Many small business owners start out managing their own bookkeeping, but as the business grows the financial workload can quickly become overwhelming. Knowing when to bring in a professional bookkeeper can help protect your financial accuracy, save time, and give you clearer insight into the health of your business.
When Managing the Books Yourself Stops Being the Best Option
Part 1 of this 2-part series is our blog post “The Importance of Bookkeeping“. In it, we discuss the role bookkeeping plays in a company’s financial health, the benefits of staying up to date, and what business owners should know about bookkeeping and bookkeepers.
In this post, we take the next step and answer a common question business owners ask: do I need to hire a bookkeeper?
I need to hire a bookkeeper — should it be an employee or outsourced resource?
It depends on a variety of factors that include (this is not an exhaustive list):
I’m a Solopreneur – Do I Need to Hire a Bookkeeper?
For a solopreneur, the decision depends on the owner’s familiarity with bookkeeping best practices and the number and complexity of financial entries.
An outsourced bookkeeper can reduce the administrative burden related to payroll and unemployment taxes. However, if the bookkeeper is a 1099 contractor, a well-written consultant agreement is required, along with a clear understanding of what qualifies as a 1099 relationship under government regulations.
I’m a Small Business – Do I Need to Hire a Bookkeeper?
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.
I’m a Larger Business – Do I Need to Hire a Bookkeeper?
When a company is growing or reaches a certain size the question isn’t “do I need to hire a bookkeeper”. It becomes a resource monetary question of “should I hire an employee or continue to use an outsourced bookkeeper. For a larger or growing 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. The goal is to do a benefits analysis and see what is the best short-term and long-term decision for the company.
Why Staying Up-to-Date on Bookkeeping Matters
There are many benefits to staying up to date on bookkeeping, far more than we can cover here. The examples below highlight a few common surprises, both good and bad, that businesses often uncover during regular financial reviews.
Unexpected Issues Accurate Bookkeeping Can Reveal
Surprise: During a monthly financial review, a company may discover payments applied to the wrong invoice, missing invoices, or unpaid client balances.
These issues are usually easy to fix when caught early. Payments can be reallocated, invoices created and sent, and clients contacted. The benefit is accurate revenue reporting and better cash flow visibility.
Common Bookkeeping Mistakes Small Business Owners Make
Another common issue—especially for solopreneurs—is improper expense tracking. This often happens when business and personal accounts are co-mingled or when personal expenses are incorrectly marked as business expenses.
Not all expenses can legally be attributed to a business. Monthly reviews help catch and correct these issues before they become tax or audit problems. Clean books also reduce friction when applying for bank financing or outside capital.
Why Written Bookkeeping Policies and Procedures Matter
Hiring a bookkeeper alone is not enough. Companies should also create written policies and procedures so expectations are clear.
This ensures in-house staff understand what needs to be done and outsourced bookkeepers know exactly how bookkeeping activities should be handled.
Does Hiring a Bookkeeper Help Your Business?
Yes. An experienced bookkeeper can handle these activities and, most importantly, free up time for business owners to focus on revenue generation and client support.
However, you need to hire the right bookkeeper. They need to understand your industry and your business, have proven skills and expertise, are diligent about quality control and deadlines, and have enough “authority” to push company employees to provide the documentation they need for the bookkeeping activities.
How Accurate Bookkeeping Supports Business Growth
Accurate books support effective tax planning and play an important role in business growth. They can highlight when changes are needed in financial practices and help identify pain points such as consistent negative net income.
If you don’t know how to analyze this information, it’s time to meet with an accountant—or with us if you don’t have one—so we can help close the loop.
What are important things to know about bookkeeping and bookkeepers?
Bookkeeping can be learned, but it takes time and accuracy. What you don’t have time or money to do is get it wrong. Fixing mistakes is expensive and can lead to interest, penalties, or audits.
How a Bookkeeper Can Help at Different Stages of 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.
Is Outsourced Bookkeeping the Right Choice?
If bookkeeping isn’t in your sweet spot, outsourcing may be your best option. But it’s important to engage with the right bookkeeper. If not, your company may be heading towards an expensive fix.
Protecting Your Business When Hiring an Outsourced Bookkeeper
Due diligence is critical before signing a contract. Ask for references, conduct interviews, and treat the process like hiring an employee. Strong checks and balances, and written processes protect both the business and the owner.
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.
Bookkeepers will have access to sensitive financial and personal information. Business owners must control system access, follow PII regulations, and avoid granting administrator rights or unrestricted banking access.
You should 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.
Control Access to Sensitive Software, Files, and Documentation
The small business owner or a senior executive in larger businesses 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.
The bookkeeper 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.
If the bookkeeper says they need access to reconcile your bank accounts in your accounting system, then 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.
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.
Ready to Level Up Your Business?
Need Help Deciding Whether to Hire a Bookkeeper or Outsource your Bookkeeping? A lot of companies put off this decision as it’s usually not in their comfort zone. No need to worry. This is in our sweet spot… we’ll help you with the decision..
Why do we push hiring a bookkeeper so hard? It’s fairly simple.
Accurate and timely bookkeeping is critical to financial health and a key part of a business’ health. If you’re unsure whether you need a bookkeeper, need help finding one, or have questions after reading this 2-part series, reach out through our contact page to start the conversation.
If you’re ready to level up your business, reach out via the contact page and we can set up a call to talk. We have comprehensive services to 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.
