When is it time to hire a bookkeeper?
Hiring a bookkeeper may appear to be an unnecessary expense in the early days of a small business or startup, but you will most likely benefit from bookkeeping services in a variety of ways despite the hiring cost. So, when is it time to hire a bookkeeper?
While there is no hard and fast rule for when you should hire bookkeeping help, there are some common, telltale signs that entrepreneurs experience just before they reach the tipping point. If you’re experiencing any of the following symptoms, you might consider hiring a pro.
DIY bookkeeping takes up time than you can afford
According to a Gallup poll, 39% of small business owners work more than 60 hours a week. Don’t underestimate the value of your own time. Overworking not only leads to burnout, but every minute spent on a task has an opportunity cost.
You should first start tracking how much time you spend per week on bookkeeping. You can then use a simple online calculator to determine how much your time is worth and figure out what that translates into actual dollars.
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 no longer accurately reflect the state of your finances. This makes it more difficult (and sometimes impossible) to understand cash flow and accurately assess your company’s health. As a result, you’re oblivious to how much money you’re actually making—and the steps you can take to increase it. Furthermore, if your books are out of date, you’ll have a lot of catch-up bookkeeping to do during tax season, making an already stressful time of year even worse.
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 business owners will leave their books untouched for the entire year, then deliver their expenses and bank transcripts to their accountant during tax season so that they can be done retroactively for the purpose of filing a return. This may seem like a simple way to deal with an arduous task but here’s why that’s not the best solution:
- 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.
You missed out on tax write-offs
A bookkeeper’s job includes properly categorizing all business expenses. In the process, they identify obvious deductible expenses such as mileage. The sooner you know about small business tax deductions, and the sooner you take advantage of them, the sooner you’ll benefit.
An accountant with experience in your industry is best suited to provide you with comprehensive tax advice. However, many business owners only consult with their accountants during tax season. A good bookkeeper who understands your company’s needs can assist you throughout the rest of the year.
Your cash flow is unpredictable
Have you ever had the feeling that money is on its way to you from clients but you’re not sure how much it will be or when it will arrive? Or do you come up short when it comes to paying freelancers or contractors?
You need cash flow statements. A cash flow statement shows how much money other people owe you and how much money you owe other people. It’s like a crystal ball that predicts the future of your bank account. With a proper bookkeeping solution in place, you can get updates on your cash flow every month.
You want to more accurately estimate your quarterly taxes
Significantly underpay your quarterly estimated taxes, and you’ll get saddled with fines from the IRS. Overpay them, and you’re effectively giving the IRS an interest-free loan.
Paying your quarterly estimated taxes should not be a guessing game. There are several methods for determining how much to budget for taxes, but they all require you to know your average monthly income. Calculating it is difficult if your bookkeeping is out of date or you do not have financial statements on hand.
Sales have increased, but your profits haven’t
If your revenue is increasing but your bottom line is stagnant, you need to increase your profit margins. A bookkeeper’s tax-ready financial statements can help you identify where you need to cut costs to make your business more profitable
This might be why, on average, business owners who hire bookkeepers see a notable increase in profits. Accounting software company, Xero, recently conducted a survey of 300 small business owners and found that those who hired a bookkeeper saw an average increase in profits of 16%.
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 hiring a good professional 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.
Availability
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 must be able to communicate with accountants and other bookkeepers as well as the rest of the Average Joe (or Jill). Conversations should never be so full of jargon that you can’t understand what’s being said. Make sure you work with a bookkeeper who can and will explain your books to you in terms that you understand.
Tax-ready financial statements
One of the greatest benefits of hiring a bookkeeper is the ability to receive up-to-date financial statements so you can plan the next moves that are right for your business. If your bookkeeper can’t deliver, you may need to find a different solution.
High-security standards
The best bookkeeper in the world is rendered completely ineffective if their computer—and thus your company’s financial data—is compromised by an attack. Your bookkeeper should be able to confirm that they have all of the necessary security measures in place.
When all signs point to upgrading from DIY bookkeeping to professional help, it’s time to plan your next step. Engage with us here or call (918) 600-2299 for a free consultation.