TECHNOLOGY IS CHANGING THE WAY WE DO BUSINESS MANAGEMENT: A Q&A WITH BILL JAASKELA

This is a summary from a talk at a Business Management Bookkeeper’s forum from 2014 at which I was a panel member.

How has Business Management changed over the years?

The most significant change is that Business Management is a much less labor intensive profession than it had been in the past.  At one time the bookkeeping function absorbed a significant number of staff hours to get the work done: the technological tools with which to leverage the work were not available.  Think of an old fashioned accounting office filled with file cabinets and adding machines and stacks of paperwork.  I call that the analog approach.  Under that regime paper invoices would be delivered to the bookkeeper by snail mail.  The billing information would be manually entered into the accounting software and paper checks would be printed.  A cumbersome review and approval process would follow along with the pursuit of signatures. A signed check would eventually be snail-mailed back to the payee.  The process involved a lot of envelope-opening, paper-shuffling and stamp-licking.  The simple task of paying a utility bill could take up to 20 minutes of labor time.

With the advent of the Internet, online banking, electronic data import and digital document management, the bookkeeping element of Business Management is increasingly automated.  Most of the recurring monthly expenditures for utilities, mortgage payments, cable TV, club dues and other such payments are processed through ACH Autopay.  Other monthly invoices are paid out of the bank bill pay system.  Paper checks are all but eliminated.  Credit card and banking activity is imported seamlessly into the accounting database and a significant proportion of the transactions are automatically coded to the proper expense category.  The time it takes to prepare the monthly accounting for a client has been cut dramatically. In the analog days it could take 10-20 labor hours to complete the monthly bookkeeping and accounting for a client (paying bills, recording all banking and credit card transactions, reconciling the accounts, generating financial reports, etc.).  By leveraging with technology it might take only an 5-10 hours to complete the same volume of work.  That is at least a 50% reduction in the number of labor hours needed to manage an account.

All these technological advances are taking place behind the scenes.  The client sees only the end product. So does this automation really change their experience of Business Management?

Technology has a significant positive impact on the services provided.  Data import brings 100% accuracy to the arithmetic of accounting.  Transposition, decimal placement and other human errors are eliminated as is the time-consuming drudgery associated with manual input.  The accounting staff can focus on more substantive issues and that creates a better work experience and a better work product.  Instead of typing row after row of credit card charges on a keyboard, the staff review the output, focus on account classification and turn to more analytical issues and that is always a benefit to the client.

But the biggest impact of technology is the substantial drop in the fees that the clients pay for Business Management.  Instead of paying $3,000, $4,000 $5,000 or more per month, clients experience an expanded scope of service for half to a third of what they previously paid.  Technological innovation drives down operating costs big-time.  If it took 30 hours a month to service a client using old technology but only 10 hours using new technology, the operating costs to service the account will drop significantly.  Over the course of a lifetime these lowered fees can translate into hundreds of thousands of dollars. 

In addition, lower fees broaden the scope of clients who can benefit from Business Management.  When business management fees are in the $1,000 - $2,500 per month range a lot more people can afford the services.  The days of $50,000 per year business management fees are long gone.

Are bookkeepers being eliminated?

In embracing this new technology the traditional bookkeeper position is not being eliminated per se.  We are re-engineering what bookkeepers do.  The traditional bookkeeper role is being morphed into a position that might be more appropriately titled data flow manager.  A dataflow manager ultimately accomplishes the same workload as a bookkeeper but does so by leveraging with digital technology.  A dataflow manager can typically handle 3 to 4 times the volume of work as that of a traditional bookkeeper.  The technology can easily cut 10 – 15 hours or more of time out of a client’s monthly maintenance.

Are all business management firms adopting these new technologies?

Many Business Managers have been slow to embrace the new technology.  Inexpensive productivity-enhancing applications abound yet many firms fail to even explore their utilization.  Consider data import.  Quickbooks has a remarkable application called the bank feed that automates the entry of credit card and banking transactions into the general ledger.  The bank feed feature works almost flawlessly and hundreds of transactions can be recorded into the general ledger in, literally, a few seconds.  Bookkeepers under an analog approach spend hours manually entering row after row of credit card charges into the system.  This input method is pure drudgery and is prone to human error – transpositions, decimal placement errors, and so on.

