6 Red Flags You Should Be Outsourcing Your Bookkeeping
As a busy business owner, you are undoubtedly involved in all aspects of your business. Bookkeeping is an area that small business owners may overlook or check when they have a spare minute. Keeping your books accurate and updated on a regular basis does take time but is extremely important to your company’s financial health. In this article, we will go over some red flags that indicate you should outsource your company’s bookkeeping.
Bookkeeping Is Taking Up Too Much Time
The first red flag your business needs a bookkeeper is bookkeeping takes a substantial amount of time. Small business owners take pride in being able to handle all aspects of the business on their own but spending too much time in any one area can decrease revenue or cause other issues. For example, if you normally spend 10 hours per week updating your books but a bookkeeper can do the same job in half the time, you could use the extra five hours on marketing, meeting with clients, or other company tasks. If bookkeeping is keeping you away from higher-growth areas of your company, this is a big red flag that you should outsource your bookkeeping.
Your Books Are Not Updated Regularly
Another red flag you should outsource your bookkeeping is that your books are updated at irregular intervals. For example, some small businesses only update their books in preparation for tax season. This can cause several issues including incomplete records and penalties for late or inaccurate tax filings.
A good practice is to do monthly bookkeeping updates. This helps detect and correct errors much quicker than semi-annual or annual bookkeeping updates, saving time and money overall. For example, many business owners have separate personal and business credit cards. If you mistakenly used your personal account for business expenses, your accounting would reflect less revenue and higher costs than were actually incurred. Monthly checks of your books can reduce these and similar errors. Monthly checks that consistently uncover errors is another red flag you should outsource your bookkeeping.
Overlooked Tax Savings
Many business expenses are tax deductible. Here is a list of the most common business deductions:
● Home office deduction
● Mileage deduction
● Depreciation of equipment
● Supplies
● Insurance
Keeping track of all the deductions available to your small business can be time-consuming without some experience in the area. Hiring a bookkeeper ensures expenses are categorized correctly, which helps ensure no deductions are overlooked.
Maximizing tax deductions has a significant impact on a company’s cash flow. For example, did you know that you can take a depreciation expense on your business laptop? If you use a laptop 100% of the time to run your business, you can depreciate 100% of its cost. Additional deductions commonly overlooked are professional fees, telephone and internet, and bank fees. Overlooked tax savings is another red flag your company should outsource its bookkeeping.
Your Books Are Always Out of Date
One of the main reasons to hire a bookkeeper is to make sure bookkeeping records are up to date. Outdated books prevent you from getting an accurate picture of the company’s financial situation. This can lead to issues with meeting payroll, making timely vendor payments, and creating accurate profit and loss reports.
Organizing and documenting daily transactions can be daunting, but hiring a bookkeeper can make the process much easier. Effective bookkeepers specialize in properly documenting all business transactions and recording them in Excel or with an accounting program. Many programs such as QuickBooks have features that automatically categorize transactions according to preset rules. For example, if you routinely receive payments from customer ABC, QuickBooks will automatically categorize these payments as Revenue if the rule is implemented.
You Are Paying Too Much to Your Accountant
A common misconception is that accountants and bookkeepers perform the same duties. However, there are differences between the two. Bookkeepers record day-to-day financial transactions of your business, while accountants offer financial advice, create forecasts, and aid in tax preparation. Accountants cost more than bookkeepers because of their higher qualifications. If your business is using an accountant to perform day-to-day bookkeeping duties, the company can save a significant amount by outsourcing its bookkeeping and using the accountant for more specialized tasks.
You Are Unsure About Your Company’s Financial Health
Constantly worrying about cash flow, profit and loss, or other financial issues related to your business is another red flag you should outsource your bookkeeping. Accurate books are the financial backbone of your company. If your books are error-prone or out of date, you won’t know how the current quarter’s profit compares to the previous quarter, or what services are coming in over/under budget. Being unable to generate accurate financial reports whenever needed is another red flag your company should outsource its bookkeeping.
Additional Suggestions and Tips
So far, we have discussed some red flags indicating your company needs to outsource its bookkeeping, so let’s move to some suggestions to improve your bookkeeping process:
● Use a separate bank account/credit card for business expenses
● Utilize accounting software to save time and streamline the bookkeeping process
● Designate a place to store all important documents, both physically and electronically (backups are always necessary)
● Request monthly or quarterly audits of company books to uncover common errors
● Meet with an accountant annually or semi-annually to resolve any questions
We hope this short article is helpful when planning your bookkeeping solutions. For more information, be sure to check out our website!