As president of Tran & Associates, CPA Erich Ly helps all small business owners see themselves as CEOs, whether they run a neighborhood mom-and-pop shop or a quickly growing start-up. He believes that for entrepreneurs who may not have a financial or data management skillset, seeing the payoff of clean data and the insights it can provide is essential for increased buy-in and engagement.
“I think with small business owners, they often don’t have the right perspective about what their role as a business owner entails,” Erich says. “I’ve found addressing their mindset and identity is key to engaging clients with their data.”
He says that: “Business owners often think and conduct themselves like a ‘super employee’: the best chef, the best salesperson, or the person that works 60-70 hours a week in their business. I advise them to reconsider their role and to identify themselves as the CEO of their companies. This changes my client’s identity, their thinking, and their perspective. A CEO works on the business and working on the business naturally shifts the conversation to a higher-level view and, naturally, to overall engagement with business data and how that data is collected.”
With the notion of responsibility shifted more towards the overarching efficacy of operational strategy, Erich sees his clients take ownership of the processes around ensuring their data is clean and subsequently reaping the benefits this has on their growth and success.
Do your clients understand the value of clean data? Do they understand the value of their business data?
I work mainly with small business clients, where annual revenues are between $250,000 to $3,000,000 annually. These clients usually have a staff of 1 (meaning, themselves) to 25 people. They generally don’t fully understand the value of their business data, much less clean data. Generally, small business owners and entrepreneurs are highly skilled in their business trade and they seek out information about their industry. They tend to ask specific questions about tax laws, employment laws, sometimes marketing, but seldom about their financial data.
How can businesses begin to set up processes around ensuring data integrity?
With the change in their mindset addressed––from working in the business to working on the business––clients who view themselves as the CEO begin to see the potential value of data collection systems vs solely seeing the upfront price of those systems. They become receptive to the reality that not having the right processes in place is actually a bigger opportunity cost that ultimately prohibits business growth. I find it’s very important as the accountant to know and suggest possible tech, systems, or solutions to my clients. Without recommendations, it’s very easy to get lost in the process of trying apps and clients tend to get frustrated.
A second point is that it’s essential to introduce new solutions in tandem with intentional people and change management. An example would be a business that begins using an app that enables their field technicians to collect credit card payments onsite, and also tracks the GPS location of each technician. If this implementation isn’t properly managed or communicated, the technicians could interpret the location tracking as a lack of trust and service quality can suffer. In reality, location tracking is important for business insights: knowing how many jobs are done in a specific location could lead to better decisions around managing transportation costs or allocating staff resources, for example. In short, it’s important to communicate with the entire business and staff about the “why” behind the introduction of new tools and processes first.
Do you feel like your cloud accounting software helps or hinders your exploration of data? Does it help you identify dirty data?
I think adopting cloud accounting software is very beneficial for business owners. However, I have seen a misconception that the software itself will solve everything, which isn’t accurate. Cloud accounting software is a really powerful tool, but the true strength of cloud accounting software is how it enables immediate communication about your business with your accountant.
When properly implemented, we are able to spot bookkeeping errors as they happen instead of discussing it in the aftermath, when real damage has already been done. This increased communication changes the relationship between the accountant and/or bookkeeper and the client. It’s this increased communication that really helps identify dirty data and error-inducing information gaps.
How do you typically search for and find dirty data? How do you perform regular “data checkups” or “data hygiene”?
We generally use a “corroborative approach” and leverage accounting ratios and direct communication with our clients to determine if the picture the data paints actually makes sense.
What I call a “corroborative approach” is comparing what we see in the accounting software with what we know of the client’s business operations, finances, and business practices. For example, if we’re working with a home building company doing project costing for each home they are building, it would be very apparent that there was an issue with the data if one project has no lumber costs whatsoever, while another has significant lumber costs.
Data checkups are not necessarily a separate task for us, but more so, built into our general approach. You need the data to enter the system ASAP, so reducing manual processes, organizing papers, and implementing cloud accounting workflows is essential to enabling those recurring checkups, usually on a monthly basis.
Can you think of a time where incorrect data caused a major issue for a business?
Definitely! The impacts can be BIG. Incorrect data can affect and trigger big tax problems, make financing very difficult for companies, and significantly affect the potential success and value of a business that’s for sale. An example we dealt with firsthand involved the accounts receivables of a business our client was actually looking to purchase. At first glance, the business revenues looked solid and the financials corroborated our understanding of how the business generally operated. However, in our deeper analysis, it became apparent that the AR wasn’t aged correctly, and that a significant amount would have to be written off. There were also receivables that were coded incorrectly and were really loan receivables. So the picture we had originally seen wasn’t an accurate reflection of the actual situation at hand. In the end, our client ended up passing on the deal in light of those discoveries regarding unclean data.
Do you feel that manual data entry is a barrier to creating clean data? Do you think technology and automation can help solve this?
Manual data entry itself might not always be the biggest barrier when it comes to creating or working with clean data. I find it’s the combined mindset of the client and the accountant/bookkeeper that tends to be the biggest barrier to clean data.
However, in order to have any amount of data entered or consistently feeding into the systems you invest in, the drawbacks of entering that data manually become very apparent, very quickly. First, it’s simply not cost effective. Whether you define “cost” as wages for a bookkeeper, or the time that a business owner is giving up in order to sort paper and enter data, manual data entry takes up valuable resources. More so, choosing not to use technology for these purposes inevitably opens you up to greater risk. For example, digitized receipts could be backed up and duplicated across different digital storage locations, and made accessible from a computer or even a smartphone. Could you imagine creating three photocopies of all your paperwork, then indexing the paper, and then finding four separate places to store your documents?
How does clean data impact decision-making for your clients?
I’ve had many conversations with clients that think only big companies need good/clean data. When the truth, perhaps ironically, is that small businesses are really the most vulnerable to bad/dirty data. Every dollar, every customer, makes a greater impact on that small business. As such, doing everything you can to get and maintain clean data is tremendously valuable. Clean data provides the basis for making good decisions and it also provides a more accurate narrative for understanding the condition of the business as a whole. More so, access to clean data allows you to be more decisive and more agile. With clean data, you can plan with greater intention and make smarter decisions to help grow your business.
To learn more about how to ensure and leverage clean data in your clients’ (or your own) businesses, head over to our Clean Data Series conclusion: How to Create Clean Data Consistently.
Don’t miss parts one and two of this series! Read about how Sherri-Lee Mathers ensures that her hospitality clients find value in their numbers, even if they aren’t experts in part two. And head back to part one to read Anna Ready’s tips on leveraging data to support non-profits as they juggle tight budgets and limited human power.