THE PROS AND CONS OF DOING YOUR OWN BOOKKEEPING
Managing the accounts and doing the bookkeeping are good practices, especially if you have a good knowledge of the accounts. The decision of handling accounts on your own is good and favorable for the new business owners when the complications are not that high. However, varying out the responsibilities further can be a risk as to the engagements of the business owners’ increase quite significantly.
Should you handle your accounting?
Many small business owners, especially those with an aptitude for figures and a good understanding of basic accounting practices, start out doing their business accounts. When a company has just started up, money is tight, it can make sense to prepare your accounts.
Do have the necessary accounting tools? Do you understand the different aspects of business taxes? Corporation tax is far from simple, you may not be claiming certain types of expenses that could reduce your tax bill.
Convenience, time and knowledge are the primary things that should come to mind when thinking of doing your taxes and accounting. You should have sound knowledge of your books, have the time, and it must be convenient for you. Accounting and tax preparation are very long and tedious processes.
Things to Consider
Knowledge and Interest
The most important factor to consider is whether you are capable of properly keeping your books. Do you have experience with bookkeeping or accounting? Do you understand balance sheets and incomes statements? Perhaps you like to keep tight control of your finances. If you’re interested but don’t have the knowledge, consider taking an accounting class or two.
For some people, bookkeeping can be extremely boring. Boredom often leads to complacency, which leads to mistakes. Your finances are not the place to be making a mistake.
Time and Money
For most small business owners, time is their most valuable asset. Ask yourself, “Am I the best person to do this?”
Consider the other things you could be doing that would make a bigger impact on your business than keeping your own books. You may find that, considering the time you lose, it actually costs you more to do it yourself than it would to pay someone.
Pros of Handling Bookkeeping Yourself:
- The first and foremost advantage of doing your bookkeeping is that you save on the expenses for your company. If you are a small business, it makes sense to save here since bookkeeping not too complex to handle at this stage.
- While you do things yourself, you are aware of the latest condition of your company and its financial status. It keeps you ready to handle any situation that becomes mandatory for you to manage things well.
- Keeping the information in the viewpoint, you can plan well for a better outcome for your business. You can even cut down some unnecessary expenses to get a better hold on the finances. Your decisions and strategies can help you to get a better return on your business.
- While doing the bookkeeping yourself, you can create a secondary plan to meet a crisis. This can be an effective measure to overcome a situation that is likely to harm you in the long run.
Cons of Doing the Bookkeeping:
- Usually, it is a time-consuming process that may demand a significant time slot from your busy schedule. You may even find it difficult to look into other matters that you would need to attend more than anything else.
- You cannot take the risk if you are not confident about the technical aspects of the job. You and your business cannot afford mistakes here. As it serves as an important document for account assessment every year, a single mistake can invite penalty, even if you have not done it willingly.
- Initially, you may find the proceeding easy and interesting but doing a similar task every day can make you distracted. You cannot avoid this situation that often leads to mistakes.
What are the pros and cons of hiring a bookkeeper?
A bookkeeper handles your finances more professionally than you. However, making other people handle your finances can expose it to different risks. Here are the advantages and disadvantages of hiring a bookkeeper for your business.
Pros of hiring a bookkeeper
- Bookkepers are more experienced in handling records. Though bookkeeping can be done by nonprofessionals and even the inexperienced, this duty is best handled by a trained individual. This also avoids more errors in your record that can cost you penalties on filing documents in the future.
- A new bookkeeper can offer a new perspective on running your business. Hiring a bookkeeper gives you an outside perspective on how you can manage your budget and run your business more efficiently. They can teach you different ways to cut costs, insights on spending, and other aspects.
- Ultimately, hiring a bookkeeper will help you save on costs. Hiring a virtual bookkeeper helps you save more on potential penalties and labor costs. This is compared to hiring an in-house bookkeeper for your business accounts.
