By Kelly Totten,
CrackerJack accounting consultant and virtual cfo,
Lake Oswego, OR, U.S.A.

http://www.crackerjackaccounting.com

Hiring a bookkeeper can be an overwhelming process for many small business owners. Before you begin the search, it's important to determine the type of experience and skills you need. Are you looking for someone to analyze the numbers for you and create a budget or do you really just need someone to data enter the bills and invoices?

If you have someone to help you understand the numbers, or you have a strong accounting and financial management background, getting a person who is proficient in your accounting software and whose experience and personality is a fit for your business will probably work out well. On the other hand, if you don't have anyone making sure the numbers are correct, the data entry bookkeeper is not a good idea. In this case, you'll want to look for someone with full charge bookkeeping experience. That is, the ability reconcile the balance and perform a monthly close. Typically, bookkeepers do not have the skill-set to help you with financial management beyond accurate financial reports.

Once you place an ad, you'll be treated to a smorgasbord of candidates. You'll have to narrow down the pile of candidates to those who meet the needs of your job description and then the interviewing fun will begin. You'll want to ask questions that will ensure the bookkeeper really does have the right skills and will fit the culture of your business. Here are 8 questions to ask your potential bookkeeper:

1) Do you think accrual or cash basis reporting is better for business management?

Look for an advanced bookkeeper to explain that accrual basis accounting provides better financial reports, but cash basis is usually preferred for taxes. We can keep the books on accrual basis for management reporting and the tax accountant can make adjustments for cash basis taxes. A standard bookkeeper will probably tell you what her experience has been and will not have a preference for either.

2) What is the accounting equation (or the balance sheet equation) or explain the balance sheet.

A good bookkeeper will explain the balance sheet has assets, liabilities and equity. This is mandatory for anyone you expect to provide accurate financial reports. Ideally they will tell you the equation is: Assets = Liabilities + Equity. If they can't explain the balance sheet, then ask them to describe an asset and liability account. You won't want someone who doesn't know the balance sheet responsible for month end close, but if someone else is ensuring accuracy, just knowing how assets and liabilities are used will be fine.

3) The bank account is off $0.72. How long will you spend looking for the problem and what steps will you take to find it?

This problem is tricky and really depends on what you would like to see in the right bookkeeper. Some won't stop looking until they find it. Sure, there could be numerous things causing any discrepancy so you do want them to spend some time looking for the problem. But how much time? Is spending 2 hours looking for $.72 the best use of time? If we look at return on investment, that's absolutely a bad use of time. If they answer 2 hours, you'll want investigate their tolerance for non-perfect circumstances. If you're in the creative field, an extreme perfectionist may just drive you insane. If, however, they won't look for the error at all, their attention to detail probably isn't strong enough and you should keep looking.

When looking for the error, the ideal candidate will say it's likely a transposition error and they would start there first (transposition errors are divisible by 9). They may just say they would check every line item against the statement, which is perfectly valid.

4) In cash basis accounting, how would your record a $600 annual insurance premium?

The right answer for cash basis is debit insurance expense $600, credit cash or accounts payable. All bookkeepers should get this right.

5) How would you record a $600 annual insurance premium using accrual accounting?

The correct answer here is Debit Prepaid Insurance $600, Credit Cash or Accounts Payable. Prod them to find out when insurance expense is recognized. It should be $50/month with a Debit to Insurance Expense and a Credit to Prepaid Insurance. If the candidate cannot answer this question, don't expect them to keep your books based on an accrual accounting. You will want to depend on someone else for management reports.

6) How many gas stations (or coffee shops, etc) do you think there are in the U.S.?

With this question, we're looking for good critical thinking skills. It's not okay to just guess a number with no explanation or to say they would "google" it. You want the candidate to have a process for getting to their guess, no matter how far off it is. There are this many gas stations in my town, I would guess this many towns in my state....

7) Rank the following in order of importance for business success: Sales, Teamwork, Quality, Integrity, Profitability, Service

There isn't a right or wrong answer to this question, but it will indicate whether the candidate is aligned with your business culture and also demonstrate critical thinking skills. Look for a justification for why they answered the way they did. Does it line up with how you would answer the question? For example, if they say Profitability is the most important. Why is that the case? If they say teamwork is least important, you probably want to dig a little deeper if teamwork is high on your priority list.

A bookkeeper would preferably list profitability lower on the list because you want to know that they are considering the whole business, not just their job. You would also want to see integrity high on the list. Do you really want a bookkeeper who doesn't value integrity?

8) Tell me about a time you didn't agree with something your boss asked you to do.

The right answer here will depend upon the personality you're seeking. Do you want a follower who will do what you say? Are you looking for an advisor to tell you what should be done? Perhaps a mix is the right answer for you, someone who is confident enough to speak their mind, but is willing to take direction.

There are tons of potential interview questions to ask when interviewing bookkeepers. The ones listed above can give you a good indication of whether or not the candidate is a good fit. For a better assessment of accounting skill, checkout AIPB's bookkeeper test. Don't forget to check references and try to talk to a CPA who has had the opportunity to see their work.

Published - November 2010