7 Signs Your Business Needs a Bookkeeper

Small business owners take active roles in all aspects of their company, from marketing to client meetings. Bookkeeping is an area that business owners may not spend as much time on as they would like. Accurate and timely bookkeeping is essential for a company to meet its goals. In this article we will discuss the importance of bookkeeping, the signs your business needs a bookkeeper, and some suggestions to find the right bookkeeper for your company. 

What Is Bookkeeping and Why Is Bookkeeping Important?

Bookkeeping is the process of recording all your company’s financial transactions such as income and expenses. Accurate bookkeeping provides information about how your business meets its budget, current profit and loss figures, and whether the business has enough cash on hand to meet its obligations. Good bookkeeping and organization also make tax preparation much easier. 

Strong Signs Your Business Needs a Bookkeeper

It is common for new business owners to perform bookkeeping duties themselves, but as the business grows, owners must spend more time on other areas of the company. In these situations, it is good practice to hire a bookkeeper. Below we discuss some signs your business needs a bookkeeper.

Expansion  

Business expansion is a goal of every business owner and requires a great deal of time and effort. A natural consequence of expansion is less time available to spend on various aspects of the business. Because good bookkeeping requires attention to detail and accuracy, spending less time on bookkeeping often leads to errors and inaccurate information. For example, if a company purchases a new laptop for an employee but fails to record the expense in its books, the company’s recorded expenses will be less than actual expenses. If left uncorrected, this leads to higher taxes paid as the laptop expense which would have reduced taxable income was not recorded. 

Incorrect Transaction Categorization

One of the most important duties of a bookkeeper is to properly categorize transactions. Whether they are income or expenses, incorrect transaction categorization can lead to higher taxes paid and potential penalties from the IRS. For example, suppose a company uses the same account for both business and personal transactions. If a transaction is incorrectly categorized as personal instead of business, the company loses a valuable business deduction. The opposite is also true. If a company inadvertently takes a personal expense as a business deduction, the business may need to file an amended return or send an explanation to the IRS. 

You Constantly Have Bookkeeping Questions

The Internet is a fantastic resource for answering frequent questions on several topics. However, if you constantly find yourself spending time researching bookkeeping questions, you might be better served to hire a bookkeeper. Your time is valuable, and the time saved from taking bookkeeping duties off your plate can be used in other areas such as marketing or client contacts. 

Books Are Not Updated Regularly

Small business owners are extremely busy. Not having enough time to update business books is a strong sign that hiring a bookkeeper is a good idea. Updated books provide accurate profit and loss reports, budget analysis, and additional information so business decisions are much easier to make. Many businesses only update their books to prepare for tax season, which increases the chance of errors when filing their tax. Regular bookkeeping updates can detect errors more frequently, save time, and avoid IRS penalties.

Sales Are Growing, But Profit Is Not

Profits remaining steady while sales continue increasing is frustrating for any business owner. This can be caused by several reasons, and the first place to investigate is a company’s books. Having updated and accurate books will help the process immensely and help identify reasons why profits are not increasing with sales. The issue can be as simple as unrecorded payments or might need more research and analysis. Having a bookkeeper ensures the information needed to make profit-maximizing decisions is updated and accurate. 

Payroll Issues

Many businesses have employees along with independent contractors, which can complicate the payroll process. For example, employees have income tax and FICA withholdings from their paycheck, while independent contractors do not. Ensuring the proper payroll deductions are made requires time and accuracy. Qualified bookkeepers often handle company payroll, saving time and adding value. 

Should Your Business Hire an Employee or Independent Contractor?

Businesses can use employees or independent contractors to fill their bookkeeping needs. Employees work full-time, have designated hours, and often perform additional duties.  Independent contractors work according to the terms of their contract and earn income on a per-project basis. 

Employees generally cost more as they receive medical benefits, life insurance, and payroll taxes. If you want to hire someone for full-time work and gradually increase their work responsibilities, an employee is your best bet. If you are looking for just bookkeeping help, an independent contractor is a more cost-effective solution.

Bookkeeping Suggestions

There are several things business owners can do to streamline their bookkeeping, whether done themselves or by a bookkeeper. Here are some common suggestions:

●      Use separate bank accounts and credit cards for business and personal expenses

●      Take advantage of accounting software such as QuickBooks Online

●      Perform periodic audits of books to ensure accuracy

●      Meet with an accountant at least twice per year to resolve any questions

●      Create checklists of bookkeeping tasks to ensure nothing is overlooked

We hope this short article has been helpful in explaining the signs your business needs a bookkeeper. For more information on bookkeeping and accounting, be sure to visit our website!