- Hiring a bookkeeper gives you more time to focus on your business. You don’t have to worry about organizing your own books of accounts. Hiring a bookkeeper gives you more time to focus on the core activities of your business.
Cons of hiring a bookkeeper
- Hiring an outside bookkeeper means a higher risk of exposing your data. Your bookkeeper has access to sensitive bank data such as account numbers and online banking passcodes. If not properly monitored, this might cause data breach which can affect your business.
- A bookkeeper would mean you would lose sole control over your books. Since you hire a bookkeeper, you entrust the control of your books to them. This may also result in a loss of information when not monitored.
- Their mistakes become your company’s mistakes. Any errors your bookkeeper makes will still be accountable to your business. This goes the same with any missed payments and noncompliance that might occur in the future.
- There are hidden costs to hiring a bookkeeper. Aside from their hourly rate, your bookkeeper might charge additional costs for their services. However, you won’t be sure about the quality of service they will give you.
The pros and cons of outsourcing bookkeeping and payroll
Wouldn’t you like to be able to reduce your time spent on administrative tasks so you could focus on increasing profits and running your business efficiently? Now might be the right time to contract out bookkeeping and payroll.
The pros of outsourcing
As your business grows, it might be time to outsource these time-consuming, administrative tasks. There are a number of advantages when contracting out.
You might be spending more time than you want on processing and reporting your own accounting and payroll information, and not enough time doing what you should be – making money.
It’s less expensive to hire a bookkeeper or accountant than to employ a full-time staff member to complete these tasks. By hiring one, you’ll only pay for the actual time the contract worker spends on your accounts.
Aside from wages, don’t forget the typical expenses an employee can cost your business such as:
- Annual and sick leave.
- Benefits and work functions.
- Equipment and material costs.
You also won’t have to lock up cash in extra workspace or office furniture.
Get better reporting and expert advice
One of your main motivations for outsourcing should be to obtain better financial advice and reporting. The right advice at the right time could end up saving your business money over the long term.
A professional accountant or bookkeeper specializes in the work they offer. You should be able to trust them to handle your accounts correctly.
Free up time
Whether you’re logging your own hours doing the books or hiring a staff member to spend time doing them, you’ll be able to free up some time (or reduce your wages expense) by contracting out.
Having more time to allocate to business and relationship building activities could be vital. You might also find that your stress levels naturally decrease by getting a skilled bookkeeper on the job.
Improve your service and efficiency
If you decide to outsource to a bookkeeper, part of their job can be issuing invoices in a timely fashion and ensuring your bills are paid on time. They can help your business become more efficient by reducing late payments.
In addition, by taking these tasks off your hands, you might be able to focus on improving the service you offer your customers.
The cons of outsourcing
With the positives there are always a few negatives, and outsourcing is no different.
Loss of control
You may be unable to keep a close eye on your bookkeeping and payroll tasks if they’re contracted out. You’ll have less control over your financial information and the confidential data associated with it.
It’ll be important to be able to trust the accountant or bookkeeper taking over these roles.
Risk of choosing the wrong contractor
When contracting a job out from your business there’s always a chance of the process not quite going the way you want, and in the case of accounts, errors being made. Ask your advisors, mentors and fellow business owners for some recommendations on who best to approach.
Danger to confidentiality and security
Information can be the lifeblood of many businesses these days – without it, your business may not be able to operate.
There’s always a risk that certain confidential information could be compromised. Be sure to assess your contractor for security reasons so you have peace of mind that your financial data will be protected.
Ensure there’s a penalty clause in the contract if an incident occurs.
You’re still ultimately responsible
Should the worst-case scenario eventuate and your contracted worker fails to pay your taxes on time, or isn’t careful and accurate with your figures, your business will still be responsible for these mistakes.
After weighing up the advantages and disadvantages of outsourcing your bookkeeping and payroll jobs, you’ll be able to reach a decision based on what stage of the business life cycle your operation is at and whether you’ve found the right contractor to outsource to.