Should you hire a bookkeeper or complete your small business bookkeeping tasks yourself?
You may not know how to answer this question. Maybe your business is doing just fine with you handling the bookkeeping end of things. Or maybe you realize your pockets are stuffed full of receipts, documents, and financial to-do lists. Because of the numerous, daily business decisions you have to make every day, you might not be able to devote your time to bookkeeping.
Not having enough time is a fairly common problem faced by business owners of fast-growing businesses. To reach the next level of business growth, you may need to delegate bookkeeping tasks to a financial professional. But when is the right time to hire a bookkeeper?
In this post, you’ll learn what small business bookkeeping is and the pros and cons of hiring a bookkeeper vs doing the work yourself.
Small Business Bookkeeping
Why is bookkeeping for small business important?
Unless your business transactions are recorded and organized, you don’t have records of payments, receipts from customers or know much cash is available. When you keep good records, you can track the money that flows in and out of your business.
What’s the difference between accounting and bookkeeping?
Bookkeepers keep accurate records by maintaining and balancing accounts.
Accountants analyze the overall health of finances by reviewing records and prepare your tax returns.
How do you do bookkeeping for a small business?
If you do your own small business bookkeeping, and once accounts are set up in the general ledger:
- You can manage accounts, record transactions, run financial statements, and analyze data.
- You have a detailed picture of how well your business operates to plan its future.
- You can review financial transactions.
- A bookkeeper and an accountant can look over your books and see where your business needs help.
Small Business Bookkeeping Terms You Should Know
Even if you assign financial responsibilities to a bookkeeper or if you do them yourself, you will communicate with them and with an accountant regularly.
You won’t need to be as well versed in accounting terms as an auditor, but you should know some basic terminology to communicate about your company’s finances.
That’s why it’s important to be familiar with these common accounting terms:
- Accounts Payable: Amounts you owe to pay creditors are included in this account.
- Accounts Receivable: This account lists a summary of each customer/debtor and the amount they owe your company.
- Assets: Anything of value that can be converted into cash. Examples include inventory, accounts receivable, real estate, land, and machinery.
- Balance Sheet: A report showing assets, liabilities, and equity.
- Cash or Accrual Accounting: Two separate methods of accounting you can use to run your business. When you use the cash basis, you track when you receive cash and pay expenses. With the accrual method, you record revenue when you complete a project instead of when you receive the money.
- Cash Flow Statement: A report analysis showing changes between balance sheet accounts and income that affect cash.
- Costs of Goods Sold: What it costs to produce a product offered by your business. Depending on the business, the main expenses are usually materials and labor.
- Equity and Owner’s Equity: A bare-bones formula to remember: assets minus liabilities equals equity.
- Expenses: This account includes fixed expenses like rent, variable expenses that fluctuate such as labor costs, expenses to operate the business (advertising, insurance, etc.) and accrued expenses which will be paid in the future.
- General Ledger: Also called a chart of accounts, it’s a record of every financial transaction for all your debit and credit accounts.
- Income Statement: A report showing a company’s revenue and expenses for a designated period. The statement is also referred to as a profit and loss statement.
- Liabilities: A summary of current liabilities you will pay within a year and long-term liabilities that are repaid beyond 12 months such as a mortgage.
- Return on Investment: Benefits you receive when using money. If you buy inventory for $1,000 and sell it for $5,000, your ROI is 400% or $4,000.
- Working Capital: Your current assets minus your liabilities resulting in the capital you use to complete day-to-day operations. If the ratio of current assets to liabilities is less than one, your business has a negative working capital. If you have positive working capital, your business is in a position to grow and make investments.
Need a comprehensice list? Use the Camino Financial’s Simple and Thorough Dictionary of Accounting Terms
Should You Do Your Own Small Business Bookkeeping?
Initially, when you’re just starting your business, the answer is yes.
If you want to keep your books yourself, you’ll need to understand how to manage your finances. You need to know:
- how to calculate return on investment
- when to make a draw on your owner’s equity
- how to read a profit and loss statement for a specific accounting period
- which expenses you need to scale back
- how to determine your working capital
And as your business grows, you’ll also need to know your way around a balance sheet to make judgments about your business’s financial health.
Being your own bookkeeper gives you the responsibility of making important decisions like when it’s time to apply for a loan or knowing when to hand over bookkeeping tasks to someone else.
Bookkeeper vs doing your own bookkeeping
As we mentioned, knowing when to delegate bookkeeping tasks instead of doing them yourself is a rather important decision.
Knowing the pros and cons of hiring a bookkeeper or completing financial tasks on your own can help you decide what’s better for your business.
|YOU DO THE WORK||You are the person to rely on. You aren’t concerned about your expertise or integrity as you would be when hiring a bookkeeper. |
If you understand accounting principles, you can use accounting software to streamline the process without hiring someone.
|If you don’t have time to complete the work, you may rush through tasks and make errors. |
If you don’t understand how accounting works, you could spend a considerable amount of money paying someone to correct your books. Accountants charge you to correct mistakes. You may pay penalties if you don’t send in withheld payroll taxes or estimated tax payments on time.
|BOOKKEEPER||Gives you more time and energy to focus on growing your business. |
Financial tasks are completed on a timely basis so you always know how your business is doing financially.
A trained professional can advise you about overspending trends, cash flow shortages, problems with receivables and payables or other financial concerns.
A bookkeeper can suggest ways you can save money that you haven’t considered.
Bookkeepers provide data to help an accountant close your books at the end of the year and prepare your taxes.
|This may be an additional expense for your company you can’t afford. |
By not doing the work yourself, you may lose track of important financial details about customers, vendors, or deadlines to pay taxes.
If you aren’t ready to hire a bookkeeper, you may have trouble trusting your finances to someone else.
How much does a bookkeeper cost for a small business?
Hourly rates for a third-party bookkeeper run $20-$50 an hour, depending on location and the type of service required. You can also hire a bookkeeper on a contract basis for $30-$50 with a minimum monthly charge of $100-$150 for small
Bookkeeping Software of You Opt to Do It Yourself
What is the best bookkeeping software for small business?
It all depends on the type of business you have and your unique needs. This shortlist will help you:
- Xero: Best overall accounting software.
- QuickBooks: Best for inventory management.
- FreshBooks: Best for solopreneurs.
- Wave: Best for service-based businesses.
- Zoho Books: Best for automation.
- GoDaddy: Best overall bookkeeping.
- Sage Business Cloud Accounting: Cheapest alternative.
Which QuickBooks is best for small business?
There are different versions of QuickBooks: QuickBooks Online, QuickBooks Pro, QuickBooks Premier, and QuickBooks Enterprise Solutions. Again, choosing one over the other will depend on the size of your business and the type of accounting services you need. Overall, QuickBooks Online is the best version for small businesses that need a basic accounting package.
Should you hire someone or do the work yourself?
Is your business suffering because you feel pulled in all directions? Do you need to hire a bookkeeper on a part-time basis or pay an accounting service?
Turning over bookkeeping responsibilities to someone else could be a huge relief and a stepping stone for continued success.