Yet even with all this readily available, user-friendly technology many accountants and bookkeepers are reticent to abandon manual entry.  But these old-school firms will be eventually have no choice but to change.  Competition is forcing a rethinking of how Business Management firms handle their back office operations.  Clients see the technology that can bring them online banking, financial tracking applications like MINT, the ability to pay bills on their mobile devices they reasonably question why it would cost them $3,500 or more per month to manage their bookkeeping.

But doesn’t it take significant effort to move to this new technology?

There is an upfront investment of time in implementing these new technologies.  But the only way to realize the full benefits of the technology is to crawl into bed with it.  Consider the Quickbooks bank feed feature.  Accountants need to invest the time to learn the data import application inside and out – all of the features, configurations, nuances, shortcuts, quirks and tricks of the trade.  It is only then that one can truly reap the rewards associated with these productivity tools.  The good news is that the payback is fast and furious.  If you have a firm with 20 clients and you cut 15 hours of labor per month per client you are saving 300 hours per month of labor time.  That is the equivalent of almost 2 full time staff members.  And, again, that is why Business Management fees are dropping.  You can do the math and any way you slice it the fees that clients pay are dramatically lower than they were in the past.

But what about clients in the entertainment industry?  They have more complexity to deal with.  They have loan-out corporations and get residuals and royalties and so on.  There is a lot more to track and account for so it seems that fees in the industry would not be as elastic.

Accounting for entertainment clients is not rocket science.  Every professional has his or her own “complications” be it the manager of a private equity firm, the president of a hotel or the producer of a television show.  I think that Business Managers sometimes embellish the description of what they do in order to justify higher fees.  For example, a loan-out corporation is, in fact, an accounting non-event.  It is simply a carve-out of the client’s activity to isolate the business transactions from the personal.  There are tax and other advantages to a loan-out.  But Business Managers tend to inject a bit of drama into the analysis of a loan-out in order to rationalize their services.  In fact, the various tax and governmental compliance issues associated with a loan-out are routine.  I would argue that a loan-out actually enhances the productivity of the work and in that sense reduces the labor hours associated with a showbiz client.

Are there any other changes or trends in Business Management?

The reporting function is also undergoing a transformation.  There is a standard set of reports that Business Management firms have traditionally generated including a statement of income and expenses, a statement of net worth, a cash flow statement.    But clients want a concise, user-friendly summary of their monthly transactions so they can scan for fraud and to get a general idea of where their money is going.  The format of traditional reports often confuse clients and fail to address their core informational needs.  So Business Management firms are now more inclined to give clients the reports they really want rather than forcing upon them the reports that the business manager thinks they should have.

In addition, the traditional accounting-oriented reports are costly to produce.  It can take 5 hours to generate a set of monthly statements, and that can contribute $1,000 or more to a monthly invoice.  And these are for reports that the clients often don’t understand and toss in the wastepaper basket. The transaction-oriented reports are far less time consuming to create.  It’s a double win for the clients: they get the reporting they want and they get lower fees.   

You mentioned that clients can get an expanded scope of service at the same time that they pay lower fees.  How can it be that you give them more but charge them less?

Technology is now doing all of the heavy lifting.  Because the bookkeeping component of business management is on the cusp of being 100% automated, the entire definition of what business managers do is evolving.  Business Management is better conceived of as Information Management.  And that new thinking is driving the type of services provided.

Many business managers have expanded the scope of their work to include additional services.  In talking with our clients we found that they wanted their lives simplified, streamlined and de-cluttered.  We developed a service called “Life Organization”.  Our firm includes document management as a standard service.  We convert all of the paper of their life into digital files organized in a sophisticated yet simple virtual file organization system. We literally put our clients’ lives on a flash drive.

