Small business owners often fill multiple roles, but wearing too many hats can cause your business to suffer–especially when your bookkeeping does not get the attention it requires. Instead of trying to do everything yourself, it may be better and more cost effective to outsource your accounting needs to a professional.
11 Reasons to Hire a Professional for Your Small Business Bookkeeping Needs
Data Entry and Daily Tasks
Find and Prevent Mistakes
Allows You to Focus on Other Parts of Your Business
Ensure Payments are Made on Time
Prepare Financial Documents
Help Prepare for Lenders and Investors
Get Paid Faster
Tracking Assets and Preparing Depreciation Schedules
Preparing for Taxes
Many small business owners perform bookkeeping tasks on top of juggling many other priorities. It can become easy to overlook or forget minor details in business accounting. Bookkeeping is complicated because it involves all aspects of your business and finances. Here are some of the main reasons to hire a professional accountant.
1. Data Entry and Daily Tasks
Verifying accuracy in financial documentation, preparing depreciation tables, and managing business accounts are all important parts of bookkeeping for a small business. This includes monotonous tasks like entering data into accounting spreadsheets or bookkeeping software. Forgetting a small accounting detail can lead to costly mistakes. The internet, high-tech smartphones, and advances in payment technology contribute to easier data collection and management.
However, organizing small business bookkeeping is no easy task. The system that works best can depend on the business type, industry, number of employees, and many other factors. For most small business owners, the benefits of a professional bookkeeping service far outweigh the costs.
2. Find and Prevent Mistakes
One vital role a professional bookkeeper performs is to identify errors in financial records and correct them. Depending on the nature of your business and the volume of sales, this can become increasingly complex. Mistakes on tax documents, required payments, or glitches in small business software can leave your business facing fines and unexpected expenses. In addition, incorrect accounting can lead to an erroneous view of company performance and success. This can cause a business owner to pursue a business activity far after it has stopped being profitable. A professional accountant may also be able to spot when employees are mismanaging cash from sales or when ordering supplies. A small business bookkeeper can help prevent mistakes as well as discover areas that need improvement. Consider hiring a bookkeeper–even if only part-time–to catch these costly errors.
3. Focus on Other Parts of Your Business
Small business owners have to juggle many responsibilities. Instead of spending time taking accounting courses and learning all of the intricate aspects of small business bookkeeping, a business owner can hire an accountant or certified bookkeeper to fill the role. With a professional handling your business finances, you become free to focus on other parts of your business, such as sales and expansion. Small business accounting requires recording and maintaining all records and transactions. A business owner may not be familiar with bookkeeping basics, such as whether to use accrual or cash basis accounting methods. Small business bookkeeping software may help with these basics, but it cannot provide the same level of service as a professional bookkeeper.
4. Ensure Payments are Made on Time
Small businesses have many payments to make during normal operations. These include payments to vendors for goods delivered, services rendered, and other accounts payable. Establishing positive relationships with vendors can become beneficial, especially if times get tough or a more permanent arrangement is desired. Tracking and making timely payments should be an important goal for every small business.
Employees will also expect the timely release of wages for their work, just as lenders and banks will be expecting payments on business debt. Many businesses must meet tax requirements set by the Internal Revenue Service, such as paying estimated tax payments. A business may also need to pay rent on property leased, and for other services, such as janitors or uniform dry cleaning. There are also utility bills for heat, electricity, water, phones, and internet. A bookkeeper will track these payments closely and accurately to help provide you with a better financial view of the company.
5. Prepare Financial Documents
A professional bookkeeper can help prepare many of the important fiscal documents that business owners need to assess the financial health of their business. These financial documents include a balance sheet, income statements with profit and loss amounts, cash flow statements, forecasts, and even a budget. The balance sheet shows the business assets, liabilities, and shareholder’s equity at any point in time. The income statement or profit and loss statement will show how profitable the business was during a previous quarter or specific date range. The cash flow statement shows how the business handles its cash and cash equivalents. A bookkeeper can calculate these important metrics for business owners, as well as the cost of goods sold and gross margin.
6. Help Prepare for Lenders and Investors
Another benefit of hiring a professional bookkeeper is that they will help prepare your financial documents and format your books using the correct reporting practices. Adhering to “Generally Accepted Accounting Principles” (GAAP) will help organize a business in anticipation of borrowing or seeking investors. For a small business owner handling many tasks, properly preparing the required financial documents needed to secure funding will prove difficult. This is another example of how a small business bookkeeping service can pay for itself. Investors or lenders will want to closely examine a business’s financial documents before deciding to release any funding. If the documents are not formatted correctly or are missing vital information, this will negatively impact your ability to secure funding for business growth.
