DIY accounting software
When you start a new business, DIY accounting software may be the first place you turn. There are good reasons for that: It’s relatively inexpensive, and includes tools that let you take personal control of your business finances, no matter what type of business you’re in. But, like any bookkeeping solution, it has its benefits and its drawbacks.
Features
Automatically imported transactions
Most software will allow you to import transactions from your bank accounts or payment services (PayPal, for instance.) This lets you categorize transactions, and track your income and expenses.
This automatic importing speeds up the process of doing your books, but the most essential part of bookkeeping is still in your hands. It’s up to you to set up categories for expenses, and then assign them to each transaction you track.
Categorizing your own transactions
The tools in DIY accounting software let you set up a chart of accounts for your business. The chart of accounts is used to categorize every transaction you carry out. Most software comes with presets to suit certain industries, like ecommerce.
That being said, if you want to guarantee your ledger is set up correctly, you’ll need help from a CPA. Otherwise, you could end up going through a whole financial year on your own before discovering, at tax time, that your categories are set up incorrectly.
Also, the amount of tweaking you may need to do—and the number of hours your CPA will clock—depends upon how complex your business is. More categories means more work.
Automatic financial reporting
Accounting software can also prepare financial reports automatically. That means you get a balance sheet, income statement, or cash flow statement for your business at the end of the month, usually with just a couple of clicks.
But that statement will only be as reliable as the information you’ve already entered. If you’ve miscategorized transactions—or if some of them failed to import, and you didn’t enter them manually—you’ll end up with inaccurate financial reports.
The drawbacks of DIY
The biggest shortcoming of DIY accounting is that you don’t get any professional help. That can mean a few things for your business.
Time spent on bookkeeping
With DIY, you do 100% of your own bookkeeping. So, you need to be ready to put aside a certain amount of time every week to take care of your books. Whether you’re willing to do this likely depends on how many other business tasks you’ve got on your plate.
Frustration
Software like QuickBooks comes with a learning curve. If you don’t spend some serious time with QuickBooks tutorials, brace yourself for frustration. Especially when you’re starting out, it can take a lot of time and energy getting categories set up and figuring out what you need to do to get accurate financial reports. If you already find aspects of running your own business stressful, this only adds to the problem.
Price of extra help
If you make mistakes setting up your chart of accounts or categorizing transactions, you could end up with a mess of inaccurate bookkeeping—a mess that only a professional can untangle. Hiring a CPA or a bookkeeper to fix errors will cut into money you initially save by using a DIY solution.
Danger of errors
If you file your taxes using inaccurate financials, you could end up paying the IRS fines. And if you make business decisions based on inaccurate financials, you could make pricey mistakes, such as overdrawing from your accounts. Without professional support, there’s no way to guarantee there won’t be errors in your books. You’re completely on your own—and you’ll have to bear the consequences of any mistakes you make.
Price
The cost of DIY accounting software, relative to hiring a bookkeeper, makes it pretty attractive at first glance. For instance, Xero starts at $11 per month for an “Early” package, ranging up to $62 for “Established.”
When comparing bookkeeping solutions, though, it’s important to factor in the cost of your own time. So, for instance, if Xero is going to cost you $32 per month, how much time will you spend using it per month—and how much is your own time worth?
Let’s say you value your time at $40 per hour. Then, let’s say you spend eight hours a month doing your own bookkeeping. That’s $320 worth of labor. Plus $32 for the subscription.
So you’re still paying more than $350 per month for bookkeeping. This could be an incentive for getting better at bookkeeping, so you spend less time per month doing it. Or it could be a sign you need to outsource the job.
Who it’s for
DIY accounting software is a fine place to start if you’re just getting your business off the ground and need a quick and dirty solution. It will give you the tools you need to track money entering and leaving your business, and keep records.
The DIY route also makes sense if you have some background in business bookkeeping, and there’s space in your schedule to make bookkeeping a regular task.
Doing your own books comes with some great benefits if you are a disciplined person who can stay on top of it. You’ll know your own finances inside out, and if you do hand off the books to a pro at a later date, you’ll get more value out of the financial statements they provide you.
As your business becomes larger and more complex, however, you’ll find the time you spend bookkeeping begins to pile up. Taking into account the value of your own work hours, you’ll know when it’s time to move to professional help.
Further reading:
Bench
Overview
Once you sign up with Bench, you get a dedicated team of financial experts, including bookkeepers who handle your day-to-day bookkeeping tasks. Our services cover everything from bookkeeping and banking to tax prep and advisory, powered by real humans and a simple, intuitive platform.
Bench automatically syncs with your bank account and business credit cards, as well as payment methods like PayPal—so you don’t need to worry about importing data or reconciling balances. Your team adapts to your business: When you’re first getting started with Bench, your bookkeeper will work with you to figure out how certain expenses should be categorized.
The Bench platform lets you track your finances with visual reporting. You also get the key financial reports you need to track how your business is performing.
The main difference between Bench and traditional accounting software is that Bench isn’t DIY. We literally handle your bookkeeping for you. That takes hours of bookkeeping out of your schedule, and ensures all your books are error-free.
Features
Automatically imported transactions
Bench connects to your bank, merchant processor, and credit card company. That lets us automatically import all of your transactions. In the event that you make a cash transaction, you can take a photo of the receipt with your phone and upload it to the Bench platform. Your bookkeeper will handle the rest.
Transactions categorized by your bookkeeper
Your Bench team does all the categorizing for you, and sets up your ledger too.
Right after you start out with Bench, your team may have a few questions about how certain expenses should be categorized. If they’re not sure how a specific transaction should be categorized, they’ll message you for your input.
The more time your team spends working with you, the better they’ll learn your books—and the less they’ll message you with questions.
All the financial insight you need
Bench gives you monthly financial statements, including your income statement and balance sheet. You’ll also get a Top 10 Expenses report. And the Bench platform automatically generates visual reports, so you can get a clearer sense of how your business is performing than you would by looking at a sheet of numbers. If you have any questions, our bookkeepers are reliable, easy to get a hold of, and ready to provide quick insights into your business’s financial position.
Tax preparation and filing now comes standard with Bench. This includes business federal and state income tax filings, tax returns, and advisory services. Plus, our tax support isn’t just once-a-year. Our team creates a custom tax plan for businesses and catches deductions throughout the entire year.
Price
Broadly speaking, Bench costs more than paying for accounting software, but less than hiring a traditional bookkeeper. Plus, you get the full power of our complete small business financial toolkit—it’s the kind of all-in-one expertise you won’t find in QuickBooks.
Bench’s pricing is determined by a business’s need. Check out our pricing page for more information.
Who it’s for
Bench is a good choice if you’re upgrading from DIY bookkeeping, but your business isn’t big enough to bring on a full-time bookkeeper. If you’re comfortable taking care of business online—for instance, sending payments, paying bills, and managing your bank account—Bench is a natural fit for you.
Your business is an especially good fit for Bench if you already have some revenue momentum, and use cash basis accounting.
There are a few types of businesses that aren’t a good match for Bench, though. If your business depends on accrual basis accounting or has over $5 million annually in revenue, you might be better off hiring a bookkeeper as an employee.
