142 Why Your Accounting Firm Needs A Preaccounting Process

My friends in accounting, do you know what the word pre accounting means? It's the stuff that happens before the accounting. Yeah, duh. But do you have a distinct, like standalone process for pre accounting? Probably not. And a symptom of the fact that you don't is that you have these technical professionals going out and fetching bank statements and brokerage and all these things that are a total waste of time because you don't have an explicit process for how that stuff should get done. Come on in, let's talk about it. It's an accounting thing, but it also has a lot of crossover principles to tax. So let's talk about it. How to set up your own pre accounting. Happy Monday. I'm at the National Tax Conference today in dc. If you are there, please say hello. I'm doing the opening AI keynote and then getting to heck out of Dodge to Vegas to QuickBooks Connect. And if you're there, please say hello. Conferences are the best. Man, the vibes are so good, so good. Just getting to hang with like actual people and especially as we are building more relationships online, like on social media and online communities and that sort of thing. Totes worth the investment. I actually know a lot of people that go to these and don't, don't buy conference tickets too. They just go to hang. Okay, let me, let me, let's see if this rings true to you or if this is something that you've ever said. I sure wish I didn't have to go running around and logging into umpteen different platforms to download this statement and this bill and this and that. And can I AI, just do this for me? And why is this still a thing that we have to do? And I think this is especially true in the US where we've just got a metric crap ton of banks and we don't have good banking APIs. But I have to imagine everybody experiences this to some degree when we're working with vendors that have their own like AP portals where you got to grab the invoices. And now many of the emails that we get for bills are actually just links out to like a website where you download the bill. And wouldn't this just be the best thing for technology to solve for us? It would, but there's also a whole lot of bodies on like dead bodies on that road. Because it is such a hard thing to do. It's not fundamentally hard to develop a bot that will go out and log into a site and grab that thing and put it somewhere. That's not hard. What's hard is that there's literally millions of like portals and websites that you would need to support. And they all change over time. And probably the highest profile example of a company that went big investing on doing this was Hubdoc. And so Hubdoc was like kind of like a receipt bank or like a place to organize all of your receipts and bills and all that stuff. And then had some really good integrations with your accounting ledger so that you could push all that information to wherever you need it. And it got acquired by Xero a few years back, but before that, man, like, that was a pretty sweet tool. Like they were pushing some pretty novel stuff back in the day. And wherever there were APIs to go and get those things in an automated way, they would support that. And so, like, if you had, you know, Wells Fargo and like some of the, some of the banks that were, at least in the US that were early to offer APIs where you could grab that stuff yourself, like reliably, they would support that and it would pull all the information in. And that was great. But the big thing the Hub Doc invested in was a metric crap ton of bots that would go out and be able to log into different services. And so that was not only banks and, and even banks as a general generalization, Wells Fargo, for example, they actually have a whole ton of different interfaces where you log in to get stuff for like their financial products versus their business products versus their personal stuff, their lending products. Like one bank is actually a whole bunch of different interfaces that you got to go in and fetch stuff for. But they built out a bunch of this technology for bots to go out and grab this stuff for banks, but also for common vendors like your Comcasts and like all of these super common things like, you know, mobile phone carriers, where a lot of people are gonna have these. And the beauty was you could set this all up in one place. It would go out and fetch that stuff anytime there was something new, and then you could automate the destination of it. Whether you wanted that to go to an accounting system and actually post an entry or go to a Dropbox or Google Drive or whatever, you could set that up at the vendor level. And it was a super cool document automation platform. But when Xero acquired them, shortly after that, they discontinued the fetching component of this. Is that what they called it? The fetching component? Basically the bot side of this. Like the services where they couldn't get an API connection to pull that stuff out. If they had to build a bot to go out and do it where like on the back end it's actually like pretending to be a user logging in and grabbing that thing. They, they killed all that stuff, which I thought in many ways was their secret sauce like that they were investing in that where nobody else was. The reality was it was janky, like it would work 60% of the time and that was frustrating, but it was still better than it working 0% of the time was kind of the approach at the time. And it's because it's just such a bloody hard problem to solve. The notion that you have to support all of these different like portals logging in and grabbing these things and then every single one of them can change like that is just such a hard problem to solve. For now I actually think AI makes this much more accessible because in the past logging into a portal was something that was largely hard coded. Like you could build some logic into that. So it was a little bit flexible, but nowhere near as flexible as like an AI agent where it can see all the HTML on the page, it can visually see like layout changes. It's could actually be a really compelling use case for AI agents to at least make it not perfect but, but better than the hard coded version of this. And that's really