Bean counting for IT&C contractors
Morris Kaplan, one-time stockbroker and venture capitalist, brings his finance skills and recent experience as a business journalist and writer to IT, with a special interest in telecoms and how communications is being transformed by technology.
A long-time friend of the author, now resident in California and an IT contractor specialising in IP, when asked on a recent visit to Sydney “How’s business?” replied “Great. Good work, the fees are good, high-quality clients. There’s a problem, though. I haven’t done any billing for 12 months!”
The obvious retort is “Why?” “Because I hate it,” he says.
On a personal level, I hate it too, but I hate poverty even more!
At a time when underlying trends appear firm and positive, contractors can be forgiven for being too busy to attend to the paperwork of being self employed. Indeed data released by PeopleBank shows “A steady market for technology skills in Australia” in both the private and public sectors, with continuing digital transformation, expansion and upgrade projects. In short, revealing the ‘digital industrial economy’ is robust.
Outsourcing of non-core functions continues to benefit IT contractors, but such benefits can be whittled away by poor and inadequate billing systems. After all, how difficult is it to raise an invoice? “It’s extremely difficult 12 months after the job has been completed,” said my US friend. “The file is closed in the accounts payable department because there is no invoice in the system.
“I’m now paying for my procrastination; I have to chase down people; it takes time and I’m running short of cash.”
The business of being a self-employed IT professional
Procrastination does seem to be at odds with the role of an IT contractor in a digital economy moving at warp speed. Perhaps advances in technology, such as cloud based accounting software have blind-sided the IT contractor. After all, they are generally far more adept at dealing with the online world than many of their SMB counterparts.
Yet accounting and bookkeeping industry spokespeople say the evidence is compelling, suggesting that many IT contractors are leaving money on the table.
Debra Lewis, CEO of the registered training organisation the Bookkeeping Institute of Australia, says that bookkeepers dealing with contractors in the IT&C sector often note gaps in the contractor’s accounts.
“Bookkeepers often work for small businesses and contractors like plumbing contractors, air-conditioning businesses, self employed physiotherapists and the like. It is a puzzle why IT people not there in greater numbers.”
Business owners and self-employed people understand that it’s often cheaper and more strategically effective to sub contract and outsource work which is not mission-critical to the contractor’s value proposition. So being the bean-counter as well as tech-head makes little sense; much less sense if the basics of billing are not done properly or not at all.
Billing and risk management
Lewis believes that many self-employed people and new ventures are at risk due to poor record keeping.
“I can tell you some horror stories of self-employed people who try to juggle their cash flow,” she says.
“They conveniently forget that the GST in your bank account is a loan from the tax office and the ATO will collect.
“We’ve seen people lose their homes because of a failure to pay the ATO. It can be pretty nasty when the ATO takes action. They can require a bank to garnish a company’s bank account.”
When and how to hire a bean-counter
A contractor may not need an accountant if they are running a simple structure like a partnership or company but if they are suffering the “procrastination” syndrome when it comes to paperwork and billing then spending a modest amount on bookkeeping is simply good business. What fees should they pay?
It depends, says Lewis. “It can range from a low $45/hour up to $100 or more depending on the level of expertise required.”
Look for what past clients have to say about this provider? Was the work good? Was it great? How about the service? Communication? Were deadlines met? Were there any problems? Were they resolved?
Check for the provider’s formal qualifications. To hire a bookkeeper, remember that you’re establishing a relationship based on trust because you'll be hiring someone who will be looking after your business finances, so speak to them before you hire them.
Morris Kaplan, is a business journalist, business owner and Publisher Director of the BookkeepersHub.