already had that career in a large business and have never seen the the pencil to paper (or hands on a keyboard) side of the equation.

    Limiting yourself can hold you back, but there are some differences in industries that help you walk the walk and talk the talk. If one considers themselves a SPECIALIST in an industry, it might not be considered limiting.

    There are differences between churches and car dealerships. You should understand contracts in transit and flooring, before you take on the local motorcycle shop. Understanding General Overhead and Manufacturing Overhead will help you help the manufacturing client you mentioned earlier.

    I am not disagreeing with you, I am just mentioning that there are resources to better prepare you for a wider number of industries.

  2. Kathy Grill says:

    I had to chuckle when I seen this article today. I just had this conversation with someone tonight! “What do you do?” “I’m a bookkeeper”. “Which business do you specialize in?” “I do all of them”. “But, I know bookkeepers that work for.. let’s say farmers, that’s all they do”. “Yes, I know, but I don’t like to work like that. I like the experience of all businesses, the excitement of learning new things”. And the blank look follows! I totally agree, why limit yourself? why stay with just one thing. I’ve had such a variety of businesses over the years and it’s certainly been fun and exciting. I do the same thing, as the client tells me about their business, I’m planning their COA, vendor and customer lists and picking out what can and cannot be claimed, explaining the why’s to the client. It’s great to see that I’m not off the mark that much! Thanks for a great article! I’m going to share it on my social media pages!

  3. Doug Sleeter says:

    I also see both sides of this thinking. On the one-hand, we can all help nearly every business if we’ve mastered the software tools and have a deep understanding of accounting.

    But several times I’ve recommended to our consultants that to “dabble” in some areas is foolish. For example, if I only do one QuickBooks POS setup per year, I cannot really be that efficient when the next QBPOS client calls. So if I really have the client’s best interest in mind, I will network with experts in various specialties so that I can send referrals to experts while receiving referrals from those experts when a client needs my specialty.

  4. Seth David says:

    I know there are some niches we can get into that really speak to “leaving it to the experts” but I realized again the other day how diverse my own knowledge has become about so many different industries because I did not limit myself. In the space of an hour I went from a detailed conversation about a construction company where we discussed estimates, WIP, progress billing, % of completion etc.. and a few minutes later I was on a LinkedIN question that a friend of mine tagged me into as an “expert” and there I was posting about “tear sheets” that adverting agencies use to know when to invoice the advertisers, and media calendars that are based on “flights” and how to track this stuff – and I am really not that bright!

  5. Tim Berkesch says:

    I think the adage “jack of all trades, master of none” goes back to the days when the guilds were specialized and people served apprenticeships to master their particular trade. The adage was used when speaking of people who were not masters in a trade and just dabbled in anything and everything, not being proficient in any one of them.

    I am not an accountant; I would not want to use an accountant who had never worked in my particular industry – I would be paying extra in hourly fees for them to learn the peculiarities of the tax rules and regulations that someone who knows the ins and outs would not have to do. IMHO!

    • Seth David says:

      Tim I get what you are saying, but the question is- assuming that the accountant DID have experience in your field would you preclude him or her just because they also had extensive experience in other fields?

  6. Paula Henry says:

    In my business of real estate, we also sell a service. Yes, there is an end product, but the client hires our expertise and knowledge to help them make the best financial decision for themselves. While there are some advantages to focusing on a niche, there is so much information available, we are not limited to a specific area or niche in the single family home market.

    There are some areas where a niche is preferred; for instance, farms, land, commercial and water front. In the end, people still hire us for our expertise, which we gain by working a broader market.

    In my case, I run a team and each team member has a specific area they work. It provides a well rounded balance of experience.

  7. lynndeanne says:

    I’d guess that size of the company might have an impact, too, as well as the program used. But, if we assume that we’re talking about businesses of a certain size using a common program, absolutely agree — what difference does it make what they sell?

  8. chris says:

    Although I agree you might have the ability to master more than one thing… and yes basic skills from can be transferred to be used into different endeavors… I think that those (even accountants) can command more $$$ by specializing in an industry…. Does it make sense for service industries to think in terms of producing a product — YES!!!!!!! – my 2 cents

  9. Ron Callari says:

    I agree with most of what’s been said here – and from an accountant and bookkeeper’s standpoint – it’s true – it doesn’t matter which vertical market you plug in the time-and-true acctg principles that have been handed down through ages. But since I’m a veteran of the hospitality industry – I do see a major disparity between a service vs product industry. When dealing with a perishable commodity (like a hotel guestroom) -there is a cost associated with a vacant versus occupied room. And while this number might not make it to the balance sheet – it certainly is a point of contention for owners, board members and management. Lost opportunity equates to lost dollars and cents, but, unfortunately bookkeepers and accountants don’t factor in these losses – because from their perspective, since the business didn’t occur, it can’t be accounted for.