exciting because we just, we want that stuff to magically work, right? And man, if you run an accounting practice and you're doing month end close for a whole bunch of people, if you're doing accounts payable for people and like really getting hands on and helping them manage that stuff, you are going out and grabbing so many things. And the age old problem is you've got a set of financials due on the 15th and you're like, how long is this one gonna take me to do? I don't know, a day or two. So you hop in on the 12th through the 13th and that's when you go and you try to get the stuff and then I don't know, a password's change or there's some sort of issue or you just have to burn like 30 minutes when you're starting the project, just going out and grabbing things. And I don't like it, but that's just how it be right now. And I think actually what most of us do here is a really common mistake that, that oh my gosh, I've done so many times, you go out and you invest a bunch of time in oh, how can I automate getting this or that. And maybe you can automate like half of it, but you end up at a spot where you realize I can't fully automate this thing, and that's really frustrating. And like, the project ends there. You don't build a process for it and it becomes this thorn in your craw. Is that the expression? It becomes this craw thorn that you just carry forward resentfully every single month when what we should be doing is when you're thinking about automating that process. If you fall short of being able to fully automate it, you still need to come to terms with the fact that you need to have a manual process for it. And man, I made this mistake so many times where I'm like, I'm trying to do this thing and it doesn't work. And then we just like move on with our lives almost. There's almost like a degree of being unwilling to accept that it has to be a manual process. Like, we almost don't want to document it because just so stupid. Like, why does this have to be a manual thing? And we almost like spitefully then refuse to create a manual process because it shouldn't be manual. But you know what's even worse than a manual process is a process that doesn't exist is no process. Getting this episode is sponsored in part by Live Flow. Live Flow is the easiest way to sync that QuickBooks data back and forth to your spreadsheets. You may have seen this actually had a big announcement lately. So this fall, G2 gave them the top spot in their fall 2023 report as the leader in the financial analysis category. That's right. They won number one. Nice work. If you've been around my channels for a while, you've seen Lifeloat kindly. They have sponsored quite a bit of stuff. And I'm not, I mean, I'm not saying I'm taking credit for it, but that was probably why I'm not familiar with Live Flow. Super easy way to sync that stuff. Sync your QuickBooks data back and forth with Google Sheets. They got a whole pile of templates too, to make the process of building that stuff for the first time as easy as possible for you. Stuff for managing cache, AP, KPIs, like everything you can imagine. Sync that data into your existing sheets to make them smarter. Get it to automatically auto sync or build your like custom new sheets that talk with QuickBooks totally from scratch. Pretty cool tool. Check that one out at LifeFlow IO. This episode is sponsored in part by Forwardly. Are you tired of waiting for payments that seem to operate on their schedule, not yours? What the heck. Say goodbye to slowed ach transfers and rising credit card fees. Welcome to Forwardly, where you can receive payments instantly in 22 seconds. What? Okay, sidebar thought experiment. I just initiated a payment to you. Put a pin in that. Receive payments instantly 22 seconds for 80% less and no monthly fees. I like that. With automatic payment options and automatic reconciliation with QBO and Xero, Forwardly streamlines the whole payment process. Same day. Ach, man, I don't know why this hasn't been normalized like everywhere. Why are we not doing more same to achieve? By the way, your payment that I just started, it just arrived. It's been 22 seconds. How fast was that? Legal has informed me. I need to say I have not in fact paid you. Just to just clear that up. Just a mental exercise. The future of business payments is here. It's here and waiting for you@forwardly.com. check out the link in the show notes to learn more. Now I'm reading through the Elon Musk biography. Super interesting read. Guy's a total maniac. As you would. As you would expect. Kind of too bad. I was a real early Tesla nerd. Like I'm a. I'm a car dweeb. And Tesla's in the early days just felt like the perfect marriage of technology and car and you get software updates. And that was just so novel. And I was so into it and I was like, I had a Tesla. I was like the first guy that had a Tesla in my city. And everybody's like, wow, what is that? That's so novel. And that stuff just went from like zero to a hundred. It was so cool. And then went from 100 to 0 so fast. Like it has never been less cool than it is now. Just to be in anything associated with Elon Musk. But the book, super interesting. And one of the things that they ran into back when they were like scaling up Model 3 production, if you remember that whole thing, they had these like super hugely ambitious delivery targets for how many Model Threes they were going to be able to put together in this Fremont factory that they had bought from Toyota. And everybody's like, nobody. There are no new car makers in America. It's not really a thing that you can do. And. And the company's like on the brink of bankruptcy and you've got all these people who have massively shorted Tesla. They're just saying there's no way they can do this. One of the big lessons they took building that Model 3 manufacturing facility from scratch was he came in just thinking like, we are going to Automate this at a level that nobody's ever seen before. And there are some like astronomically absurd number of robots involved in that production line. And this was just going to be something that was like a, like sci fi. Like just this entire warehouse is just a machine and raw materials go in one end and cars with big panel gaps come out the