7. Get Paid Faster
Efficient and well-managed business operations involve tracking financial statements and following up on pending payments from clients or customers. Some businesses allow longer recovery periods, but waiting too long for invoices to be paid can negatively impact your business by slowing down vital cash flow. For example, hospitals and businesses in healthcare often give patients and insurance companies several weeks to arrange payment after life-saving services have been rendered. However, delays in receiving payment can make it harder to accurately predict cash flow.
Proper financial management involves identifying opportunities to improve cash flow by shortening wait times for payments and streamlining the invoice process. A bookkeeper can regularly review these invoices and follow up on delinquent payments or take appropriate action to write off bad debt.
8. Business Insights
Small business bookkeeping can reveal a wealth of information about the business if financial information is properly analyzed and prepared. Bookkeepers can create valuable projections and forecasts, in addition to reporting current financial statements and historical business data.
This can help a business owner determine which areas need to improve or where potential cash flow drains exist. Analyzing the data may also reveal incidents of employee theft or negligence. For a small business starting out, it may be best to start on the right foot by consulting with a professional bookkeeper or CPA. They can help determine which business structure might be best and how to strategically organize the company’s finances.
9. Tracking Assets and Preparing Depreciation Schedules
Another important service that a bookkeeper or professional accountant provides is to track a business’s assets. This includes maintaining a list of assets and their location, as well as their current value. Depreciation schedules are used to allocate and track the cost of assets over their useful lifetime.
Depreciation valuation and determination can be complex. There are multiple ways to determine depreciation and using one method may impact your ability to use another method down the road. You can claim depreciation on many business assets, such as computers, vehicles, HVAC equipment, and more. You can claim depreciation on taxes, although recent tax reform has created limitations. Currently, a business may be able to claim bonus depreciation on assets placed into service. Due to the complex nature of depreciation, it’s best to consult with a tax attorney to ensure this is done correctly.
10. Preparing for Taxes
Business taxes are complicated, and the rules are always changing. Depending on your personal tax situation, it can be difficult to properly prepare and file your income and other taxes. The Internal Revenue Service (IRS) requires businesses to pay a variety of taxes, including possible self-employment tax, estimated tax, employment tax, sales tax, and excise tax, to name a few. Estimated quarterly payments are due from those who earn income but do not have taxes withheld–such as business owners, freelancers, investors, and those with rental income.
Failure to pay can incur hefty penalties and daily interest compounding. The impact of taxes on a small business change from year to year. Recent tax reform has lowered the corporate tax rate and introduced a new deduction for pass-through businesses, as well as many other changes. It can be tough to stay up to date on tax laws while also running a small business.
Professional bookkeeping services will help prepare annual tax returns for federal, state, and local governments, as well as make estimated tax payments, payroll, or excise payments as necessary. Determining depreciation on business assets to claim during tax season is no easy task. It is much better to go with a tax attorney rather than try to muddle through the complexity of the ever-changing tax code. Preparing for taxes is a major endeavor, and a professional bookkeeper can save you valuable time and money by minimizing your end of year liabilities.
11. Enforcing Controls
Establishing and enforcing financial controls in a business is an important step towards accountability. This can be especially important in businesses with equal partners or where multiple people are involved. Small businesses have many necessary steps to take when establishing bank accounts and acquiring business credit cards. It is also a good idea to draft the policies and responsibilities of those who have access to these accounts. You may also be required to set aside funds in another account to pay employment or self-employment taxes. Establishing controls involves determining when and how partners can withdraw money, who can make large purchases, and which employees are issued a company credit card. Having a small business bookkeeper monitoring expenses and providing input can be invaluable.
Why You Should Consider Hiring a Professional Bookkeeper
There are many ways a professional can help your business. Bookkeeping can be complex because it deals with many different aspects of business and finances, including taxation and accounting standards. Small business accounting requires monitoring every step of the business cycle, from sales to data entry and paying employees. Outsourcing the bookkeeping to an experienced professional can save business owners time and money in the long run. A bookkeeper can analyze the data and help establish a system that collects and monitors this information. This gives the owner more time to focus on other areas of the business, such as growing sales, overseeing manufacturing, and building client relationships.
There are many financial documents that a business needs–not only for an accurate view of the company’s financial health, but also to help secure future funding. A professional bookkeeper can help streamline a business’s cash flow, make and track required payments, and provide business insights for managers or owners. Another major area where a bookkeeper can help is to prepare business taxes. Pass-through business owners, such as sole proprietors, single member LLC owners, or partners will claim business taxes on their personal tax return. A bookkeeper can also help establish and enforce controls to ensure business expenses are properly authorized. There are many other ways a professional accountant can save you time and money.