Quickbooks? Not so fast…

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A significant part of my business is tax preparation and consulting for small business clients here in Maui. See that Nerd Superhero on the right there? Yeah, that’s not me. I don’t do bookkeeping and I’m not trying to sell you anything.

I am trying to tell you to be careful what you buy.

I am not a Quickbooks certified anything. Except maybe a certified skeptic. Wait - what? A local, small-town CPA who is skeptical of Quickbooks? But everybody uses it! What’s his problem? Is he incompetent?!

Nah. I’m skeptical of QB, but I know how to use it. Whereas there’s a reasonable chance that you’re not skeptical of QB but don’t actually know how to use it. No matter, 80% of small business owners out there use it whether they know what they’re doing or not. That’s why I’m not a fan.

Am I being a little harsh here on Intuit? And on you?

Not on you certainly. Maybe on Intuit. But as a guy who inhabits the real world, I don’t argue strenuously against the color of the sky even though I would prefer green over blue. Likewise I don’t refuse to accept the existence and importance of a anything which commands an 80% market share. QB publisher Inuit (NASDAQ: INTU) also makes Turbotax. The company pretty much owns the space for accounting software costing less than about $2,000.

So, as the millennial philosopher says: “It is what it is.”

Clients using QB frequently present financial statements to me which don’t make much sense at first glance. Or second glance. They look like financial statements, but they have debits where credits should be, show negative net worth for companies I know to be well capitalized, and are just in general… crap.

(As they say in France, pardon my German.)

Having done this accounting stuff for a while now I can usually glance at a set of financials, ask a few quick questions, and roughly estimate their accuracy. The top grade for a QB income statement produced by a non-accountant usually comes in around D+. The balance sheets are very often completely useless.

Here’s a fun fact: almost forty percent of Intuit’s gross revenue is spent on marketing. Every time you spend a hundred bucks with Intuit they spend forty of it trying to get you to buy something else. They are essentially a marketing company, spending heavily to sell things to people who don’t need them. Per dollar of sales, Intuit spends about twice what L’oreal spends selling hair dye and lipstick.

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And those Super Heroes don’t come cheap. But they don’t cost Intuit any money - you pay for them. In fact, Intuit makes money off the Super Hero and you.

Intuit doesn’t call them Super Heroes of course. They come in various flavors all containing the word ProAdvisor. Many of my closest pals in the business are Enterprise ProAdvisors, Platinum ProAdvisors, RoseGold ProAdvisors, and display any number of fancy certification badges on their websites. Take a look at all of them. Impressive stuff. And believe me, Intuit doesn’t exactly pass these badges out. ProAdvisors know their way around a QB interface.

Why do many if not most QB customers need ProAdvisors? It’s not exactly a dirty little secret that accounting software can be a bit complicated, even if you spend three million dollars a day like Intuit does trying to convince people otherwise. But it’s a stubborn fact that accounting software is unable to produce reliable results when used by someone unfamiliar with basic accounting.

It. Just. Doesn’t. Work. That. Way.

Intuit offers a range of high-end cloud and desktop computing technology which attempts to automate a highly technical business process. Using these products properly takes training, patience, and commitment. And yet Intuit sells these products using the same techniques Disney uses to sell your children the latest animated feature. The story from the Super Bowl ad below concentrates on how fun it is to get rich. No wonder people don’t know how to use this stuff.

You see anything in this video about debits and credits?

The vast majority of small business owners are no more familiar with accounting than I am with kite-surfing. That doesn’t stop millions of them from paying hundreds of dollars a year for what they believe to be an accounting solution. In reality many QB customers use the program as little more than a convenient way to write checks and produce invoices, but Intuit’s marketing insists they are also doing accounting at the same time. That is no more than a little bit correct. And in accounting, much more so than most things, a little bit of knowledge is a dangerous thing.

Am I saying QB is not an accounting program, or even a good accounting program? No way. QB is just fine. I’d even say it works pretty good. All accounting programs are relatively simple databases (similar to spreadsheets) with extremely complex user interfaces (the buttons you punch). With a couple million bucks, anyone can put one together. The Double Entry (debit/credit) accounting system employing subsidiary ledgers feeding into a general ledger has been around for about 800 years. From what I hear, these things aren’t even all that complicated to program.

But no matter how pleasing the screen colors of the interface or the ease with which the APIs magically extract information from your bank and credit card company . . . if you don’t know your debits from your credits, the only way you’re going to produce meaningful accounting information using QB …

is luck.

Fun Fact: you will rarely find references to debits and credits in QB documentation or in the interface. This is emblematic of just how far away from classic double entry bookkeeping you are when you’re using QB. I’m not trying to whip you with a pocket protector here, but if you don’t know you’re debiting an account when you should be crediting it you can use the finest software civilization has to offer and still be producing...(as much as I hate to say it again) crap.

I realize these views may come off as reckless, cranky, or just plain wrong. Claiming that QB doesn’t work well? Everybody uses it. How could that be? It is this near ubiquity that sort of makes my point. If everyone is using the same software solution it MUST be producing good results.

Except that it’s not. Again, Intuit is a marketing company. Anybody can produce a workable accounting program. It takes a marketing company to produce a workable accounting program and sell it broadly to people who don’t know how to use it and never will. It’s a fact that few people who didn’t go to accounting school can tell the difference between accurate, materially correct financial statements, and those produced on QB by a sculptor in Brooklyn who doesn’t do fractions.

It doesn’t matter. QB wins by virtue of the fact that everybody uses it.

So, does anybody use QB properly? Sure they do. A lot of people do. I wouldn’t say most. Some people actually teach themselves enough accounting to produce perfectly fine financials. Others hire QB ProAdvisors to help them (i.e. to do the actual accounting) after they’ve done the data entry. Frequently inaccurately. Everything works out reasonably well in both these scenarios.

However, lots of folks (maybe more than half, certainly more than a third) install the software, read a few pages of online documentation, hook up a few bank accounts, and start punching buttons. Nothing good comes of it.

Am I suggesting you unplug your QB? I’m not. It’s up to you how you keep your books. I keep mine on a spreadsheets. This horrifies many of my colleagues. You can keep them on notebook paper if you like. There’s nothing magical about any software, and certainly not about Intuit’s QuickBooks software. You can only do accurate accounting if you know what accounting is, and you are committed to doing it accurately. This is not a question of telling Siri to turn on the lights in your bathroom. You can’t really do financials on your smartphone. What really matters is that however you keep books, you make sure they produce materially correct financial statements. A $500 installation of Quickbooks or $50 million installation of S.A.P. will both spew garbage when fed garbage.

Accounting is not a particularly ‘user friendly’ undertaking. If you operate QB with little or no underlying understanding of bookkeeping, the program will produce out countless errors you’re not even aware are occurring.

I see the results of this… constantly.

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Frustrated with QuickBooks?

If you don’t want to learn accounting, you probably shouldn’t be using an accounting program. QB lulls people into believing they are performing accounting when they are simply writing checks, making deposits and sending out bills. While those activities are surely integral activities in the accounting cycle… they don’t really stand on their own as “accounting.”

If you have a company with less than half a million or so in annual revenues and possess no accounting experience (and never plan to) chances are pretty good you’re wasting a lot of time with Quickbooks .