Alright, you started your business and made the decision to take care of your bookkeeping needs yourself. This can be a great option, but if your business is getting larger and more complicated, you will eventually need to hire a bookkeeper.
Even the most organized business owner can handle so much when it comes to the ever-growing complexities of an expanding business. You could have a great spreadsheet template and maybe some accounting software, but ultimately the time will come where you will realize a professional is required.
You might be wondering where the line is when it comes to deciding whether hiring a qualified bookkeeper is necessary. Though this can vary from business to business, here are some clues that many owners encounter that prove it is time to outsource your bookkeeping needs.
The books are taking too much time.
There is a significant number of small business owners (39% based on a Gallop poll) that admit to working in excess of 60 hours a week.
You should always be aware of the amount of time you spend on a task, as it will have a corresponding dollar amount. Your time is not free, and if you are over working yourself, that is when mistakes happen.
You can estimate the cost of doing your own bookkeeping and make an informed decision of whether it is worth your valuable time. To do this, begin timing yourself on how long it takes you to do the bookkeeping per week. Following that you can use an online calculator to evaluate what your time is worth, and you will be able to see the cost of doing your own books.
Once you know what it is costing you to do your own bookkeeping, you can compare that to what it would cost to hire a professional. Calculating your time in this manner helps to make the best decision on who should be doing your books.
You are always playing catch-up when it comes to your books.
If your books are not up to date, you are unable to be confident on your financial status. Not knowing your current financial information can lead to making improper decisions and risk the wellbeing of your business.
To help better understand this, let’s look at an example. Say your Cost of Goods Sold (COGS) has not been posted to your books in four months. Without this information, it is impossible to calculate what your profits have been during that period. You could be losing money for all you know, missing the opportunity to adjust and boost your income.
Also consider if your bookkeeping is backlogged, that means you will have to spend a significant amount of time bringing them up to date, especially if tax time is approaching. This can lead to a lot of unnecessary stress during an already stressful time.
Using a bookkeeper assures that your financial records will be current, accurate, and sent to you on a monthly basis so you can know exactly what is going on with your finances.
You’ve instructed your accountant to do your books.
Unfortunately, some new business owners will make the mistake of not doing their books at all during the year, then sending all of their documents over to their accountant to deal with at tax time.
While this may seem appealing to avoid the tedious task, it is highly frowned upon. These reasons will explain why:
- Without up-to-date financial statements throughout the year, you are flying blind when it comes to making business decisions.
- You are wasting cash if you have your accountant do the bookkeeping! Certified Public Accountants (CPAs) will most likely charge more per hour than a bookkeeper since they are technically overqualified.
- While using this method does force your accountant to update your books for tax return purposes, they are unlikely to go back and create monthly records for you. Without those records, it will be more difficult to obtain loans, find willing investors, find a partner, or even sell your business.
Remember, it is your choice to decide how your bookkeeping needs are met, just make sure your books are continuously current, detailed, and accurate. This can be done easily and stress free by hiring a bookkeeper or bookkeeping service.
If you find yourself sending an over abundance of emails to your accountant during the tax season.
As a business owner, during tax time, the process should look this this:
On December 31, at midnight, the financial year closes. The person who completes your bookkeeping will send your financial records for the entire year to your accountant. The accountant can then use these records to complete your taxes. After some time, you will receive your tax refund.
If the documents you send off to your accountant are messy or unfinished, the process becomes much more difficult. If you do this, you will find yourself in constant communication with your accountant as you two try to work through the issues in your incomplete records. This means more time, translating to more money in your accountant’s pocket.
Dealing with your accountant at tax time should be simple and smooth, not an exhausting marathon. If you find yourself struggling during tax season due to unkempt bookkeeping, it might be time to explore a new bookkeeping solution.
There were tax write-offs you overlooked.
Imagine you just discovered that because your home is more than 50 miles away from your business, you could be deducting a portion of the amount it costs you to commute.
That is good to know. Except, you have been doing it for years and never knew it was something you could deduct. That is money you missed out on!
Learning the small business tax deductions is important and worthwhile.
A bookkeeper has the duty to categorize each business expense you encounter. This allows them the opportunity to uncover every obvious deductible expense, like that nifty gas milage write-off you never knew about.
In the long run, your accountant is experienced in your specific industry and will be most skilled when it comes to tax write-offs. This is great, but most business owners chose to communicate with their accountants around tax season only. A professional bookkeeper, who is aware of the needs of your business, can assist you during the entire year.
Remember what we talked about above, your interactions with your accountant should be simple and smooth.
You are not aware of your cash flow.
If you are ever wondering if a client has paid or not or find yourself coming up short when it’s time to pay someone, there is a simple solution.
Cash flow statements let you know if someone still has an outstanding balance and if you owe someone such as an independent contractor. These statements give you the information you need to understand the future status of your bank account.
A good bookkeeper will send you these cash flow statements every month.
It is difficult to pay estimated taxes for your business.
When estimating your quarterly taxes, you must be careful. Pay too little and you will face IRS fines, pay too much and you’re giving the IRS a loan with no interest.
You can estimate your quarterly taxes fairly accurately using one of a few methods. The only requirement being you need to know your average month-to-month income. This means if your bookkeeping is backlogged, the process becomes much more complicated.
You notice that you have been completing more sales, but your profits aren’t showing it,
When your business is soaring and customers are happy, you should be seeing your profits follow the same trend.
If you are making more money, yet not seeing your income increase, it is a sure sign that you need to increase your profit margins. Your up-to-date financial records done by your bookkeeper will give you a great understanding of where you could cut costs, allowing your business to make more money.
Just to clarify, statistically, business owners who chose to hire bookkeepers tend to see, on average, a 16% boost to their profits.
Your computer’s security is not up to par.
The computer you choose to keep your business’s important financial information on needs to be completely secure and reliable.
The WannaCry ransomware attack of 2017 is a cautionary tale. Over 230.000 computers worldwide were attacked and the data on them held hostage.
This is a situation you never want to find yourself in. Research shows more than 90% of home computers have, at some point, been infected with spyware.
This suggests that using your home computer leaves you vulnerable and someone else will eventually gain access to the financial information of your business, if they haven’t already.
There are numerous free programs, such as AVG, that can scan your computer to give you an idea of how well you are protecting yourself. If malware is found, it’s a red flag, and you need to find a more secure way to keep your documents, like by using a bookkeeper.
A bookkeeper can help your business in several ways.
When you reach the point where it becomes clear that you need to outsource your bookkeeping needs, you’ll want to know what to look for in your future bookkeeper.
You should feel like you have access to your bookkeeper when ever you need them, within reason. However, if it feels like getting a response from your bookkeeper is sporadic, it is wise to start looking elsewhere for your bookkeeping needs.
Good Communication Skills
Although your bookkeeper needs to know all of the technical jargon associated with dealing with finances and accountants, they should be able to clearly explain to the average person what they are doing. Be sure your future bookkeeper is willing to help you understand what is going on with your books.
The whole point of hiring out for your bookkeeping needs is to be confident your financial records are always up to date. If you find your bookkeeper is late to delivering your monthly statements, it is time to find someone else.
Security is top notch.
As stated earlier in the article, computer security is paramount. Your business records need to be protected and your bookkeeper should be able to assure you that the proper security measures are being taken.
When you decide that your bookkeeping needs are better off in the hands of a qualified bookkeeper or bookkeeping service, you should make a clear plan. You can begin by looking over our guidelines to discovering the best small business bookkeeping solution for you.