Home Professionalisms The Hidden Costs Of Managing Bookkeeping On Your Own. Consider These Tips.

The Hidden Costs Of Managing Bookkeeping On Your Own. Consider These Tips.

341
0

by Dustin Ray of Incfile

When you start a business, you’re the CEO, marketer, customer service representative and human resources manager. You wear a lot of hats. Another hat that you may opt to wear is bookkeeper.

Bookkeeping is a critical responsibility since you are recording all day-to-day financial transactions, including receipts, sales and payments to people, vendors and other companies. You will bring the books to the trial balance stage where an accountant (or you) may prepare the income statement and balance sheet.

While handling your own bookkeeping for your new small business may initially seem like a cost-saver, the reality is that it can end up costing you more — more money, more time and more headaches. Here are a few ways that managing your own bookkeeping can cost you in the long run.

The Hidden Costs of Doing Your Own Bookkeeping.

Time Away from Business Tasks.

The average cost for a small business CPA consultant is $150–$400 per hour, depending on their experience. This can be quite a steep cost when you are first launching your business. However, if you do all of the heavy lifting yourself, that costs you your valuable time. You’ll need to research basic accounting practices, learn how to navigate bookkeeping software, balance books, prepare financial reports and file taxes. The hours and days spent on these tasks each month could be better spent on starting and growing your business.

Cost of Software.

Depending on the type of bookkeeping software you go with, this can also become expensive.

There are three main methods for managing documents as part of your general ledger (GL) bookkeeping:

  • Spreadsheet (Excel or Google Sheets)
  • Desktop accounting software (QuickBooks Desktop or FreshBooks)
  • Cloud-based bookkeeping software (QuickBooks Online or Wave)

While managing your bookkeeping in spreadsheets would be the cheapest option, desktop bookkeeping software may come with an expensive fee. When it comes to cloud-based bookkeeping software, you may have to pay a monthly fee to keep the online subscription; however, it may be a much lower cost than the desktop software. Software costs can range from $10 a month to $1,000 per month per user, depending on the type of package you decide to go with. And even on top of this cost, you still have to learn how to use the software and manually enter your data.

Potential for Fines and Fees.

If you manage your own bookkeeping and accounting, you may open yourself up to human error and mistakes. This can unfortunately lead to fines and fees if your taxes are filed with incorrect information. The IRS can charge you for late filing fees, penalties for math errors, penalties for incorrect deductions and more. Since bookkeepers are supposed to track every dollar in and every dollar out, things can easily get missed if this is not your actual day-to-day only responsibility with your small business. It gets easy to miss one receipt or lose track of investment statements.

Missing Important Deadlines.

If you miss the many deadlines that come with submitting financials and taxes, you expose yourself to plenty of fines. These fines are costly and something that your small business may not be able to afford, especially when first launching. This mistake can lead to racking up hefty penalty fees, destroying your credit score or even running out of money to keep your business operating.

Losing Out on Tax Deductions.

Professional bookkeepers or accountants are more experienced with these types of tasks — after all, it is their job. Since a professional has gone to school, been certified and has prior years of experience bookkeeping, they are more likely to find deductions and ways to reduce your tax bill. They are the experts who can help you look for opportunities to reduce your taxes. More money in your business’s pocket is always a positive, especially when first starting out.

Lack of Financial Insight.

Once again, a great bookkeeper is a professional who has prior experience and plenty of knowledge on this particular subject matter. When you are first launching your business, you probably don’t have a ton of time to devote to getting into the weeds on every financial and accounting measure, insight, information, tax deduction, etc. Having a professional guide you during this time and provide you with their wisdom and expertise can help ensure that your business is set up for success from the beginning and that you are taking the right approaches to be compliant.

Best Practices for DIY Bookkeeping.

If you’re not convinced and still want to handle your own bookkeeping, the first step is to do adequate research on the subject. Brush up on the bookkeeping and accounting terminology, such as balance sheet, accounts receivable and cash flow.

As the bookkeeper for your small business, you will need to keep track of the following and more: bank statements, credit card statements, canceled checks, receipts, bills, customer invoices, customer payments, deposit slips, tax returns, 1099 forms, payroll documentation.

Also, there are three key documents that you will need to manage, which include:

  • Balance sheet — this tells you how much your business is worth and provides you with a breakdown of what you owe vs. what you own.
  • Profit and loss statement — this tells you if your business is profitable. This shows your revenue minus your expenses.
  • Cash flow statement — this tells your operating, investing and financing information.

You will also need to decide which type of bookkeeping and accounting works best for you, between single-entry or double-entry, cash or accrual, etc. Single-entry means each transaction is recorded as a single entry in a ledger, while in double-entry bookkeeping, a transaction is recorded twice. And cash accounting means you record the transaction only when the money has actually changed hands.

This is really only the tip of the iceberg in managing your own bookkeeping. Many decisions will need to be made and accuracy is of the utmost importance.

The Takeaway.

When it comes to taking on your small business bookkeeping yourself, there’s a lot to keep track of. Your potential for error is high. It’s a smart business practice to get help in areas where you are not an expert. Investing the money in an accountant or bookkeeping service can ultimately save you time from chasing down receipts, protect you from costly errors and fines and help you gain valuable insights into your business’s potential.

 

Dustin Ray leads business development and growth initiatives at Incfile, a national online incorporation service company specializing in business formation and small business services. At Incfile, Dustin’s primary focus is to grow revenue and secure strategic partnerships that compliment a set of robust services to help entrepreneurs launch new businesses.