Seattle Small Business Blog

Anyone who’s worked in an office at some point or another has had to “go to accounting.” They’re the people who manage the company’s income and pay the company’s bills that keep the business running. They do a lot more than that, though. Sometimes referred to as “bean counters,” they also keep their eye on profits, costs and losses. Unless you’re running your own business and acting as your own accountant, you’d have no way of knowing just how profitable – or not – your business is without some form of accounting.

No matter what business you’re in, even if all you do is balance a checkbook, that’s still accounting. It’s part of even a kid’s life. Saving an allowance, spending it all at once – these are accounting principles.

It would be hard to find any business where accounting is not a critical centerpiece. For example, even farmers need to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it’s a good year, a profitable one, then they can pay off their loan; if not, they might have to carry the loan over, and accrue more interest charges.

Every business and every individual needs to have some kind of accounting system in their lives. Otherwise, the finances can get away from them; they don’t know what they’ve spent, or whether they can expect to make or lose money in their business. Staying on top of accounting, whether it’s for a multi-billion dollar corporation or for your own personal checking account, is a necessary activity on a daily basis. Not doing so can mean anything from a bounced check to posting a loss to a company’s shareholders. Both scenarios can be devastating in their own right.

Accounting is basically the keeping of financial information. In a business, this information is published periodically as a profit and loss statement (P&L) and a balance sheet.

You’ve decided to jump in head first and hire a subcontractor. So, you ask a couple of colleagues for recommendations and they suggest Susie Sub. They say Susie is a hard worker and she’ll do a wonderful job for you. She’s very talented.

So you contact Susie Sub and agree upon a rate for your client’s project, sign a contract and you hand over the specifications, expecting Susie to have her work finished by the next week.

The next day, you email Susie for an update, thinking she might have some questions and knowing that you need to be a supportive project manager. By that night though, you have heard nothing back from Susie.

You figure she’s probably working so hard on your project, she’s forgotten all about email. She’ll answer your email the next morning.

Except that’s not what happens. Three days later, you’re frantically trying to contact Susie. You’ve called her, emailed her, done everything short of hop a plane and fly out to her house to make sure she hasn’t been kidnapped.

Another day passes and the client is asking questions, wanting to know how the project is going and asking for a few changes to the original project. You still can’t reach Susie, so you start working on the project yourself. If you work straight through the next day and night, you might be able to meet the deadline.

And then Susie emails. She’s been off at her sister’s house, which has no Internet. She did work on your project though and it’s all complete, right on time. You go through it, and the work is excellent. But you’re so worn out at this point, you almost don’t care.

The moral of this story:
Make sure you give your subcontractor a trial period before you give her any really important client work.

Had you put Susie through her paces first, you’d discovered that she has a habit of not communicating during a project, even though she does the work, does it well, and does it cheerfully.

This situation may or may not be a deal breaker for you – either you can handle Susie’s silence because of her excellent work, or you’re going to be so stressed out by the lack of communication during the project that you can’t possibly work with her.

A trial period can also bring out other issues:

1. Inability to do the requested work.
2. Busting deadlines.
3. Negative attitudes.

Some problems may not arise during the trial, but you can take quick action to address those that do, and possibly save yourself some headaches.

When you do run a trial period, make sure you are paying your subcontractor for her work. You may go ahead and sign a contract, including a provision for the trial period.

You’ll also want to be sure and give your subcontractor constructive feedback after the trial period is over. After all, Susie may have worked for your colleague for years, and the colleague never worries because Susie always comes through. If you ask Susie to be available for communication throughout the project, she may be more than happy to do so.

Hiring subcontractors adds a new dimension to your business. Not only are your clients paying you, but you’re paying your subcontractors. While this does create a bit more work for you – or your bookkeeper – the increase in your productivity will more than pay for the extra work.

In order to make your system to work though, there are a few things you need to keep in mind.

Pay Per Hour or Per Project

First, you need to determine how you’re going to charge for a project. Are you going to charge your client an hourly rate or a per-project rate? You’ll also need to find out if your subcontractor is going to charge you hourly or by the project.

