I hear so many entrepreneurs say they wish they hired a bookkeeper sooner than they did. I'm curious to know what exactly a bookkeeper does and whether I should hire one or continue to manage my books myself.
Basically, my DIY system for the past few years is this: every 1st of the month, I tally up all of my revenue and expenses, record them in a spreadsheet. I use this to figure out my profit and amount to pay in quarterly estimated taxes. I have my accountant handle filing my (my family's) annual tax return.
As my business is beginning to grow and become more complicated (growing team, more revenue streams, etc) I'm starting to think its time to hire a bookkeeper. My business consists of a mix of consulting, a SaaS product, and some one-off digital products.
The questions I have are:
1. What are the tasks that a bookkeeper performs, and how often?
2. What are the benefits of having a bookkeeper vs managing it yourself?
3. How does one get started working with a bookkeeper?
4. Is a bookkeeper and CPA the same thing? Should I have one bookkeeper for my business (LLC) and separately an accountant who handles my family's annual tax return? What's a typical approach here?
5. What are the going rates for a US-based bookkeeper for a small LLC?
Yes! Companies never hire bookkeepers early enough.
1. They can take care of payroll, gov't remittances, year end payroll forms, all your monthly transactions, budgets, pay bills and really anything relating to ongoing financial or even some admin type tasks. How often depends on how many transactions you have, but the norm is at least monthly, if not weekly. They can come in for an hour or two each week to record transactions, discuss any items with you, etc.
2. The main benefit to hiring a bookkeeper is that it frees you up to concentrate on your business. It shouldn't cost too much to hire a bookkeeper, and they are very efficient, often completing the tasks in half the time. This is their job and they do it day in and day out, so become very good at it. Also, they have multiple clients so can provide assistance with best pricing on items that may be common to their clients; banking, insurance, etc.
3. There are many great bookkeepers out there. Ask other companies who they use, or ask your accountant to recommend someone. Some jurisdictions also have bookkeeper certifications, so you can contact the local association for a list.
You can usually start with a contractor, and as you grow eventually bring someone in house. Meet with at least 3 and ask how they would manage your books and have a relationship with you. It is important for you to still be on top of key items such as cash balances and expenditures vs budget, which they can provide to you regularly. Just find a system that works.
4. Bookkeepers and CPA are not the same. Bookkeepers focus on daily/weekly/monthly tasks, providing information but not any opinions. A CPA has a higher level of expertise, having completed additional certifications. They provide advice and other analysis, including certified year end financial statement preparation, tax returns and dealing with the IRS or CRA.
5. It varies by jurisdiction, take a look at Kijiji or Craigslist to see what the published rates are for your area. Your accountant should also be able to help.
NIcole is right.
When I first started my business I thought I was saving money by doing my own bookkeeping. It took me much longer than it would take a bookkeeper - all time that I was not spending on marketing or billable activities. And in the end I made errors which made the initial work of the bookkeeper longer.
I now have a consistent routine. My bookkeeper picks up all my material monthly and does my books in less than 2 hours. Very worthwhile.
The two answers above are great. The only thing I would like to add is that even if you decide to NOT hire a bookkeeper I would recommend you outsource your payroll and purchase a low cost accounting program (Quickbooks or Peachtree). These are both very inexpensive purchases that will help you a great deal and keep you on the right track. One other thing that comes to mind is that if you do hire a bookkeeper make sure that you still have control and an understanding of your books and records. Many small businesses will just send the bookkeeper information and get the financial statements back without understanding what they mean or they will have an outside bookkeeper make entries and not have their internal records updated.
Yes. We have a small CPA firm that works for us but they do bookkeeping separately for a small monthly fee. It's one of the best things you can do for a few reasons that include providing more accountability to you as a leader.
Bookkeepers are not the same as a CPA firm but ususally CPA firms have bookkeepers. Bookkeepers simply make sure that each month your financial statements look right by reconciling the different accounts where money comes in and money goes out. It only takes a couple hours each month for them and it's not expensive compared to what happens at the end of the year if something's wrong and you have to step away from what you should be focused on to work on taxes and investigating expenses. Not having to worry about monthly reconciliation, taxes, on top of getting recommendations and input from them made this one of the he best decisions we made. I'd recommend at least trying it for a couple of months.
