Managing The Books - How To Determine If You Need Outside Help

Running a small business means picking up new skills. Unless you happen to be starting an accounting firm, perhaps the most important skill to learn is tracking finances and managing your books.

While big businesses can employ a dedicated accounting or finance team, new operations often have to figure things out themselves. In order to succeed, a company needs to get a lot right, but ultimately the defining factor will always be money. Effective bookkeeping goes a long way for making better financial decisions, saving money, and keeping your business heading in the right direction.

The do-it-yourself attitude that’s vital for getting a company up and running can quickly fall flat once a business passes a certain point, and the complexity of finances grow. With spiraling accounts payable and receivable, a growing payroll, projections to consider, cash flow management, and of course, taxes, managing the books easily becomes too much for a single person. It can be especially more challenging if that person has limited experience in the field.

At this point, you can either hire someone to manage your finances or look to outsource. While hiring is a great option, you must be in a position to add the extra salary to your payroll. On the other hand, outsourcing can be an excellent middle ground. You get expert help to manage your books while only paying for what you need right now, which might be only a few hours a week.

Determining when you’ve outgrown the do-it-yourself bookkeeping is not always obvious. However, the potential downsides of an accounting misstep can create significant problems.

IMAGE: UNSPLASH

Common Business Finance Mistakes

A lot of business finance mistakes might happen along the way. Whether it’s inaccurate budgeting without realistic safeguards in place, poor billing practices or not having the right bill payment software to name a few.

Other examples include:

Poor cash flow management:overestimating the available cash on hand can lead to missed payments and the inability to meet payroll or accounts payable. It can even prevent you from making important purchases and missing out on new growth opportunities.
Incorrectly tracking finances:if your business doesn’t accurately report its income or expenses it may encounter tax issues.
Missing an invoice:failing to meet invoice deadlines leads to late fees, rapidly expanding costs, and missing budget targets.
Credit card debt: similarly, mismanaging credit card payments produces significant interest and increasing business costs.
Financial crime:without a clear picture of their finances, small businesses can easily fall victim to fraud both externally and internally by employees.
Forgetting to build up a cash reserve: without an emergency fund to deal with unexpected expenses, your business could be walking on a financial tightrope with no safety net.

Handling all aspects of a growing business can quickly become unsustainable. Things get complicated fast, and it’s easy to miss important details that slip through the cracks of an already filled calendar. Consequences can be much worse when it comes to finances.

When To Consider Outside Help

So how do you know when it’s time to pass the books to someone more qualified?

Taxes alone are a convoluted process. Unless you have considerable time to invest in understanding everything there is to know about the taxes you owe and the savings you can earn, it’s probably worth finding expert advice.

You can usually recoup the cost of paying an accountant with the amount of tax savings they provide, or the time you save by not having to figure it all out by yourself. Instead of spending hours tracking finances or learning about tax regulations, you could take care of other important business tasks.

Even if the hourly rate you have to pay a third party looks high, remember they are an expert in the field with considerable experience. Therefore, it takes them drastically less time than it would someone with less expertise, plus their work will be more accurate.

Beyond taxes, managing your books requires detailed record-keeping, an understanding of regulations, and thorough financial planning and analysis. Every new business looking to expand quickly needs rigorous accounting and finance systems. With the right systems in place your business can track all the data required and gain insights into the company’s financial footing.

With that being said, accountants don’t have to be your first call when it comes to finding outside help to manage your books.

Accountants vs Bookkeepers

There are important distinctions to be made between accountants and bookkeepers:

Accountants govern everything related to a company’s financials, including record keeping, analysis, consulting, reports and advice. To oversee all of this usually requires a certified professional accountant (CPA).
Bookkeepers take care of everything related to record keeping, such as daily transactions (customer payments/invoices) and ensuring they are stored correctly. Bookkeepers do not require certification and generally charge a lower rate.

While the work of both professions often overlaps, a bookkeeper focuses on gathering all the data needed, whereas the accountant goes further by interpreting this data. Whether you only need the services of a bookkeeper depends on the specifics of your business, your scale and the sector you operate in.

Unless your industry requires complex financial systems, you can usually manage much of your financial operations with bookkeepers when your business is still relatively small.

It’s Always Better To Be Early

Whether you choose to find an accountant or a bookkeeper, typically, expert help never comes too early. While they add to your expenses, bookkeepers can free up your time to focus on other, more creative tasks and accountants can help build you a robust financial plan that can end up saving you money.