Your small business may not need a bookkeeper yet, and here is why.
Let’s go on a journey back to 1975. I’m talking pre-QuickBooks era, when the term ‘keeping the books’ actually meant managing the cash flow using a physical book of company transactions. At that point, bookkeeping, as a profession, was at its prime. Bookkeeping services were highly sought after because the idea of tracking company transactions by manual book entry and keeping paper receipts seemed like a literal nightmare. So, finding someone who could manage this task for you accurately and honestly was like finding treasure. There was a high probability of fraud and money laundering in those days, and an IRS audit of your tax return was almost guaranteed. Then the birth of the modern computer happened, and we started to see accounting software popping up left and right to help companies manage books in a way that was not so manual intensive.
In 1983 a little company called Intuit was born, completely revolutionizing small business bookkeeping best practices. But it was really clunky and hard to use so competitors like Peachtree stood out amongst the crowd. Then over time as hardware evolution started to do away with the CD ROM drive, cloud-based software demanded its day in the sun. Thus, the creation of QuickBooks Online in 2001. And that was it, that was all it took. The term Pro-Advisor became a replacement word for bookkeeper, and we were able to receive financial statements with a click of a button.
While I think Intuits’ products are revolutionary, and that is evident in the 85% market share that they garner, business owners are really no better off than they were pre-Intuit. Meaning, there were quite a few companies pre-tech that didn’t understand what accounts payable was, and they more than likely still don’t. That has less to do with innovation and more to do with lack of education and fear. The way some think about the bookkeeping profession is as if it is an exclusive thing that only the special few understand and can handle accurately. As if the only person that can give you big picture insight into how your company is running is a full-time staff member who understands the concept of debits and credits. In addition, people tend to be so afraid of making mistakes when it comes to money management that they hire someone as soon as they possibly can, often long before the business needs.
What They Do
Professional bookkeepers manage all of the financial transactions that come in and out of a business. This means tracking invoicing and accounts receivable as well as bill payments and expenses. They do this by taking all transaction accounts (Stripe, PayPal, shopify) and tying them to the money deposited into or withdrawn from the business bank accounts. This is to ensure that no fraud or inaccurate transactions are happening without the small business owner’s knowledge. A business needs up-to-date books to produce accurate financial statements and prepare for tax season. Tax preparers tend to charge more for services if the books are not reliable.
What do they charge
Typically, a bookkeeper will charge anywhere from minimum wage up to $75/hour. This varies based on experience level and tasks performed. Some bookkeepers may only have a simple understanding of the software used, while others may have a more advanced skill set. There is no traditional education or training required to become a bookkeeper. And oftentimes, business owners don’t make the effort to check references. Here is where things start to get sticky. I have seen lots of clients come to me from bookkeepers that did not know what they were doing. That person may have taken a Quickbooks ProAdvisor training and instantly felt qualified to support clients, and that is not quite the case. Every small business owner is different. What their needs are and how they run their business varies. So as such, a skilled service provider should have the ability to adjust. I have seen bookkeepers not understand how to read a balance sheet or provide financial planning services. Rather only desiring to provide data entry at a premium cost.
When to hire them
There are 3 types of companies that should consider investing in a part-time bookkeeper. The first is a construction company because of complex project-based billing needs. Second, if they are in manufacturing since there is work in process, finished goods, cost of goods sold tracking that has to be accounted for and is a little harder than simple categorization. The third reason that a business owner should hire a bookkeeper is if you no longer, by definition, can call yourself a small business. And by definition is any business that grosses more than $7 million annually. At this point, the business has enough revenue to have a CFO and or a CPA that can handle the entirety of the business finances, including tax time, cash flow statements and business plan execution.
Benefits of waiting
Technology has made the service provider a bit lazy. People with less skills are charging more and relying on the accounting software to do the work for them. No shade to bookkeepers, I think it is a valuable skillset; however, it is important for business owners not to be blind about the money. Suppose you hire a bookkeeper from day one and give everything over to them, then you never learn to manage your own bookkeeping or how it affects the bottom line. Additionally, the likelihood that fraud goes unnoticed becomes exponentially higher. I have supported more than a few clients that were victims of ignorance fraud. If you never touch the books, you are not able to spot inaccuracies. Small businesses do not have the financial freedom to lose money, they are often living from moment to moment waiting for a client to pay an invoice so they can cover overhead. In this space, you can’t afford to lose even a penny.
The other benefit of waiting to hire a bookkeeper is that it forces the business owner to learn how to operate. It blows my mind how many clients have never even set up books, created a software account and never used it, or just run from the process entirely. Think about it like it were your own money. You don’t avoid paying your rent just because money scares you. You figure it out and get your bills paid to keep things afloat, the same should go for your business money. Also, it’s important to note that your bank account is lying to you. The amount you see on the available balance line is a lie. That amount does not account for taxes, checks written but not cashed, invoices sent but not paid. If you spend based on what that number says you will run out of money very quickly. Bookkeeping helps to avoid scenario entirely.
I believe in a do it yourself model, at least for the first year. For starters, a new business does not really have the income to spend on hiring yet another person to help with a task that doesn’t involve bringing money into the company. Let me clarify, I’m not suggesting that you ignore your books but that you should make an effort to learn the few simple steps it takes to manage it yourself. Plus in your first year you are early enough that there aren’t a ton of transactions coming in, so a few category sorts and a reconciliation and you are finished. It doesn’t take the amount of time or money that some think it does. You could be fully operational with setting up your accounts in less than an hour. If you really want to pay for some help, pay someone to teach you how to do it yourself, or double-check the work that has been done to ensure accuracy. That’s a one-time fee you can justify. But paying someone $250-$1000 a month to do data entry that takes all of 2 hours to complete is a waste of money.
To get started, set up your books using some software service, Xero, Quickbooks, ZohoBooks, Freshbooks; they all essentially do the same thing. Then connect all relevant accounts (banking, as well as payment processing). This will allow you to import transactions that happen everywhere for your company and bring it into one place. Do this to make sure your accounts tie back to your bank deposits. For example, if Clover says you should receive $500 in deposits for today’s transactions, then your bank account should match that amount. Next, make the effort to set up some transaction rules, this allows you to tell the software how to handle transations that come in from a certain vendor for a certain amount. For example, all $10 charges from DropBox should be categorized as software. Set this up as a rule and it will sort automatically. After that, the last step is to reconcile your bank and credit card accounts once a month. Just grab your monthly statement and add the statement balance and statement close date, and your software does the rest. There are even training guides on YouTube to help if you get lost.
I spend exactly 30 mins on my bookkeeping every month and not a second more and I run a funded startup. While I am aware that I am skilled in this field I am not doing anything overtly complex that anyone else cannot do. What I do that is complex is tax preparation. That is something I would suggest paying for, because the benefit far out ways the cost. As always, be well.