December 13th, 2022
Many times, when businesses are trying to cut expenses, bookkeeping is frequently the first thing that comes to mind. New businesses, in particular, believe they can do this themselves.
Even the owners will occasionally attempt to handle these responsibilities on their own, along with everything else and important details that end up falling through the cracks. However, business accounting tasks should not be taken lightly. It is a pertinent task for every business and needs to be done correctly.
Sometimes businesses do their bookkeeping themselves from the start in the hope of avoiding that expense. They see avoiding expenses as a safer option than making investments. Let’s discuss some of the pros and cons of doing your bookkeeping yourself.
Outsourcing bookkeeping and accounting is an extremely valuable investment. You may think it is more expensive, but when you take into consideration what it would take to hire someone in-house or do it yourself, you may be wrong. When hiring an in-house employee, you will need to consider expenses such as onboarding, training, salary, benefits, payroll tax liability, any software that would be needed, and equipment for the employee. Adding an employee increased your overhead, which you could avoid by outsourcing to an accounting firm!
The Value of Bookkeeping
Ensuring that your books are in order is the fastest way to evaluate your business. Understanding how to categorize your entries and assets is an opportunity to reduce your tax liability and strategize your decision-making throughout the year.
Outsourcing your business accounting allows someone to be hands-on year-round while ensuring that all of your information is correct and up-to-date for your annual taxes.
Doing Your Bookkeeping in House
When you do your own accounting and bookkeeping, you’re fully responsible for any mistakes that occur. If you don’t have a background in accounting, this is a major risk for your business.
Let’s talk about a few of the basics and the risks. Bookkeeping appears to be simple, which is why many new small business owners believe they can handle everything themselves.
However, it is not as simple as it seems when you do not have an accounting background and realize that tax requirements are involved in bookkeeping, and recording inaccuracies can cost you big time down the line.
Working with an accounting firm means that you reduce the risk of high penalties in the case of an audit. Plus, professional bookkeepers have extensive knowledge about tax regulations and can help you avoid overpaying in taxes.
When the average small business owner talks about accounting, they are typically referring to annual taxes. However, working with an accounting firm throughout the year will also provide you with monthly or quarterly financial statements to help guide you year-round and be able to know where your business’s financials stand.
You still need to get your taxes done! Typically, small business owners who do their own bookkeeping will still go to an annual tax accountant. However, make sure that your tax accountant, whom you only see once a year, has time for you, as they can become overburdened during tax season and you may need to file an extension.
This goes without saying that there are consequences if you don’t file your taxes on time, and then you will need to get your back taxes done if you fall behind.
If you don’t feel comfortable doing the bookkeeping yourself, a professional bookkeeper can assist you in getting your books ready since their primary role is to ensure the accuracy of tax filing.
What is Your Time Worth
The final thing to consider when deciding whether or not to handle the accounting or bookkeeping tasks yourself is whether it is worth your time. This can be interpreted in a few different ways.
- Your Personal Time: How much do you value your personal time? Life is more than just work. Even if you own a business that you’re passionate about, you need time away from it to nurture your personal relationships, time, and outside responsibilities. At the very least, if your business has reached a comfortable level of growth, you should be able to take some time for yourself each day and a day or two off each week. Chances are, you’re not as efficient with accounting as an accountant is. Is spending more time at work worth it?
- Monetary Value of Your Work: Is spending your time on accounting worth it to save a small amount of money? Are you even technically saving money when you consider how much your work is worth per hour? Be sure you know what your time is worth.
- Ask yourself: What is my salary? If I were to hire myself, what would I pay per hour? For example, your accounting fee is $600/month, and your time is worth $150/hour. If you are spending more than four hours each month on your accounting and tax work, you are losing. If you are not 100% accurate in what you do, you should still have an accounting firm to look at it. Plus, if you come up with even one idea to grow your business instead of doing accounting in the meantime, it pays off!
- More Time to Grow Profitability: How much could you grow your business’s profitability if you had more free time to brainstorm, plan, and execute? For example, you could be working on growing your sales and marketing strategies to increase your profits. Maybe you could even find the time to fix something that’s been going wrong—and that could mean the difference between closing your doors or not! For example, taking time to address customer complaints, law violations, quitting employees, or dropping sales is invaluable. You could even use your time to network. Taking time to connect with fellow small business owners and industry-related groups can help you learn new things specific to your business. You don’t know what you don’t know!
It goes beyond just trying to save money upfront, though. When you consider the value of accounting and bookkeeping, everything that goes into doing your own accounting (plus everything that can go wrong), and what your time is worth, you might have a new perspective on doing it all yourself.