other end. And they ran up against a whole bunch of issues with this. And like he's renowned for walking around like the factory floor and just like getting super hands on and understanding how each of the robots work and what the problems are and who's accountable for this and that and generally ruining people's day. But there were a bunch of situations where they had these big quarter million dollar robots and they would be holding up the production line because it can't do like this kind of fiddly thing with a windshield or something like that. And he'll walk up and he'll say, show me how it does this. And then he'll be like, can I do this in 10 seconds? If I can, why do I have this robot, you know, trying to do it when a robot can't like walk 10ft across the room to grab a tool to go solve this thing like on the fly? And and so they, they made the mistake of trying to over automate that process. And he, which is just such a Muskian thing to say, he said, it turns out humans are actually really good at a lot of things. And so at one point they literally went down the facility, like the production facility line and he had like, I think it was an orange can of spray paint and was just spraying every robot he could get rid of, like really aggressively, like, do we absolutely need this or can a human do it? And he would spray it like like all the way down the line and they haul all these things out to a parking lot, which is just like, goodness gracious, imagine the money and investment that went into all of that stuff. But they almost went the other way. They're like, yes, we're gonna lean into automation, but there's a whole lot of things that humans can do perfectly fine and humans aren't gonna hold up the production process. And I was reading through that and honestly, and this is a really nerdy thing to admit, my mind went to pre accounting and it went to so many aspects of accounting and tax and all that stuff that are so frustratingly manual, where it's like, oh my gosh, how are we ever going to get a better version of this? And it feels so far away. And I'm a US guy. So like my, the pains that are, you know, really specific to my firm running journey are, you know, banking integration issues and the tax system and the fact that there's literally no better tax software or modernization of professional tax software even on the horizon. Like how do we ever solve this problem? But it specifically brought me back to the fetching issue. The fact that you have to go out to all these systems to grab all these different types of documents and we're all like anytime I say, hey, what's one thing you really want AI to do for you? Like, we are all just foaming at the mouth for a great solution that'll just do all this for us. And I think receipt bank or Dex is now doing more fetching. But I think what the issue for most of us actually is is the fact that we just haven't built a process around manual fetching. Because you know, what isn't hard and what isn't expensive is having an admin fetch a bank statement from an online portal. It just, it just isn't like 30 seconds, 90 seconds for a person to log in and grab that thing. It's not hard, it's not expensive. Nobody wants to do that. Like, and I get that that's a crappy job to do and if there were a way to automate it, great. But what we do instead is we have our like technical, like subject matter experts when they're super busy, when they're under the gun, when they're in taxis and when they need to get that set of financial statements out, going out and logging into all these different portals and running into issues and having to ping the client, we have them doing all of that stuff in their most busy time. So what does the better approach look like? This pre accounting system, this is like a massive database or set of tasks that is to be completed, you know, the first of every month. Or actually each task can have a unique day to it because some banks, the statements don't come available on the 1st or some credit cards, you may be able to go out on the 20th and grab that statement. And that's actually better because then you don't have this pre accounting Crush on the 1st of every month. But at a certain point in the month all those things come available. And this system we're creating for manual fetching, let's be clear, this is the last resort. If you have to ask the client for a thing every single month, you should be asking them via automated revenue recurring requests from your practice management system. So if they have to give you some sort of number out of their system or something like that, get that with a recurring request that goes out the first of every single month so that nobody has to touch that. If there is an automated way to fetch this document, maybe Dex does it. Ledger Sync was one that we use that has a number of banking automations where we couldn't get those statements in an automated way anywhere else. Go through that hierarchy of what are all the automated ways to do it and if you're left with nothing, don't. This is the system you need to develop for how you fetch this stuff manually. For us, we actually centralize all of those tasks in one place. They weren't even like in the context of a project. It wasn't like, okay, monthly accounting project starts and you gotta go grab these 10 things and those are the first tasks I'm in favor of actually carving out that function entirely separate of the accounting function as a job for, you know, your admin, your non technical folks to knock out. And every single one of those tasks needs to have a number of things. Obviously it needs to have the date of the month where you need to go fetch that thing. It needs to really explicitly outline what it is you're supposed to fetch. What is the account number for the statement you need? If it's like a loan where they don't issue statements, what kind of screenshot do you want? Like put an example on there. What is the destination for that thing? Where should it go? Should it go in the current month's folder under accounting? Should it go in there? 