Part 1 of this 2-part series is our blog post “The Importance of Bookkeeping“. In it we talk about the role bookkeeping has in relation to the company’s financial health. We go one step further and talk about the positives of staying up-to-date with bookkeeping, important things to know about bookkeeping and bookkeepers, outsourcing these and activities. So, let’s dive right in.
Does your company need to hire an internal or external bookkeeper?
It depends on a variety of factors that include (this is not an exhaustive list):
- For a solopreneur: the owner’s familiarity with bookkeeping best practices, and the number and complexity of these entries that would warrant hiring an outsourced bookkeeper. An outsourced bookkeeper will reduce things like payroll and unemployment taxes. However, if they are a 1099, then a good consultant agreement is necessary, as is understand what constitutes a 1099 under government regulations.
- For organizations larger than a solopreneur, but less than $100K in revenue: the number of daily, weekly or monthly entries, and the number and complexity of these entries that would warrant hiring an in-house or outsourced bookkeeper.
- For a larger business: an in-house resource may be more cost effective depending on work load unless an employee can be crossed trained to handle bookkeeping activities.
Positives of staying up-to-date with bookkeeping
There are many positives to staying up-to-date on bookkeeping activities, but there are too many to include here. The examples below have a surprise benefit and a surprise “heads up”:
- Surprise: while reviewing the monthly financials, the company may discover that payments have been applied to the wrong invoice, that a client was never invoiced, or that a client never paid. All of these are fairly easy to fix. The payments are moved, the invoices are created and sent out, and the client is contact about payment status. The benefit is the revenue is properly accounted for, services/products are invoiced, and the company knows they need to collect for an outstanding invoice or invoices.
- Another surprise: Whoops! You’re not recording for expenses properly. This one is a big issues primarily for solopreneurs. It’s a big problem, and people get this wrong all the time because they’ve gotten or read bad advice. It’s 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. Habits are hard to break so a monthly review of the financials ensure that all expenses are properly accounted for and addressed if they are not actual company-related expenses. The benefit is good bookkeeping can catch this. An added benefit is taxes will be accurate and there a government audit would show clean books. Also, clean books cause less or no concern if the company ever wanted to get bank financing or secure outside capital.
One way to address these areas is not to just hire a bookkeeper. It’s important to create written policies and procedures. This mean that the in-house resources understands what needs to be done, and the outsourced bookkeeper knows what the company expects and needs to be done related to bookkeeping.
So, hiring a bookkeeper help my company?
Yes, an experienced bookkeeper can help with all of this. Most importantly for a small business is the time it frees up for the business owner to focus on other things — like revenue generation and client support.
Plus, a company 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 does the business owner 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 it is with us).
Accurate books allow for effective tax planning and play an important part in the company’s growth. I can also spotlight if changes need to be made to the company’s financial practices. For example, if the company is experiencing a situation with unusual or consistent negative net income, accurate financials can identify where the pain points are. <= If you don’t know what this means or how to do this then it’s time to set up a meeting with the accountant, or us if you don’t have an accountant so we can help close this loop for you. Regardless of size, a business needs an accountant to ensure your taxes and books are correct, and you’ve done tax planning in advance to reduce your tax burden.
What are important things to know about bookkeeping and bookkeepers?
Like anything, bookkeeping can be learned…if you have time for it and the interest in learning it. What you don’t have time or money to do is to 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 you are self funding your business (meaning the company’s revenues pay for everything) and you don’t anticipate growing or having cash flow issues, then good bookkeeping will ensure you stay on top of the company’s finances.
- If you are thinking of growing your business, then a good bookkeeper and accountant (and perhaps an outsourced Controller/Comptroller or Chief Financial Officer) can help prepare the company and its finances so that it has everything already at fingertips when it’s time for bank financing or outside capital.
Outsourcing the services may be your best choice.
If bookkeeping isn’t in your sweet spot as a business owner, then our advice is to find a knowledgeable and reputable bookkeeper to handle these activities. We can help with this. It will be one less thing on the to-do list, and will free up time and increase productivity levels.
And just like anybody that is brought into the company to provide outside services, due diligence needs to be done BEFORE signing a contract. Ask for references and interview them like they are being hired as an employee.
Regardless if it’s an internal hire or external resource, if you don’t know the questions to ask, we can handle the interviewing, and provide feedback and recommendations.
You should also get a release to run a background check before hiring or engaging them. You want to ensure that their criminal history is clear. Note: there are several laws surrounding background checks so it’s essential that your offer letters or contracts include language about this to protect the company from potential lawsuits.
This person will have access to your accounting system and sensitive/confidential information such as personally identifiable information or PII. There are regulations surrounding PII that the company is responsible for following. “I didn’t know” is a weak stance and is probably not defendable in the case of a breach and subsequent lawsuit or investigation.
The most important advice we can give is DO NOT give the bookkeeper administrator rights or anything besides basic access to your bank accounts (especially to transfer, withdrawal, or setup ACH/wires), payroll service passwords, or the ability change payroll or vendor direct deposit information.
The small business owner should always maintain control over access and be very select in the access rights you give anyone in the company. Even if you have absolute confidence in the person, we still suggest not doing it. Theses rights should stay with the business owner, or a vetted employee who is at the controller/comptroller or higher. This is a check and balance to ensure it is clear and known regarding what money is going into and coming out of the accounts. If they say they need access to reconcile your bank accounts in your accounting system, the set up privileges to allow for the export of transactions. We believe the transactions should be entered during the month, so the end of month reconciliation should be very easy using a copy of the statement. Whatever is done, there should be a written process on how and when to do it.
Need help with next steps or have questions about this 2-part series?
Accurate and timely bookkeeping is important for a company’s financial health. We barely touched the surface in this 2-part series. Perhaps after reading it you decided that you either need help with your situation. Maybe you don’t have a bookkeeper and need to get one, or maybe you have one who may not be the best fit. Or maybe you have some general questions. Reach out via the contact page and we can set up a call to talk. We can create a solution that works for you and your company.
We’re also happy to answer questions about this post. Leave us a note in the comment section, or reach out on the contact page.
