No one gets into business just because they enjoy keeping the books for it. Even as a CPA, I don’t enjoy the monotony of month-end closing entries and invoicing customers/paying the bills. That may surprise a lot of people, but really…who does enjoy it? If you are one of those people, there is a special place in heaven waiting for you.
Yes, I’m a CPA but I’m also a fellow business owner. I enjoy sales, marketing, client contact. These are all forward thinking jobs that promote business growth. None the less, every business has to account for the work that has been completed. Taxes need to be paid and financial statements need to be reviewed. There is also valuable information to be gained from reviewing past history and performance as I have mentioned in previous blogs about financial statements.
The accounting must be done! What I have found is that there is natural progression to account for a small business that makes both economic sense as well as business sense. Here is that progression:
In the start-up phase of a business, the business must be LEAN and MEAN. Sales relationships are being built and there is a lot of money going out the door for start-up expenses but not much money coming in at this time. Therefore, it’s likely there won’t be additional funds for outside accounting help. The business owner will likely be accounting his or herself for the business. One copy of QuickBooks Pro, a couple of training classes and you will be on your way! This makes a lot of sense from a business standpoint. If the business owner doesn’t come from a financial/accounting background, the learning process of preparing your own books and records will serve you well throughout the life of your company. Preparing the books and records yourself is also the most cost efficient. Since the business is in its infancy, it’s unlikely that there is so much to do, that the business owner doesn’t have the time to learn how to account for the activity of the business, especially since the activity should be minimal compared to a fully operating business.
#2 Post Start-up
Once the business starts generating revenue, there will come a time where it makes sense to turn over the accounting to another person. This usually comes about when there is enough revenue to justify the cost and the business owner can spend his or her time more effectively marketing or working in the business rather than accounting for the business. Once this phase occurs, you will have to choose between two very different paths:
Hire an employee or Outsource the work?
Hiring a part-time employee to keep your books and records makes sense in the following set of circumstances:
- You already have employees and are incurring payroll processing & reporting costs
- You can keep an employee busy for the allotted time to complete the books plus you may have other tasks to complete
- You can find an employee with the necessary skills to complete the accounting
Also keep in mind an employee generally costs less than outsourced help if you can justify the headcount.
Hiring an outsourced accountant for your business makes sense in the following circumstances:
- You are willing to pay more for the reliability and experience versus what an employee may bring
- You can’t keep an employee busy so you only want to pay for the time you use
- You currently don’t have payroll/reporting requirements
- It can be easier to find qualified outsourced accountants
Whichever path you choose, you must do your homework. There is a big discrepancy between the skill levels of bookkeepers as advertised. You will want to check references and ask your CPA for advice when choosing an accountant for your business.
As your business grows, you may use a hybrid approach where you have an employee or outsourced bookkeeper complete the day-to-day accounting for the business and engage a CPA to perform more big-picture tasks such as budgeting, consulting and financial statement closing. Because CPAs charge higher rates, this method keeps the CPA from performing bookkeeping duties and concentrated on advice that will improve the business.
#3 As your business matures & grows
As your business becomes larger and more mature, your accounting department will mature as well. You may considering hiring a full-time employee to prepare everything from daily invoicing and bill payments to monthly financial statements. As you progress further, you might even need separate departments for accounts receivable and for accounts payable.
There is no one size fits all method of staffing your accounting department. How you account for your business can vary greatly depending on the type of business you are running, your comfort level with accounting and your desire to be in the numbers.