Bookkeeping can be compared to visiting a dentist: no one likes it, but everyone must do it. Company owners must keep their books to maintain successful business affairs. However, not everyone has the skills and experience to handle record keeping.
Thus, many want to hire bookkeepers. And that’s when all problems begin for small and medium-sized businesses. Hiring a professional bookkeeper may not be the best option for small firms because of the related costs. However, not keeping proper books is not an option.
This article covers a few options available for small and mid-sized businesses. You will learn why it’s critical to keep books according to the guidelines. More importantly, the article describes alternatives small businesses can use instead of hiring a full-time accountant.
Bookkeeping vs accounting services
Many often confuse bookkeeping with accounting, thinking these are interchangeable terms. That’s wrong; bookkeeping relates to the daily recording of financial transactions and operations, while accounting handles creating financial statements, generating reports, preparing for taxes, etc. Let’s dive into the details of each term.
Bookkeeping
Bookkeeping is a subset of accounting that requires completing critical tasks to develop a financially sound business:
- Keeping track of financial transactions.
- Posting debits and credits.
- Managing invoices.
- Keeping and balancing current and historical accounts, including general ledgers.
Managing the general ledger is an important aspect of bookkeeping. It’s a fundamental document bookkeepers use to keep all financial records, receipts, gains and expenses, etc. The bookkeeper has to update the general ledger more frequently if the company has a large volume of sales and expenses.
A few decades ago, a firm had to use pen and paper to create a ledger. Then companies switched to more modern tools like Microsoft Excel. Today, bookkeepers use accounting tools and software to maintain the general ledger. It means that a professional bookkeeper needs skills and experience to use modern software.
The type of software depends on the firm and its peculiarities. For instance, a small local bakery won’t use the same software as a big software development company. That’s why big companies prefer having bookkeepers as their staff, while small firms handle keeping records independently.
Accounting
Accounting is how an individual or a business keeps track of its money, including earnings and expenses. Individuals may use accounting services simply to file their taxes.
However, only certified public accountants (CPAs) can file taxes for individuals and businesses. CPAs must pass exams to demonstrate their accounting knowledge. Moreover, they must regularly prove they are qualified to do the task.
Business accounting is the process of gathering and evaluating financial data for a business. It can be done by an individual (i.e., a business owner), a company, or an accounting team. The data an accountant collects and processes allows companies, stakeholders, or investors to understand the firm’s operations better. Typically, accountants provide financial reports to display the organization’s financial health.
Here are some of the most common tasks of an accountant:
- Prepare accounts.
- Handle payroll.
- Analyze the firm’s business plans.
- Audit financial data and records.
- Provide tax planning services according to legislation.
- Prepare tax returns (and file on the company’s behalf if a CPA).
- Compile and present financial reports and statements, business plans, budgets, suggestions, and financial forecasts per request (monthly, quarterly, or yearly reports).
- Risk analysis.
Typically, an accountant presents their services based on data managed by bookkeepers. However, accountants offer more complex services. If you’re considering delegating the task of accounting and bookkeeping to someone else, you should now understand the differences between these two experts. Small business owners often handle basic bookkeeping while outsourcing accounting to professionals.
However, as the business grows, a firm may require in-house bookkeeping or even full service accounting that often handles all operations. If your business is generating more sales and expenses, consider hiring a professional bookkeeper.
Benefits of professional bookkeeping
Before we learn how much it costs to hire a bookkeeper and what options businesses have, let’s see the benefits of professional bookkeeping. Here is what businesses get when hiring certified bookkeepers:
- Save time.
- Get invoices sorted out.
- Control cash flow issues.
- Proper tax season preparation.
- Audit preparation.
Firms can’t get investments without proper bookkeeping. If you’re considering expanding your business and need funds to accomplish goals, it’s best to secure professional record-keeping. However, let’s delve into the details of all benefits of professional bookkeeping.
Save time
Company owners devote countless hours to bookkeeping and other financial responsibilities every month while they can focus on something more useful. Another problem is that everyone knows how time-consuming it is, and most of us procrastinate when it comes to keeping books. When the tax filing deadline arrives, we lose time trying to catch up. Sometimes we even fail to keep the receipts necessary for reimbursement.
Time spent on bookkeeping takes time away from expanding your firm. Instead, you should benefit more from focusing on:
- marketing
- product development
- finding new markets
- seeking investors, clients, partners, etc.
