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?
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.
Bookkeeping is a must. Whether you personally do or appoint one, will be shown by the trend of your business. If it is flat and you see opportunities for good development, hire one. Otherwise you do, but do not neglect it.
all the best
Val
A bookkeeper is the person who maintains the day to day financial records of a business: the books of account and bookkeeping is the job that the bookkeeper does. The work of the bookkeeper begins with the identification of a bookkeeping transaction and ends with something called the trial balance. Accounting is the generation of financial information for a business entity and the reporting of that information on behalf of the owners of that business. An accountant is a person qualified to carry out the processes involved in accounting. The books of account can be physical and/or virtual these days. In a non-computerised organisation, the books of account will be books, folders, or files in which all accounting information is written. In a computerised organisation, the books of account will be made up of files on a hard disk. Whether a business’s bookkeeping and accounting systems are computerised or not, the end result should be the same: the total value of sales will be the same under each system, the total value of expenses will be the same under each system. And so on.
Under the three headings,
i. paper trail
ii. paper mill and
iii. paperwork
the following diagram summarises what must happen for the business to be able to publish and read its own financial statements:
By paper trail we mean to say that the accountant, the bookkeeper and the business person all have access to a stack of real or virtual paper that they can call on to help them to prepare the financial reports they need for a company for an accounting period. All the invoices, all the bank statements, in fact every record of every financial transaction are all to be included in this list.
By paper mill we mean the things that the bookkeeper must do to convert the data found on and in the real and virtual paper into information. That is, as we will see throughout this section, the bookkeeper will prepare what he calls the journals, the ledger accounts, and the financial statements
The paperwork provides us with the financial statements we have just mentioned: the outcome of all the work of the bookkeeper and the accountant. Under this heading we will find the three main financial reports:
i. the income statements
ii. the balance sheet and
iii. the cash flow statement
The Income Statements: An income statement is one of the three important financial statements used for reporting a company's financial performance over a specific accounting period, with the other two key statements being the balance sheet and the statement of cash flows. Also known as the profit and loss statement or the statement of revenue and expense, the income statement primarily focuses on the company’s revenues and expenses during a particular period. An income statement is one of the three (along with balance sheet and statement of cash flows) major financial statements that reports a company's financial performance over a specific accounting period. Net Income = (Total Revenue + Gains) – (Total Expenses + Losses). Net Income = (Total Revenue + Gains) – (Total Expenses + Losses). Revenues are not receipts. Revenue is earned and reported on the income statement. Receipts (cash received or paid out) are not. An income statement provides valuable insights into a company’s operations, the efficiency of its management, under-performing sectors, and its performance relative to industry peers.
The Balance Sheet: A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time and provides a basis for computing rates of return and evaluating its capital structure. It is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders. The balance sheet is used alongside other important financial statements such as the income statement and statement of cash flows in conducting fundamental analysis or calculating financial ratios. The balance sheet adheres to the following accounting equation, where assets on one side, and liabilities plus shareholders' equity on the other, balance out:
{Assets} = {Liabilities} + {Shareholders' Equity} Assets=Liabilities + Shareholders’ Equity
This formula is intuitive: a company must pay for all the things it owns (assets) by either borrowing money (taking on liabilities) or taking it from investors (issuing shareholders' equity).
For example, if a company takes out a five-year, $4,000 loan from a bank, its assets (specifically, the cash account) will increase by $4,000. Its liabilities (specifically, the long-term debt account) will also increase by $4,000, balancing the two sides of the equation. If the company takes $8,000 from investors, its assets will increase by that amount, as will its shareholders' equity. All revenues the company generates more than its expenses will go into the shareholders' equity account. These revenues will be balanced on the assets side, appearing as cash, investments, inventory, or some other asset. Assets, liabilities, and shareholders' equity each consist of several smaller accounts that break down the specifics of a company's finances. These accounts vary widely by industry, and the same terms can have different implications depending on the nature of the business. Broadly, however, there are a few common components investors are likely to come across. The balance sheet is a snapshot representing the state of a company's finances at a moment in time. By itself, it cannot give a sense of the trends that are playing out over a longer period. For this reason, the balance sheet should be compared with those of previous periods. It should also be compared with those of other businesses in the same industry since different industries have unique approaches to financing. Several ratios can be derived from the balance sheet, helping investors get a sense of how healthy a company is. These include the debt-to-equity ratio and the acid-test ratio, along with many others. The income statement and statement of cash flows also provide valuable context for assessing a company's finances, as do any notes or addenda in an earnings report that might refer to the balance sheet.
The Cash Flow Statement: The statement of cash flows, or the cash flow statement, is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company. The cash flow statement (CFS) measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. The cash flow statement complements the balance sheet and income statement and is a mandatory part of a company's financial reports since 1987. The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how money is being spent. The CFS is important since it helps investors determine whether a company is on a solid financial footing. Creditors, on the other hand, can use the CFS to determine how much cash is available (referred to as liquidity) for the company to fund its operating expenses and pay its debts.
The process of bookkeeping involves four basic steps:
1) analysing financial transactions and assigning them to specific accounts
2) writing original journal entries that credit and debit the appropriate accounts
3) posting entries to ledger accounts
4) adjusting entries at the end of each accounting period.
