Ever caught a mistake while balancing your checkbook or reconciling your bank account statements? If so, you know how easy it is to make an error. "Is that a 1 or a 7? Is that decimal point in the right place?" You also know what a mess they can make of your finances.
Now take that easy-to-make error, which in your personal finances might be, at worst, a matter of $50 or $100. Multiply it by the hundreds of transactions and the thousands of dollars coming in and out of your small business, and that innocent, no-big-deal mistake starts to look pretty scary. Yes, hiring a bookkeeper costs money--but could doing so save you from a major financial mistake?
Here's a cost-benefit breakdown of hiring a bookkeeper to help you decide if it's the best financial move for your business.
To start, let's take a look at the costs associated with hiring a bookkeeper. What all does hiring a bookkeeper entail? Some of the costs you can expect are:
1. Time Needed to Interview and Hire Your Bookkeeper
Like any other staff member or contractor, you need your bookkeeper to be reputable, experienced, and a good match for your business. Finding that perfect fit will require time, research, and potentially multiple candidate interviews.
2. Time to Set Up Your Bookkeeping System and Meet with Your Bookkeeper
Your new bookkeeper likely will have a recordkeeping system and software he or she prefers, which will take a bit of time to implement. Getting accustomed to your company and your particular circumstances will also take some time. Once you and your bookkeeper are on the same page, so to speak, you'll need to meet on a somewhat regular basis to stay that way and keep everything running smoothly.
3. Bookkeeper's Fees
Fees will vary depending on whether your bookkeeper bills hourly or at a flat rate, how many hours you'll need from them monthly, and the extent of the tasks they are performing.
If you aren't already working with a specific accounting software program, your bookkeeper will probably recommend an accounting program such as QuickBooks to keep (or maybe you've recently purchased bookkeeping software and specifically brought in a bookkeeper to help you set it up). In either case, keeping accurate books will require investment in an accounting program and someone who experience with that program.
Benefits of Hiring a Bookkeeper
Hiring a bookkeeper has significant benefits, including:
1. Minimizing and Catching Potentially Costly Errors
This is the biggie. From data entry mistakes to lost transactions to personal/ business expenses mix-ups, there are myriad ways books can go wrong. A bookkeeper's expertise means, first of all, that he or she will make fewer errors in recordkeeping, and secondly, that he or she will spot problems.
2. Eliminating Late Fees by Paying Bills Promptly
It's easy to get behind on paying bills and invoicing (more on that in a minute) when you're juggling bookkeeping with running your business. A bookkeeper will help you get your bills in order--and make sure that they get paid on time. In "When to Hire a Bookkeeper or Accountant," The Fresh Diet CEO Zalmi Duchman tells Entrepreneur's Eileen P. Gunn that he estimates his company is "saving 500 to1,000 in late fees per quarter." That's a lot of dough.
3. Decreasing Your Accounts Receivable Turnover by Invoicing Effectively
Getting your books in pristine shape means you'll be able to invoice more effectively and quickly. Whether your bookkeeper does invoicing manually or sets up an automated system for you, you'll be cutting down on the length of your invoicing cycle--and getting paid faster.
4. Eliminating Your Own Time Spent Bookkeeping
Hiring someone to do your books (whether that's full-time, part-time, or on a handful of occasions yearly) means you don't have to. That means you get back the time you were spending on recordkeeping. Depending on how complex your finances and the number of transactions you typically do, this could amount to quite a bit of your own time invested back into your business.
5. Understanding Your Numbers
You should have a good sense of your P&L and other numbers (especially if you're doing your own books!). But a bookkeeper can help to clarify anything that is confusing about your figures and identify the cause of irregularities.
Your cost-benefit analysis for hiring a bookkeeper will depend on the bookkeeper and on your situation. Even the most thorough analysis may have to include estimated or averaged costs, rather than absolutely accurate figures, so leave some wiggle room when budgeting for bookkeeping.
In the end, you may decide that your books are simple enough that the DIY approach will do for the time being. But you may feel that the peace of mind that comes with knowing you will avoid major mishaps in your books is worth the costs. Only you, the business owner, can make the judgment call as to whether bringing on a bookkeeper is the right move for your company at this time.