20, 23 tax docs. Each of those tasks needs to be really explicitly defined and then they're set to recur every time a new version of that document drops. And you build this out for each client when you are onboarding them. This episode is sponsored in part by copilot. Okay gang, circle around, bring it in. It is change management season for most accounting firms. You're going through some hard tech decision decisions. Honestly it is spooky and like high stakes and really hard to decide because there's a bunch of solutions out there, frankly a lot of good solutions. But it is high stakes because if we go like switch all this stuff, how are we going to ever unwind that? What if we don't like it? Or if we go put this thing in front of a bunch of clients? What if they all revolt or we don't end up liking that? And the more stuff we're changing, the more risk there is inherent in that. And I actually think this is a solid argument for Copilot who is only tackling the client portal problem. And if you've watched much of my stuff, you know how adamant I am about the value of client requests, about clients being able to self service in a portal to come get a tax return or a month and close or so they don't have to email you for that stuff because it's 2023 and you should have a website where people can get that stuff. But if you're stuck on changing, I don't know too much at once, or the notion of chucking all your stuff into this all in one tool where it's like, well what if I like the workflow better over here in the portal over there? Actually think this is a solid argument for Copilot. All they're doing is trying to give you the most flexible client portal experience out there. You can embed stuff from external services. They got a bunch of their own built in goodies, but they are really wanting to build a platform not like a super opinionated portal so you can customize it to be whatever you need. So that sounds good to you? Check out Copilot at the link in the show Notes this episode is sponsored in part by the fine folks at Cloud Accountant Staffing. Do you hire accountants? Bless your little heart. Not the best part of the job in my opinion. Not something I ever enjoyed. Well listen, you can build your accounting dream team with talented offshore accountants in the Philippines that work 100% full time for your first firm. Their accountants aren't freelancing or contracting for multiple firms. They're all yours. They work exclusively for you and are incentivized to stay with you and your team long term. They're not gonna get swiped. Cloud account staffing is 100% dedicated to the accounting industry and founded by a former accounting firm owner that understands your business, knows your pain points. They had to hire some accountants and they said you know what, we're gonna build our own pipeline in the Philippines. Going to pull in some super talented people and then open that up to other firms. Basically that's the story. We talked a lot about staffing, building more resilient staffing pipelines for your firms. I had staff in the Philippines like totally red pilled me to like oh geez. Like we need to globalize the way that we get our work done. Check these folks out. Link in the show description Cloud accountantstaffing.com so as part of the kind of initial couple months of doing that month end close, maybe your onboarding team is still doing it. At that point you're thinking through what is the complete list of things that somebody needs to do to do this project every single month. All of those things should go on the pre accounting list because what you want to get to is your professional staff turning up to a project and having absolutely everything ready that they need to start the project. You know how frustrating this is? You know, if this isn't the case, honestly, for simple bookkeeping projects like this is half of a month end close, just pulling everything that you need and getting it organized and named the right way in the right place and all that. If you do tax, I mean this is small tax projects. This is half of a small tax project figuring out, do I even have everything that I need? Can I even start this yet? And so that project of like say the month end close really ought to start with a pre accounting status that doesn't even get bumped into. Like this can be worked on until all of the pre accounting stuff has been gathered up. And even if you are a solo practitioner, like this is an opportunity where a VA can be really helpful for you if you run a bigger team. This is a great way to arbitrage like the scarcity of these really solid technical people by offloading a bunch of that work to more of your ops and admin type folks that are probably a little easier to hire. Just be sure to get really explicit about how each of those things needs to be gathered. Like the file type, is this an image? Is it a PDF? How is the file named? Exactly where does it need to go? But once you have this, you know, if you're doing 100 monthly closes a month, there's probably 1200 things on this list. Like easy. And is it fun to go down and do all that stuff manually? It absolutely isn't. And I wish that it wasn't a thing. But if you don't carve out this process separately, you know what's happening. All of the exact same work is being done by all of your senior technical staff. And as we're thinking about managing crunch times like the cyclicality of a month and of the year and when you're at your busiest, the more we can like preload fulfillment, like the more we can do ahead of time to get us in a better position when we are in crunch time. That is gold. That is like, that is shaving time off of your peak like spike. Most busiest. Most busiest come on off your busiest time. And so this pre accounting could be like, frankly it could be as simple as A massive spreadsheet where every row is the thing you need to collect. It's got a column for who the client is, it's got a column for every single month. Like don't overthink it. In fact, if you're starting, start with something really dumb basic like that. Because as you do it, like as you get through a few cycles, you're going to find things that you want to change. And so if you come in straight out of the gate and you're like, well, here's the proper way to templatize this in my this and that, it's absolutely going to change. You're not going to get it right on your first try. So probably start simple