Bookkeeping is based on two basic principles. One is that every debit must have an equal credit. The second, that all accounts must balance, follows from the first. A chronological record of all transactions is kept in a journal used to track all bookkeeping entries. Journal entries are typically made into a computer from paper documents that contain information about the transaction to be recorded. Journal entries can be made from invoices, purchase orders, sales receipts, and similar documents, which are usually kept on file for a specified length of time. For example, the journal entry for a transaction involving a cash payment for a new stapler might debit the cash account by the amount paid and credit the office supplies account for the value of the stapler. Journal entries assign each transaction to a specific account and record changes in those accounts using debits and credits. Information contained in the journal entries is then posted to ledger accounts. A ledger is a collection of related accounts and may be called an Accounts Payable Ledger, Accounts Receivable Ledger, or a General Ledger, for example. Posting is the process by which account balances in the appropriate ledger are changed. While account balances may be recorded and computed periodically, the only time account balances are changed in the ledger is when a journal entry indicates such a change is necessary. Information that appears chronologically in the journal becomes reclassified and summarized in the ledger on an account-by-account basis. Bookkeepers may take trial balances occasionally to ensure that the journal entries have been posted accurately to every account. A trial balance simply means that totals are taken of all of the debit balances and credit balances in the ledger accounts. The debit and credit balances should match; if they do not, then one or more errors have been made and must be found. Reconciling bank statements on a monthly basis, of crucial importance in the management of cash flow, is another important task for the bookkeeper. Other aspects of bookkeeping include making adjusting entries that modify account balances so that they more accurately reflect the actual situation at the end of an accounting period. Adjusting entries usually involves unrecorded costs and revenues associated with continuous transactions, or costs and revenues that must be apportioned among two or more accounting periods. Another bookkeeping procedure involves closing accounts. Most companies have temporary revenue and expense accounts that are used to provide information for the company's income statement. These accounts are periodically closed to owners' equity to determine the profit or loss associated with all revenue and expense transactions. An account called Income Summary (or Profit and Loss) is created to show the net income or loss for a particular accounting period. Closing entries means reducing the balance of the temporary accounts to zero, while debiting or crediting the income summary account. Good bookkeeping is an essential part of good business management. Bookkeeping enables the small business owner to support expenditures made for the business to claim all available tax credits and deductions. It also provides detailed, accurate, and timely records that can prove invaluable to management decision-making, or in the event of an audit.
The costs a small business or non-profit incurs for bookkeeping will depend upon many variables. Company size and lifecycle, number of monthly transactions, number of employees and how payroll is processed, number of expense accounts, credit cards, invoices to send out, bills to pay, number of balances sheets to reconcile, etc. In addition to these basic bookkeeping activities, your costs will be impacted by how your accounting systems, policies and procedures, and reporting needs are set up and administered. Many small businesses in early stages are primarily concerned with compliance – paying bills, getting paid, recording transactions, ensuring payroll accuracy and following state and federal regulations. At some point, your business will cross a threshold and you’ll begin to place more emphasis on the need for timely, accurate financial reports and intelligence. This is when you’ll need more advanced bookkeeping, accrual-based accounting and management or managerial accounting to help you make data-driven decisions. So, your first consideration is whether you just need compliance – basic bookkeeping - or if you’re ready to graduate to full-service accounting that will help you drive increased profits, improved cash flow and growth. They require quite different levels of effort and expertise and as you can imagine, the cost for full-service accounting is much higher. However, most businesses that make the leap see the value and experience an ROI rapidly.
i. Bookkeepers oversee maintaining your books closely day in and day out. They generally do all data entry into accounting ledgers or software.
ii. Bookkeepers focus on recording financial transactions of a business through maintaining records, tracking transactions, and creating financial reports.
iii. Bookkeepers oversee maintaining your books closely day in and day out. They generally do all data entry into accounting ledgers or software.
iv. Bookkeepers focus on recording financial transactions of a business through maintaining records, tracking transactions, and creating financial reports.
Other duties include:
a. Entering, Coding and Paying Bills
b. Creating and Sending Customer Invoices
c. Collecting Past Due Accounts Receivable
d. Reconciling Bank and Credit Card Accounts
e. Maintaining Vendors for Accounts Payable and Clients for Accounts Receivable
f. Supporting CFO/Controller and Outside CFO by preparing
If basic bookkeeping is all that your company needs at this stage, you will need to decide whether to do the bookkeeping in-house or if you should outsource. If you decide to hire and manage a bookkeeper, you will also have to decide whether the position is part-time or requires a full time, full charge bookkeeper. If you decide to outsource, there are a few ways to go including local bookkeeping services, local CPA firms that offer bookkeeping services and specialized, national outsourced bookkeeping firms.
The cost of a part-time bookkeeper can vary widely. Hourly rates for internal, part-time bookkeepers average around $20/hour depending on job description and location. They typically are performing basic bookkeeping duties and will need to be supervised and managed.
If you can manage your job and some of the accounting each month but need a little extra help, a part-time bookkeeper might be a good fit for your business. They can do work such as inputting receipts and tracking employee time sheets, accounts receivable and accounts payable. When hiring a part-time bookkeeper, management still needs to have someone reviewing the work of the bookkeeper.
Often businesses try to train an office manager or other employee with capacity to become the part time bookkeeper. While this can work and is often the least expensive option on paper, there are risks associated if the part time employee’s or office manager’s output does not measure up to standards. And the cost of oversight, usually in the owner’s time, can be significant.
The current average full charge bookkeeper's salary fluctuates between $35,000 to $55,000 per year plus benefits and overhead, depending on your location. According to Glass Door, current listings in high cost of living cities like New York or L.A. show full charge bookkeepers salaries creeping towards $70K. In addition, you will need to add around 20% on top of salary for benefits and overhead including office space.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
