Any business who has talked to me about business operations knows that one of the first questions I ask is about the company’s financials, particularly their accounting practices. Why? Because so much of a business’ success ties to how much money they make versus how much money it uses to earn that revenue. All of this impacts a company’s profitability. Where many companies fall short is in their bookkeeping. They view bookkeeping as a burden that is only done when absolutely necessary. But it isn’t a burden; it’s so much more valuable than that. I say this to people on a weekly basis, so imagine how excited I was to see a post from one of my NAWBO sisters on LinkedIn about the importance of bookkeeping.
Staying up-to-date with bookkeeping is important for a business whether it’s a corporation, LLC or sole proprietor. Actually it should be a priority. Many times a sole proprietor or small business owner tries to do it themselves instead of outsourcing it because of cost. It actually saves money in the long run to outsource your bookkeeping as it’s done right the first time and the business owner can spend their time doing other things to grow or maintain their business.
Accurate bookkeeping will also tell you how well the company is doing almost at any given time, particularly after the end of a month. If you find you’re doing really well, then there may be additional funds to invest in resources such as additional staff, or pay owner bonuses/dividends and employee bonuses. If it’s been a particularly bad month, it will tell you what you need to do to get back into the black.
This is info that you need BEFORE the end of your fiscal year so you have time to address a negative net income or payout bonuses to reduce your tax liabilities.
I speak to many small businesses who tell me they try to catch up on their bookkeeping when it’s time to do the annual taxes, and that they don’t close out their books monthly. This creates more work as it’s usually impossible to:
If the bookkeeping is up-to-date then it should only take a few hours of work to provide data to the accountant. When the bookkeeping isn’t done, then this becomes weeks of work while everything else stops so you can get the account your tax info.
Another big surprise is when they discover that payments have been applied to the wrong invoice or that a customer never paid.
The other big issue — and people get this wrong all the time — is when a business owner co-mingles business and personal accounts, or incorrectly marks a personal expense as a business expense. Contrary to popular belief not all expenses can be attributed to your business, particularly when it’s clearly a personal expense.
An experienced bookkeeper can help with all of this. You will avoid the pitfalls that happen when bookkeeping is only done once or twice per year under a tight deadline for tax purposes, or only when the business owner has time. Rarely do they catch up when they do find the time because it’s a PITA and there are many things more fun than bookkeeping (unless it’s your passion).
Like anything, bookkeeping can be learned…if you have time for it and the interest in learning it. What you don’t have time to do is get it wrong. It’s not only more expensive to fix, it could negatively impact the taxes you’ve already paid. You don’t want to find out that you owe interest and penalties for underpayment; and you really don’t want to trigger an audit.
How a bookkeeper can help your business:
If finance and bookkeeping isn’t in your sweet spot as a business owner, then my advice is to find a knowledgeable and reputable bookkeeper to handle this for you. It will be one less thing on your to-do list, and will free up your time and increase your productivity levels. And like anybody you bring into your company to provide outside services, do your homework on the bookkeeper. Ask for references and interview them like you would interview an employee. If you don’t know the questions to ask, then you can hire someone like me to do the interviewing for you.
You should also get a release to run a background check. This person will have access to your accounting system. You want to ensure that their criminal history is clear.
And probably the most important advice I can give: DO NOT give the bookkeeper access to your bank accounts (especially to transfer, withdrawal, or setup ACH/wires), or payroll services. You should always maintain control over this, unless you have absolute confidence in this person – and even then I wouldn’t do it. This is a check and balance to ensure you know what money is going into and coming out of your accounts. If they say they need access to reconcile your bank accounts in your accounting system, then give them the paper copy. It should be very easy if they are entering transactions in a timely manner.
I’m happy to answer questions about bookkeeping and hiring an outside bookkeeper. Leave me a note in the comment section.