with something that you can change on the fly like a spreadsheet. But make this a job of your apps, of your ops folks, of your admins. Now for each of those things, in certain situations there's like a version of this that could be fetching it out of, you know, like ledger sync is something that we used, or it could be fetching it directly out of, you know, a banking login or out of say gusto, you know, your payroll system that you use for each of these tasks, you're probably gonna identify like who should do it or at the very least the role of the person who can fetch it. Because one thing we were able to do is actually push a lot of this to our offshore team. So if it didn't involve like logging into a banking system, which many of these things didn't, it was like, you know, logging into Bill.com and running this report as of this date so that we can use it in the workpaper file. We actually found as we built out this process. It started as pre accounting and it started as fetching bank statements, but it actually developed into work paper prep because if they can grab the bank statement, they can also, I don't highlight the ending balance or name it the way that, you know, a professional would have named the work paper. And what we found was it actually made your ops and your admin people in like, they started thinking like bookkeepers. They started understanding what a completed month end file ought to look like. And that was really powerful. But back to the offshore thing. We're always looking at how can we apply the least expertise possible to this thing so you don't have your most scarce, highest level folks doing very basic tasks. And we actually had offshore folks that were like on the whole skill spectrum, but we had some offshore folks who were like entry level people still cutting their Teeth just out of school. And a good chunk of our pre accounting tasks, like maybe half of them were not actually logging into bank systems where we, you know, we didn't send any of those credentials offshore or anything like that. It was logging into ledger sync or bill.com, or gusto, stuff like that, where they already had access to this stuff. It was just a matter of pulling the reports that we needed to put those work papers together. And it followed this really interesting progression from we have this problem of needing to get these bank statements to, well shoot, if you can put it in the, if you can put it in the folder there, you can also do this or that, that the accountant would have to do. And you could also pull this and that report. And we start looking at these completed month end files going down the list and it's like, oh, maybe there's like this report from this other system that we actually get every single month for this client. Well shoot, check it on the pre accounting list. Like that's something that can be done on the first of the month like right away so that the bookkeeper or like the accounting senior didn't actually have to do that themselves. So should we try to lean into doing this in as automated of a way as possible? Absolutely. But when you can't, you still gotta come to terms with the fact that you need a manual process and you can run a super profitable business with manual processes. Like those things exist all around us. And I think that's probably, there's probably a bit of a blocker there for honestly people like myself and people who can get kind of hoity toity about like oh, this or that ought to be automated. I think sometimes we can go too far down that path and cruise right past making a manual human process for something that needs a process, something that needs to be done. Right. It's kind of like that model three like manufacturing analogy. Humans are capable of a lot and actually the, the more and the better systems that we can build, like the, the more productive your humans can be. A lack of systems usually requires an abundance of technical expertise or quote unquote common sense according to the person who's done it for 30 years. Right. But if you can give, if you can create some really locked down systems, you can get really meaningful work and contributions out of your folks that aren't super technically skilled. And it actually like introduces them to the technical aspects of what you do so that down the road they may even become those technical people. I don't see people ever talking about this like distinct pre accounting processes. I see people complaining a lot about the pains of having to do this stuff, which I totally get. It stinks. But hopefully that's helpful for you to build a better process around all of that. Now, as with all change management, you're going to hear this, and if this is novel to you, you're going to be pumped and excited and you're going to be like, oh, cool, but I'm also busy and I have a lot of other stuff to do. This is a nice encapsulated 25 minutes that you can send to a member of your team and be like, gina, let's do this. Cut them loose. Doesn't mean you can't still be involved in the process. But. But most of the people listening to this pod are like the big boss. And big bosses are time limited. So challenge the notion that you need to do this all yourself. This could be a cool opportunity for a member of your team to, like, get your team a cool win. And then when you're not the one that was like, the person who 100% got it set up in the beginning, it's way easier for you to not have to be the person on maintenance mode going forward. Right. That's all I got for today. Uh, we've got some other episodes that are going to publish this week. Even though I'm off and traveling. Yes. I am destroying the illusion that I sit down and I record this thing every day. I generally do, though usually what I do is two days before it publishes, I will sit down and record. And sometimes I'm like, oh, I could totally get ahead, but I don't know, doesn't feel that fun because there is. We do actually talk about quite a bit of, like, current event stuff that gets stale pretty quick. I got a few in the can so that we can keep. Keep that chugging along when I'm. I'm traveling this week. So if I'm going to see you at conferences. Awesome. Please don't be a stranger. And for the rest of you, I'll see you tomorrow.