Many clients hoard paperwork.  They might have 5, 10 or 20 years or more worth of bills, receipts, bank and investment statements, escrow paperwork, tax returns and so on.  Even though they might have never once had to consult a single one of those documents they are reluctant to toss them.  With Life Organization clients transfer the hoarding function to the business manager.  But we are digital hoarders – the stuff we stockpile takes up no space, doesn’t smell bad and doesn’t carry airborne bacteria.  We scan every document no matter how inconsequential.  Every document is subject to optical character recognition, thereby making the document itself searchable.  And all of our client’s documents are organized in a stand-alone document management system where every document is electronically labeled and indexed and can be retrieved instantaneously. Unlike a paper document, a PDF never fades or deteriorates – the integrity of the document is permanent.  We get rid of clutter and turn chaos into order.  Clients love this service.  They can clear out their home and offices of banker’s boxes of filing yet know that any document is a mouse click away.  Clients start giving us everything from their kid’s grade reports to birthday cards to love letters.

But don’t these additional services increase the internal cost of business management?

To the contrary – like automated banking, digital document management cuts operating costs.  It is a misconception that scanning documents takes more time.  Study after study has shown that going paperless significantly increases productivity and efficiency.  With a digital approach you don’t have bookkeepers or file clerks searching for missing files.  You don’t have secretaries photocopying and faxing paperwork.  The additional time it takes to scan documents is no greater than the time it takes to file those same documents in manila folders and Pendaflex folders.  A dataflow manager can download or scan a month’s worth of documents (meaning bank and investment statements, invoices, ACH payment confirmations, all monthly bills, receipts, plus a shoebox full of whatever stuff the client wants us to scan) in an hour or two.  The internal costs of managing a paperless, digital office is significantly less than that of running an analog, paper-driven office.  We bring additional value to the client at a lower cost.  All of this technology, be it automated accounting or digital document management, is significantly driving down the cost to run a business management firm and it is the client who reaps the rewards with dramatically lower fees.

It is interesting to note that Business Managers are at the same time embracing technology as they are competing with technology.  With online banking, ACH auto-pay, Mint, and other applications, savvy clients reasonably ask why they would pay $3,500 a month for someone to cut checks when they themselves can easily do their own bookkeeping using the apps that are at their fingertips.  The key concept is that Business Management is Information Management.  It is less about crunching numbers than globally managing a client’s information.  Business Managers have no choice but to embrace the new technologies or they risk seeing a dwindling client base.

With all this technology isn’t their greater danger of fraud, identity theft and unauthorized access to client information?

Business Managers must be vigilant in protecting their client’s data.  But we need to go beyond the standard security measures like firewalls, encryption and antivirus software.  We also need to consider how to minimize the accessibility of a client’s information.  The fewer the number of individuals having access to sensitive information, the less the risk of a dissemination of that information.  To do our work we need social security numbers, dates of birth, user names, passwords, mother’s maiden names, security questions and answers.  The dilemma is how to give the staff access to the online accounts while limiting their access to the login credentials.  Fortunately, every problem brings a wave of IT geeks seeking to find a solution.  Sophisticated password management software has emerged that can provide the accounting staff access to a client’s online bank or credit card accounts without revealing the underlying user name, passwords and other credentials.  These programs provide an alias overlay that masks the client’s true profile information and grants access only under controlled conditions – such as at a specific time or at a specific workstation.  That means that the bookkeeping staff have controlled access without ever having knowledge of this sensitive identifying information.  A staff person could not access a client’s online accounts outside of the office as they never know the true login credentials.

These same programs also generate hyper-complex passwords to protect the various files (Quickbooks and others) that we work with.  The likelihood that a hacker can penetrate an account is significantly reduced when a password is randomly generated, long and complex.  These password management programs dramatically reduce the ability of a hacker to crack a password.  And, once again, the passwords are masked to the staff, thereby controlling their access to the data.

Clients justifiably worry about access to their information, especially when the information is in a digital format.  Yet those same clients are less likely to be concerned about the tax return with all of their social security numbers and personal information that is sitting on a desk in their home office.  There are security risks with any medium be it paper or a digital PDF.  I would argue that a client is more at risk of being “hacked” with a paper document than a digital document.  Every evolutionary step in the management of information has its risks.  But every step also has a new wave of innovation to minimize those risks.  We are constantly searching for and evaluating new ways to protect digital information.