I think that I am in a unique position: I provide bookkeeping services to clients and I've been handling the financials for my own bookkeeping company. I too am about at the point of handing the latter over to someone else.
My clients are small business owners who are in the same predicament you are in: they need to save time and money. I think everyone who has answered your post agrees that paying a CPA to do what a bookkeeper can do is not wise. For perspective, it's like paying lawyers prices for legal assistant work.
The tasks that a bookkeeper performs have to do with keeping your financials. The time invested by the bookkeeper depends on the need of the small business. Whether the accounting method is cash versus accrual is another consideration. For instance, accrual accounting requires more documentation. Excel spreadsheets are used to track accruals, prepaid expenses, etc. and the adjusting journal entries are part and parcel for the accrual accounting method.
Having a bookkeeping managing and maintaining your business' financials is easier all the way around. If there is a yearly financial audit, the bookkeeper makes sure that guidelines and processes required are followed and performed throughout the year. This way, issues don't go unattended resulting in fines, penalties, interest and other negative consequences.
To get started with a bookkeeper, you would need to do as you are doing. Getting information about the benefit of having a bookkeeper and already having a working knowledge of your financials. This way, you know exactly what you'd want that person to do. You are already ahead of the game. My experience is few business owners take time to consider these things. They get overwhelmed and just haphazardly hand things off.
No, a bookkeeper and a CPA is not the same thing. I think my lawyer comparison above makes that pretty clear. CPA's tend to handle tax return filings and services that that require higher accounting knowledge and carry a higher liability. There are some CPA firms that employ bookkeepers. That might be convenient, but I would compare if there is a cost savings for doing it this way versus hiring a standalone bookkeeper who can consult your CPA when needed. This way, the bookkeeper is more accessible and generally more flexible.
In fact, I don't take an account where there is no CPA accountability. First, checks and balances are a part of GAAP (generally accepted accounting practices) and legitimate CPA firms must carry professional liability insurance due to the liability associated with the profession.
Bookkeeper rates are not one size fits all. For instance, a bookkeeper in New York probably has a different price scale than say a bookkeeper in eastern North Carolina. I have found that my customers are willing to pay for great services. They have learned that it is better to invest in a good bookkeeper than to cut corners.
I hope this has been helpful. If you'd like to talk further, contact me. I wish you the best.
These are excellent answers! And while this has been sitting on the board for awhile, for any new users I'd like to provide another perspective.
For about half if my clients that have never had bookkeeping before, my costs for the year are almost wiped out by the tax savings I discover for them (only considering base services, classifying, reconciling, chart of accounts, reports).
Also many clients I've taken on have mis-reported on their taxes due to bookkeeping errors. This may "flag" them for audit if the error is large enough. While some clients had errors that benefited them financially, others overreported by $10000 by misclassifying contributions as sales or other errors. Also, a bookkeeper can help track info for you. In a recent audit, a client lost $40k in legitimate expenses due to no documentation (receipts, bookkeeping), and there were also no 1099s sent out. These are big no-nos. This was for an audit of 2011, well before I was handed the books. The bookkeeper reduces your risk and can save you in an audit.
Finally, 90% of my clients have improved revenues once bookkeeping...so that now it more than covers base bookkeeping costs. Why? They see info monthly and presented to them. Initial reactions are beautiful. Clients are surprised, frustrated, encouraged, or any number of emotions, but at the end, they are motivated! They now have a "coach" with whom to discuss ideas. There is research to support that those that stay on top of their books grow faster.
Just like Suzette above, I do client bookeeping while looking to outsource my own. Why? I myself like to pay attention to my initial reaction to the reports and institute change! When I do my "own" books daily, I'm too into the minutiae and don't have the same reaction. Plus, I want to focus on my business, which is doing client books and developing new services to help them.