Second, you’ll need to find out how much your subcontractors charge for the work you need them to do. Once you have this information in hand, you can determine how much you charge for the services you provide (project management, client communication, editing). Add these two numbers together, along with any other necessary fees, and you’ll have the amount you need to quote the client (although I recommend adding a small contingency fee as well).

In any case, it’s important that you make sure you charge enough to cover your subcontractor’s fees, the time you have invested in the project and any overhead that might be associated with the project. Once you have your numbers in place, you’ll also need to make sure you sign a contract with the client and with the subcontractor before anyone begins any work. Check with your lawyer to find out what needs to go in the contract.

Sending Payment

Once the project is completed, some subcontractors invoice immediately. Other subcontractors invoice monthly or even weekly. You’ll need to speak with your subcontractor to find out what his/her policies are.

Also, some subcontractors may sell you a set number of hours or tasks per month and you pay a set amount. They work until you have used up your hours. This is a good arrangement if your subcontractor is completing tasks that aren’t directly related to specific clients or projects.

Check with your subcontractor ahead of time about specific payment arrangements. Typically though, with online subcontractors, you’ll be able to pay via Paypal. In some cases, you may be able to pay via credit card, or the subcontractor may accept checks.

With a smaller subcontractor, you will most likely be expected to pay your invoice immediately. Some larger operations though may allow you to pay your invoices 10 to 30 days after receipt. Find out for sure what your subcontractor’s polices are.

What If the Client Doesn’t Pay?

If your subcontractor is charging you for a specific client-related project, and the client doesn’t pay, you may be tempted to ask the subcontractor to wait for her payment.

That said this issue is something that should be covered in your contract with the subcontractor. But even if it’s not, as the project manager, it’s your responsibility to make sure those working under you get paid, even if you don’t. It will also be your responsibility to seek payment from the client.

Take care of your subcontractors, pay them well and make sure you charge your clients enough and your business will be much more successful for it.

A common tip given to service providers who are growing their business is to outsource those things that you don’t like to do – like accounting or cleaning your house.

While that’s good advice, it’s often not going to be what grows your business. Instead, you need to look at hiring people whose skills are the same as yours or complement yours.

Hiring Service Providers Like You

Hiring a bookkeeper will free up your time – but there are still only so many hours in your day and you can only multi-task so much before your work starts to degrade.

Subcontracting out your work to someone who does the same work you do is as close as you’ll get to cloning yourself. You know the work like the back of your hand, so you’ll have a very specific idea of what you want done. This will help with communication and help insure consistent quality for your clients. And it will allow your company to take on more work.

For example, if you are an affiliate manager, you may have enough time to write 3 promotional articles, create two graphics and answer 200 questions in a week. Hire a subcontract who does the same things you do and suddenly, you can write 9 articles, create 6 graphics and assist in answering 20 questions in that week.  At the same time, your subcontractor is answering the rest of the questions and creating articles and graphics as well.

Add another subcontractor to the mix and you can see how much more work you can get done.

Hiring for Complementary Skills

On the other hand, what happens if you hire someone with complementary skills?

For example, if you’re a virtual assistant who specializes in website management, you might hire a subcontractor who is really good at writing. Presto! She writes the content, you add it to the website and your client is tickled pink.

You could even expand your services to email marketing, article marketing and other areas of website management and Internet marketing. Expanding your available skill set allows you to provide more services to your clients, who will then pay more for your work.

Hiring Process

Once you’ve decide what you are looking for in a subcontractor, you’ll need to find the right person. This includes:

1. Asking for recommendations from your colleagues
2. Reviewing portfolios of potential candidates
3. Interviewing subcontractors
4. Asking for and following up with referrals
5. Evaluating how your personality works with the candidate’s
6. Determining the subcontractor’s work ethic

After you’ve decided you want to hire someone, make sure you go through a trial period. Sometimes you don’t know how well someone will work out until you’ve actually worked with them.

Then make sure you both sign a contract. A contract is important because it spells out exactly what is expected from both parties. It also gives a professional and fair way for either party to exit the contract.

You can find several sample contracts online – but always make sure you have an attorney who specializes in contracts review it for you. Following these guidelines will help you make the right choice when hiring a subcontractor.