Heads up: this article has some information that’s only relevant to U.S. businesses.
If your business is growing, you can only get away with Do-It-Yourself bookkeeping for so long.
Maybe you have a really great spreadsheet template you found online. Maybe you even shelled out for some accounting software. But as your business expands and your financials get more complex—you’re going to get up one day, look at yourself in the mirror, and say, “I need to hire a bookkeeper.”
While there’s no hard-and-fast rule to when you should bring on hired bookkeeping help, there are some common, telltale signs that entrepreneurs experience just before they reach the tipping point.
If you’re suffering from any of the following symptoms, it’s probably time to hire a bookkeeper.
DIY bookkeeping takes up more time than you can afford
According to a Gallup poll, 39% of small business owners work more than 60 hours a week.
Don’t take your own time for granted. Not only does overworking lead to burnout, but every minute you spend on a task has a dollar equivalent.
First, start tracking how much time you spend per week on bookkeeping. Then, using an online calculator, determine how much your time is worth, and figure out how many “dollars” you spend on bookkeeping per month.
Compare your “salary” as your own bookkeeper against the price of professional bookkeeping. Once you treat the time you spend bookkeeping as an actual expense in cash, you’ll have a better idea of whether you should keep doing it.
Your books are never up to date
When you fall behind on bookkeeping, your books stop reflecting the actual state of your finances. That makes it harder (sometimes impossible) to understand cash flow and accurately gauge the health of your business.
For instance, if your Cost of Goods Sold (COGS) hasn’t been updated in six months, you can’t subtract if from your revenue in order to determine how much profit you’ve earned in that time.
Which means you’re blind to how much money you’re actually making—and the steps you can take to increase your income.
What’s more, if your books aren’t up to date, you’ll have a ton of catch up bookkeeping to do during tax season, making a typically stressful time of year even more difficult.
With a qualified bookkeeping solution, you can expect to receive monthly financial statements, so you’ll know where your money is going to and coming from.
Your accountant does your bookkeeping
Some entrepreneurs will leave their books untouched over the course of the entire year, then deliver their expenses and bank transcripts to their accountant during tax season, so they can be done retroactively for the sake of filing a return.
This may seem like a simple way to deal with an unappealing task, but we advise against it.
- When you don’t have up-to-date books during the course of the year, you can’t use monthly or quarterly financial statements to guide your business decisions.
- It’s a waste of money. Certified Public Accountants (CPAs) generally charge more per hour than bookkeepers. You could end up paying more for bookkeeping services than you need to.
- An accountant won’t necessarily provide you with retroactive month-to-month financial records. Detailed business records are essential for securing loans, bringing on investors or partners, or selling your business.
Whatever bookkeeping solution you choose should offer you up-to-date books on a regular basis, an affordable rate, and detailed records.
At tax time, you send way too many emails to your accountant
The financial year ends at midnight, December 31. Whoever does your bookkeeping hands off your financial records for the year to your accountant. Your accountant uses those records to file your taxes. Later, you receive a tax refund.
Your tax season won’t look like this if you hand off messy or incomplete books to your accountant.
More likely, you’ll be caught in an email or phone back-and-forth as the two of you puzzle your way through a year’s worth of uncategorized expenses and income.
Having your accountant file your taxes should feel like a quick hand-off, not a prolonged arm wrestling match. A comprehensive bookkeeping solution can help.
You missed out on tax write-offs
Suppose you just found out that, since your home is more than 50 miles from your place of work, you’re allowed to deduct some of the cost of commuting.
That’s great news. Only, now you’re thinking about all the years you spent without filing this deduction, the extra money you could have saved, and how you could have spent it. Images of an in-ground pool dance in your head.
The sooner you know about small business tax deductions, and the sooner you take advantage of them, the sooner you’ll benefit.
Part of a bookkeeper’s job is to take every business expense you incur and categorize it properly. In the process of doing so, they’re able to spot obvious deductible expenses such as mileage.
Ultimately, an accountant with experience in your industry is most qualified to give you comprehensive guidance regarding tax write-offs. But many business owners only talk to their accountants during tax season. A good bookkeeper who understands your business’s needs can help you out during the rest of the year.
Having your accountant file your taxes should feel like a quick hand-off, not a prolonged arm wrestling match.
Your cash flow is unpredictable
Ever have that sense that you’ve got money coming your way from clients, but you’re not sure how much it will be—or when it will arrive?
Or do you come up with an empty wallet when it’s time to pay freelancers or contractors?
You need cash flow statements. A cash flow statement tells you how much money other people owe you, and how much money you owe other people. It’s kind of like a crystal ball that shows you the future of your bank account.
With a proper bookkeeping solution in place, you can get updates on your cash flow every month.
Paying estimated taxes is a pain in the a**
Paying your quarterly estimated taxes shouldn’t be guesswork. There’s a variety of methods you can use to figure out how much to budget for taxes, but they depend on you knowing your average month-to-month income. Calculating it is tough if your bookkeeping is out of date or you don’t have financial statements on hand.
Your hard work bringing in new business counts for nothing if you’re not making more money.
Sales have increased, but your profits haven’t
All your hard work bringing in new business and keeping customers happy counts for nothing if you’re not making more money.
If your revenue is on the rise but your bottom line won’t move, it means you need to increase your profit margins. Tax-ready financial statements from a bookkeeper can help you recognize where you need to cut costs in order to make your business more profitable.
This might be why, on average, business owners who hire bookkeepers see a 16% increase in profits.
You’ve had security problems with your computer
When you use your own computer to track and store financial information, you need to be 100% certain that it’s secure and stable.
In May 2017, the WannaCry ransomware attack hit over 230,000 computers in more than 150 countries worldwide. WannaCry encrypted victims’ data, making it inaccessible, and demanded Bitcoin payments in exchange for making it available again.
Potentially losing years of financial info is bad enough. But research from Adaware also reports that over 90% of home computers have been infected by spyware at one point or another.
Meaning that, if you’re doing your bookkeeping on your home computer, there’s a good chance someone else has (or will eventually have) access to your business’s financial info.
Use a free utility like AVG to scan your computer. If it detects malware, it’s a sign that you either need to beef up your security measures, or hand off the burden of bookkeeping security to a pro.
Here’s how a good bookkeeper can help your business
When it’s time to pull the trigger (i.e. pick up the phone and find a bookkeeper to do your books for you), here’s what a professional, qualified bookkeeper or bookkeeping solution should offer you.
You need to be able to contact your bookkeeper quickly and get a helpful response. If your bookkeeper takes their sweet time responding to emails, or goes on vacation without giving you notice in advance, it’s time to consider switching services.
Clear, easy communication
Bookkeepers need to be bilingual: able to speak with accountants and other bookkeepers, and able to speak with the rest of the world. Conversations should never be so loaded down with jargon that you can’t understand what’s going on. Make sure you work with a bookkeeper who is able—and willing—to explain your books to you in a language you understand.
Tax-ready financial statements
One of the greatest boons of working with pro is receiving up-to-date financial statements you can use to plan business moves or prepare your taxes. If your bookkeeper can’t deliver, it’s a sign you need to find a different solution.
The best bookkeeper in the world is totally useless if their computer—and your business’s financial data—is taken offline by an attack. Your bookkeeper should be able to confirm they have security essentials in place.
When all signs point to upgrading from DIY bookkeeping to professional help, it’s time to plan your next step. Start by checking out our guide to finding the right small business bookkeeping solution for your business.