Taking Account

Twenty-five years ago, Catlett, Va., contractor Joel Barkman decided to launch his own remodeling business serving northern Virginia. He formed Golden Rule Builders, and since then the firm has grown to become a 15- to 20-person outfit that takes in approximately $5 million per year. Like many small business owners, Barkman started out personally taking care of every aspect of the business. He wasn’t just wearing many hats; he was wearing all of them.

“It started with me being out in the field, building my own homes and remodeling, and then doing the bookkeeping whenever I was forced to sit at my desk to do it,” Barkman recalls. “Later I learned more about it, and my wife did the books for about seven years. It was an area of the business I had a pulse on, but I didn’t do a great job of it.”

The same could be said for many small business owners. Because finances are such a big part of how a business runs, and because entrepreneurs by their very nature often want to have their hands in as many aspects of their venture as possible, accounting and bookkeeping too often can become just one of many tasks rather than a point of focus in and of itself. But there are dangers to letting the books and financial planning become an afterthought.

A remodeler handling his or her own business finances alone may suffice as a stop-gap measure in the beginning, but it isn’t always the best idea in the long term. For one thing, the qualities that make one a good remodeler, or even a good businessperson, don’t necessarily make that person a good bookkeeper. It’s important to work with someone who understands the finer points of finance to help.

“The reason that anyone starting a small business or already in the business should consult a certified public accountant is because of the complexities involved in forming and running a small business,” explains Jim Metzler, CPA, vice president, small firm interest, at the Durham, N.C.-based American Institute of CPAs. “If you look at all the things that a small business owner, even as small as a one- or two-person remodeler, needs to consider — the tax implications, tax advantages, and even the notion of having employees — it’s 100 times more complex than it was 10 years ago. It’s questions like, ‘What’s the best way to own my small remodeling company? Should I have a limited liability corporation, be a sole practitioner or be an S corporation or C corporation?’ Bookkeeping is one thing, but the advice, counsel and level of expertise you get from a CPA is very valuable.”

Live and Learn

As Golden Rule Builders grew, Barkman came to realize he would need help with the financial side of things. His first move was to hire a controller with some background in the industry. The controller did handle the basic bookkeeping, but Barkman soon discovered that occasional communication between the operational and financial staffs and dealing with money matters after the fact wasn’t cutting it. He parted ways with that controller and elevated part-time employee Hannah Beahm, who at the time was going to college for business, to handle the books. Proactive and eager to learn, Beahm grew into the role while finishing college and going on to earn her CPA designation. She has been with the company for nine years, and the expertise and insight she brings to Golden Rule Builders as a CPA has transformed the way the company handles its business.

“Overall, the biggest thing is knowing where we are from a financial standpoint,” Beahm says. “What often happens when you’re in a small business is that you get the day-to-day things done, and you don’t stop and look at a job to determine whether you’re making money on it or not. You can be working hard and think you’re making money, but if you’re doing something that’s inefficient, you might be losing money. You might have cash coming in and think you’re rich, but cash is not income. If you know these things in a current, here-and-now standpoint by keeping track of your balance sheet and knowing where everything is going, that allows you to make changes before it’s too late.”

Barkman has encouraged Beahm’s proactive approach and has integrated her analysis into everything from strategic planning to day-to-day operations. Keeping work-in-progress reports and understanding what’s coming in and going out at a particular time has allowed him to find efficiencies he didn’t know existed.

“Every year I take the team off site to plan and focus on the next year. This last year, we focused on growth and a 10-year plan. [Beahm] was able to take that plan and articulate it into what it means on the financial side and what it means on the staffing side, create an org chart and determine what it means for revenue coming in. She’s able to do that with an eye toward the finances. It’s like working with an adviser or coach. Another thing has been her ability to forecast taxes to cash flow management. These are things that aren’t often done well, but her expertise allows her to do those things very well.”

Why a CPA?

As Barkman’s business grew in size and scope, so did the company’s need for professional accounting and financial management. Golden Rule Builders evolved into having its own CPA and saw its operations become more efficient and profitable as a result. Any business of any size can take advantage of the expertise of a CPA, whether that person is on staff or part of an outside firm. With tax codes constantly changing and ever-growing complexities inherent in running a business, a small business owner simply can’t have all the answers. Here is where a professional perspective comes in. “A CPA requires five years of education and then must pass a rigorous exam,” Metzler explains. “You have to keep up your state licensing, and the profession requires 40 hours of professional development per year. CPAs are experts in the language of business.”

Whether working with an outside firm or with a staff accountant or CPA, it is important to keep a regular dialogue about your company’s finances and be proactive. Metzler advises consulting with a CPA at least once per quarter to review finances. “A CPA should not be treated like they’re a historian after the fact,” he says. “The value is in proactive, forward-looking planning.”

After his earlier experiences, Barkman also suggests regular communication and reporting from the financial side of the business. “To use a [Ronald] Reagan term, ‘trust, but verify.’ Have a systemic approach to finances and have your people report what’s happening and where things are, rather than just assuming,” he says. “That means to have thorough reports and not just someone saying, ‘yeah, things are fine.’ You need reports so you can see it.”

The needs of every company are different, and some may want to employ an in-house CPA, while others will do very well working with an outside firm. Metzler notes that companies often will bring in their own staff CPA when they grow to the point of earning around $5 million per year, or if the remodeler is doing a lot of government work and needs more sophistication in estimating. Either way, finding the right CPA is always important. “You want to work with a CPA that understands you and speaks the language of your business. Chemistry is important,” he says. “CPAs often become very attached and enthused about the businesses they work with.”

As for how to find that right CPA, there are many online resources businesses can use, but Metzler suggests that referrals are always a good way to go. “A really good way to go is to contact your bank, your lawyer or your insurance professional and see whom they’re using. There is nothing like a referral from a trusted source.”

For Barkman and Golden Rule Builders, the answer turned out to be right under their nose. Barkman was able to recognize the talent in his midst and support the kind of education and training that would serve to improve his business. “I’ve learned a lot working here, so it’s not like I came in knowing everything. I’ve gotten just as much back from Golden Rule,” Beahm says. “[Barkman] supported my learning, so I grew into this role, and hopefully I’ll continue growing and will become more valuable.”

Allen Barry writes about remodeling and construction from Chicago.