Bookkeeping and Libraries

I recently held discussions with several small business owners regarding bookkeeping, and came away surprised that they all held the same opinion, for the same reasons, and were all wrong.

Oops, that sounds ego-centric and conceited. I guess I should clarify the discussion, opinions, and the facts, and perhaps you will agree with me.

The question being discussed was regarding whether there was a real need for a small business owner to hire a bookkeeper, or, alternatively, keep track of their books themselves. One owner presented yet a third option, which was to use an accountant as a bookkeeper.

What these business owners had in common was the fact that none of them was keeping accurate records, beyond general income and expenses. In some cases, these records were being handled completely manually with a single ledger, recording all income and all expenses on the same page, and just running totals. In other cases, the owner was using software such as Quickbooks or Simply Accounting, but using a tiny fraction of the available functions. In still other cases, records were being kept, literally, in a shoebox.

The issue was that none of the owners I talked to thought there was anything the matter with their system. After all, their accountants never complained, and that’s what they were paying him for.

Perhaps the reason that the accountant never complained was that they were able to bill their clients for the relatively simple task of bookkeeping, which the client could be doing on their own. It’s fairly profitable work. But I digress.

Benefits of Electronic Bookkeeping

There is a reason for keeping records in a business that go well beyond paying the appropriate taxes at the appropriate times. I personally like to think of my books as my personal library. One small function of that library is to help my accountant determine how much tax I have to pay. However, there’s so much more that can be done with a well-organized library.

First, I can save money by having accurate records. There may be tax advantages to spending money one way or another, and only with well-maintained books can these savings be found. Trying to find these savings in a shoebox is simply not going to happen, unless you pay your accountant in excess of the actual savings.

Second, I can plan my business better. By looking at the various documents that can be produced from a good piece of accounting software (I personally prefer Quickbooks), you can determine how to better manage your cash. You can ensure that no bill is left unpaid past its due date, avoiding late fees and penalties. You can see which customers owe you money, and how long the bill is outstanding. You can produce invoices, manage payroll, and connect directly to your business bank accounts.

Third, I can save myself the hassles of dealing with my accountant by providing her with everything she needs in one neat organized file. At the end of each month, I e-mail my accountant my file, and get it returned with any corrections within a business day. That way, my accountant is constantly aware of the state of my business, and can make relevant suggestions to improve my business on an ongoing basis. Additionally, my accountant does not need to do my books for me, which I can have done for a fraction the price. (A good accountant could cost in excess of $200 per hour, while a good bookkeeper can be hired for $20-$30 per hour for the same work.)

Bookkeepers and Accountants

Perhaps the reason that there is an aversion to using proper bookkeeping is that business owners have difficulty distinguishing between bookkeepers and accountants, and the services each provides.

A bookkeeper is about keeping your business records intact and up-to-date. Their objective is to provide you with various reports of the status of your business at any point in time. The records themselves can help you manage your business better, which is key if you want your business to grow.

An accountant, on the other hand, deals with planning for your business. They look at your business, and the various reports extracted from your books, and help you manage your business. An accountant is looking at the bigger picture of your business over the course of years, and how your business is changing over time.

At a simpler level, a bookkeeper is concerned with a particular point in time, while your accountant is concerned with the progression of your business.

Summary

Should you be hiring both a bookkeeper and accountant?

It depends on a variety of factors, but at a minimum, you should be making an effort to keeping your books up-to-date on a daily or weekly basis. Ideally, you should be using an electronic form to keeping your books, which makes it easier to share your data with the appropriate people, as well as extract needed reports on an ongoing basis.

Remember, your bookkeeper and accountant specialize in different things. Use each appropriately.