    • Seth David says:

      Ron that is a GREAT point. I actually work with clients on that exact sort of thing in the “projections.” So no it may not make it to the balance sheet but a good accountant (in my opinion) should have the understanding and the excel skills to be able to model the future of the business and in that model, look at vacancy rates. Or use past sales data to look at actual sales compared with what the “potential” was assuming 100% occupancy and see what was effectively lost. Most importantly on something like that I would look at my client and ask them to look at the “trend” of that vacancy rate. Is it doing what we expect based on the cycles of the hospitality industry, and what can we do to minimize this rate at certain times as well as over all.

  10. This is an interesting article. I am not a book keeper but I’ve always been told by let’s say “business coaches” that you should build a niche and get really good at that. I still waiver back and forth as to which one is best. Thanks for your in sight. I will definitely look into broadening my niche.

  11. Derrik says:

    Great points, especially when you break it down to the basic concepts here. Yet, even with a wide breadth of industry types is your core function really that different between them?

    Accounting is an age old industry. Aside from new tools that technology provides, a + b still equals c, right? :)

  12. A bit of domain knowledge can help the communication and expectations, but I generally agree. Many of the same points can be made in the software development world.

  13. Some industries lend themselves very well to cross industry participation, and accounting is one of those industries. The numbers are the numbers. For finding a niche, rather than a widely based approach, that targeted concept is for marketing and search engine rankings. Dominating a niche is not the same as being competent in more than that one niche. The tendency is to confuse competency overall with the ability to market a single niche exclusively. In your case Seth, you can move across industries easily based on competence. Where you do need to work is to ensure that the marketing covers that same wide range of potential clients competitively.

  14. Justin says:

    Interesting article…. As very much a jack of all trades master of none it struck a cord or two.

    I am inclined to think that specialisation is something that does in fact make a lot of sense.

    My problem is that I get bored easily so I like to experience different things, but I can’t help but think that if I wanted to become an accountant that I would be better served to become the best accountant for a particular business type, rather than just a good general accountant.

    It’s like when you start a business. Who is your core audience. It is easy to fall into the trap of saying everyone needs my widget, but if you manage to define it down into one specific market area then the chances are you will be more succesful.

    The first McDonalds set out to be a restaurant. 8 years later they defined down their core to be hamburgers, fries and drinks… with a staple item of the 15 cent hamburger… 6 years later they went into franchising with Ray Krok… the rest is history. Would they have done as well if they stuck to being a BBQ drive through large menu operation?

    I suspect not…

    Even for service businesses such as accountancy, I maintain that success would come from specialisation, although allowing for more generalisation as you grow. Admittedly it is a different example than fast food!

  15. gary allen says:

    I am not an accountant, but the video was interesting. It looks as if QuickBooks takes away a lot of guesswork about where to place items. The p and l page was illuminating.

  16. I am not disagreeing with you, I am just mentioning that there are resources to better prepare you for a wider number of industries.

  17. Putting all of your eggs into one basket is never a good idea but at the same time, you don’t want to spread yourself too thin either.

  18. The nuts and bolts of any skill set can be transferred to any number of positions at other companies or industries. It all comes down to solving problems. Expertise in a general discipline can be used to solve problems in virtually any business.

  19. Erik Van Erne says:

    Interesting posts. I have to say that i never understood accountants and bookkeepers.

  20. Mithu Hassan says:

    This is an interesting article. Unfortunately never gathered an experience as accountant of Bookkeeper !!

  21. steve says:

    Nothing new here to learn its all been said befor.

  22. lastbabyboomer says:

    Computers have certainly made the accountants job eraser and quicker. still you must know the basics and be able to see solution to problems before the show themselves.

  23. David says:

    In my work as an IT guy at a bank, I see that the accounting can get much more complex than for other businesses. Perhaps this is mainly due to the complexity of accounting rules for different types of trades that are not just simple transactions. Since the present value of the trades is sometimes necessary for the accounting and there are potentially various ways to determine that value, multiple approaches for accounting may be possible for similar types of trades.

  24. Ty Col says:

    I would always be cautious on diluting your services, involvement and focus. In some cases great to specialize in an area or two of business. Great article!

  25. Paul says:

    Great article Seth! I agree with some of the approaches but then I’m always optimistically cautious!

  26. Mika Douglas says:

    It would seem that like anything, its a personal decision regarding the effort it takes to feel like you contributed value. For me, certainly beyond just accounting and into business process consulting. From a business perspective the foray of accounting issues can be vast. International trade, Accounting supply chain and inventory across statewide practices, to name a few.

  27. You are a great trainer, Seth!

  28. geoff says:

    clearly speaking from experience, others should take note. Learn what there is, take what you can and maximise , great goings Seth !!

  29. Martin says:

    Great post!

  30. I stumbled with this when starting my business ~ how to differentiate between service and product. Putting into terms of time is a great analogy. Thanks for a great article.. ;)

  31. Seth, thank you for reiterating what I have been telling my subcontractors for years! It’s always a good thing when someone validates your opinions especially when you work for yourself and there isn’t the typical feedback that is received in a traditional office position. I’m adding you to my list of “Read this, Not that”!

  32. I am searching the web regarding basic bookkeeping and I’m happy I’ve found your very informative blog. Thanks for sharing.

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