Professional bookkeeping saves time, and business owners spend their free hours wisely.
Get invoices sorted out
Late invoices can wreak havoc on the cash flow and endanger the business or key financial operations. A bookkeeper sets up a system to assist businesses in keeping track of their invoices and bills.
Typically, a firm gets reminders to handle invoices. In other cases, a bookkeeper reminds the firm owner to call clients who haven’t yet paid for services or products. The bookkeeper should also remind you to cover your bills if you haven’t paid for specific services.
Control cash flow issues
A bookkeeper is in charge of tracking invoices, receipts, and other transactions daily. Thus, it’s easier for the bookkeepers to spot any cash flow issues. They understand the company’s financial situation, including revenue, expenditure, etc. Specialists can inform firm owners about potential issues before they damage the business’s growth.
Proper tax season preparation
Companies often use bookkeeping services offered by accounting firms that handle their taxes. As a result, they get seamless tax preparation services since the bookkeeper keeps records according to the accounting firm’s requests.
Based on the bookkeeper’s work, the tax specialist generates reports about the company’s financial health and estimates yearly tax liability. Companies prepare ahead of time, so it’s to reduce the tax burden. Moreover, business owners experience less stress related to tax season.
Audit preparation
The government rarely requests audits of small or even medium size businesses. However, a company may undergo the inspection in some cases. Moreover, company owners should be prepared for audits if they want to attract investors to get funds. It’s impossible to pass an audit without professional bookkeeping that meets all requirements.
Cost of adding a bookkeeper to the in-house staff
Undoubtedly, professional bookkeeping offers many benefits. However, the pricing of hiring an expert full-time may be too high for a small business. According to the statistics, a full-time bookkeeper makes $37,890 to $70,000 per year. It’s the average salary of a bookkeeper who works officially for a company. Thus, companies should be ready to pay at least $37,890.
Another option business owners may use to hire a bookkeeper part-time. Hiring a part-time bookkeeper while starting a business is a wise decision. They can set up all financial reports and records and manage all filing and tax data for a firm from the beginning.
The salary depends on how many hours the bookkeeper works for the company. Typically, companies negotiate this part, but it’s a great option to cut costs while getting the best services.
Another great alternative is to hire a bookkeeper with an hourly rate. Some businesses need to ensure all documents are in order, and it takes a few hours a month. Hourly pay for a bookkeeper varies from $18 to $35, with the average hourly pay of $20.
Cost of outsourced bookkeeping for small or medium businesses
Monthly fees for outsourced bookkeeping range from $500 to $7,500. It’s more costly than hiring a part-time bookkeeper. However, the cost depends on what services a company uses. It’s possible to reduce expenses if the firm is small and needs only basic record-keeping.
But how does it work? Typically, a business owner must provide an outsourced bookkeeper access to financial information. This may appear to be a bit frightening at first, but it is the only option.
Furthermore, most accounting platforms and applications make granting access to extra individuals simple without granting them complete capabilities. Thus, the first thing to do is to take care of modern software that enables shared bookkeeping. The company and the accounting firm negotiate payment and responsibilities beforehand.
What type of bookkeeping to choose?
So, what type of bookkeeping should you choose? Is it best to keep books yourself and outsource accounting to a professional? Or is it best to outsource bookkeeping to an accounting firm? The answer will depend on a specific situation.
Small business owners can handle bookkeeping and pay for an audit by paying bookkeepers hourly wages. However, as the business expands, it generates more profit. Thus, companies have more documentation, financial operations, etc. That’s when it’s wise to outsource the task to a bookkeeping or accounting agency.
Small and medium-sized businesses can significantly reduce bookkeeping and accounting costs by outsourcing the task instead of hiring an expert full-time. When the company generates enough income and can afford to hire a professional employee, the business owner can seek a loyal employee.
Having a loyal employee who understands how the company operates and its goals is a big advantage. However, if you can’t afford such a luxury, the next best thing is outsourcing the task.
Final thoughts
Bookkeeping is not a task companies should brush off as unimportant. Proper record-keeping enables business owners to maintain a healthy financial state of the firm. However, bookkeeping is a rather expensive service. Luckily, you may use several affordable alternatives. These options enable business owners to get the best quality services while not going bankrupt.
