There are three different ways to get bookkeeping done for your small business: do it yourself, hire someone or a combination of the two.
Here's a quick refresher for those of you who have blacked out every time someone tries to explain bookkeeping to you. Bookkeeping is an system to account for the transactions in your business. In 2017, it is in the form an application/program. Xero, Quickbooks, Less Accounting - these are all cloud-based applications that help you do your bookkeeping. It's basically a database.
You connect your bank to the database. It scrapes the transactions. Then you tell it what the transactions are for. For example, $8 at Starbucks is for meals/coffee with clients. You know how you have to categorize your expenses for your accountant at this time of year? With bookkeeping, you do it as you go, like weekly or monthly or daily if you're into that sort of thing. Then you can "manipulate the data" AKA push a button to run reports. The reports give you the information you need for things like understanding how your business is doing and for filing taxes.
Now that you know what it is, let's dive into the options you have for actually getting it done.
Option 1: DIY
Yes, DIY. Yes, do it yourself. Yes, that means you do your own bookkeeping.
Doing your own bookkeeping is by far the most virtuous of options. I'm only half-joking because while I think society demands an unequal share of personal responsibility on those who are disadvantaged, if you're running a business, ultimately you are responsible for the finances.
Doing your own bookkeeping forces you to understand basic accounting principles. It demands that you are invested and involved in the day-to-day transactions. And those two things can have an impact on the decisions you make and how you behave. For example, maybe doing your own bookkeeping will make you realize you shouldn't hire a robot to make you coffee or the thing you thought wouldn't make you a lot of money, in fact has.
Where Can You Get the Skills?
You can take an online course or use the tutorials available at the platform you choose. You can find a bookkeeper or an accountant to teach you. Some will teach you, but not every bookkeeper or accountant offers this on their menu of services.
Who Should Choose Option 1?
You should do your own bookkeeping if you know you have the personality for it. What I mean is you're detail oriented, diligent and this type of soulless data entry will not do too much psychic damage that its more harmful than helpful.
If you have a lot of time, not a lot of money and enough curiosity to push you through the frustrations, then DIY is probably for you.
Option 2: Hire Someone
Part of the beauty of the human experience is uncovering that we really don't know much and that there are so many things we didn't even know that we didn't know about. Hiring a bookkeeper can help you start to uncover some of those unknown unknowns.
Some people take great pride in learning new skills. Other people become paralyzed with the fear of screwing up. For example, cutting your own hair or changing the oil in your car. If you're confident in your skills and have the time and energy to cultivate said skills, go for it. If you're not, don't fuck around. Hire someone.
Who Should You Hire?
You can hire an independent contractor. You can hire a bookkeeping firm. You can hire someone to be an in-house bookkeeper. Just make sure you hire someone who knows what they're doing and preferably with experience in your industry.
Who Should Choose Option 2?
You should hire someone to do your books if you've tried and failed, especially if you've tried and failed repeatedly. If you don't have the financial data you need to make decisions in your business.
Here are examples of data you might need to make decisions:
- How much money the business has made over the last 3 months?;
- What money in the account is for client deposits for project expenses and what money is profit for the business?;
- Can you afford to increase overhead with because you're getting an office?;
- How much sales taxes has the business collected this month?
So if you're freaking out a little bit because you have those questions and no way to answer them, seriously considering hiring a bookkeeper.
Here are some circumstances that would make you a good candidate for hiring a bookkeeper: your business has grown, you don't have much time, but you have income. You really, really, really suck at detail-oriented, analytical work. It drains you or psychically taxes you to the point that you're paralyzed or hinders your productivity.
Option 3: Lifeguard at the Pool
If hiring someone is not an option because of economics or personal preference, then maybe you can split the difference between doing it yourself and hiring someone. I like to call this option The Lifeguard at the Pool Option.
Not all accountants and bookkeepers are a fan of this method. A large accounting firm would probably not be down with this type of arrangement. Smaller firms or independent bookkeepers might be amenable to it, especially if their roster is already full or they want to build a relationship with you and you business.
How Does It Work?
Here's how it works: You communicate to your accountant (or find a bookkeeper willing to do this) that you'd like to participate in your bookkeeping, but you still want them to help you.
First, ask them to set up your books or if you've set them up already, ask them to review your setup (your chart of accounts and how your invoices are set up).
Next, ask them to show you how to code your transactions. You'll be telling the program where to code all the inflows and outflows.
I call it lifeguard at the pool because you want to ask your accountant/bookkeeper to reivew your books for you. Communicate and come up with a plan with how frequently they will review your books and what their responsibility will be.
I recommend having the lifeguard take care of the more complicated aspects of bookkeeping like reconciling and entering payroll.
As far as a review schedule, I recommend first having them review it each month. So if you screw something up, you've only screwed up one month. It's less to clean up and fix and you'll have more time to practice doing the right thing. Then if things go swimmingly, you might be able to move to quarterly reviews.
Who Should Choose Option 3?
You should choose this option if you'd like to participate in this aspect of your business, but maybe you don't feel comfortable doing it yourself completely or you don't have the time to learn the more complicated aspects. It's also a way to save money on bookkeeping assuming you don't make a bigger mess that needs to be cleaned up.