In this post, we will discuss bookkeeping and more specifically what is the best time to bring on-board a professional bookkeeper. We will start by answering a couple of basic questions.
Why do you need to do bookkeeping?
Most small business owners don't realize that keeping financial records is a legal requirement. In fact, failing to keep proper books can result in hefty fines and even jail time. Indeed, every business has to file for taxes, and accurate recording of your income and expenses is mandatory if you want to report the correct numbers.
"Every business has to file for taxes, and accurate recording of your income and expenses is mandatory if you want to report the correct numbers."
Additionally, maintaining accurate financial records presents the following benefits to any business :
1) managing your cash flow
2) forecasting sales and expenses
3) tracking trends over time
4) identifying areas where costs are dropping or increasing too quickly
5) giving an accurate picture of what's happening with your business
You can use bookkeeping to track all of your income and expenses on a regular basis. This will allow you to see where your money is coming from and where it is going, which can help you make more informed decisions about how to manage your cash flow. By regularly reviewing your financial records and monitoring your cash flow, you can take steps to ensure that you have enough money on hand to meet your obligations and invest in growth opportunities for your business.
What are the most common tools used today for bookkeeping?
Bookkeepers and small business owners today use a variety of technology tools and platforms for bookkeeping. Some popular options include QuickBooks, Xero, and Wave. These platforms offer a range of features such as invoicing, expense tracking, and financial reporting. They also integrate with other business tools like banks and payment processors (read more about choosing your applications for their integration capabilities here), making it easy to track income and expenses in one central location. Additionally, many of these platforms offer mobile apps so that business owners can access their financial information on-the-go. Overall, these technology tools and platforms can save small business owners time and effort by automating many of the manual tasks associated with bookkeeping and providing real-time visibility into their finances.
When to bring on board a professional bookkeeper?
You may have started your venture by doing some bookkeeping yourself using solutions such as Quickbooks Online, but the task can become too time consuming and/or you may be prone to make mistakes or inaccurate recording. Alternatively, you currently work with a bookkeeper but are facing some hurdles :
You are not getting the service that you need or want, or you are not getting it in a timely manner
You are not receiving adequate support during tax season or at year end
Your bookkeeper does not have knowledge base and/or experience in your industry or specific area of business
He or she is not keeping up with technology. Nowadays, this can increasingly become an issue as most of the bookkeeping is moving to a digital format (not more paper recording) and existing bookkeeping tools, sometimes supported by Artificial Intelligence, bring important efficiencies.
So, you need to bring on-board a (new) bookkeeper. Is there a best time of the year to do so? Yes, there is: right before the beginning of a new fiscal year (the fiscal year generally corresponds to the calendar year, but it can be any 12-month period that makes sense for a company and its business environment).
A side note: do you know the difference between a bookkeeper and an accountant?
A bookkeeper keeps track of income, expenses, payroll and other financial activities by recording all the corresponding transactions in a structured way. An accountant takes this information and uses it to prepare financial statements and tax returns.
You may be tempted to hire the services of someone to do both your bookkeeping and accounting (i.e. filling for your taxes). We would recommend keeping those 2 functions separate. First of all, there are 2 different skill sets. Bookkeepers capture a detailed record of all transactions that take place within a business while accountants will make sure data is entered properly, will help interpret and analyze the data and will take care of tax preparation. A bookkeeper may also provide some basic accounting services, but they are not qualified to give advice on financial matters or tax planning. Secondly and maybe most importantly, by keeping your bookkeeping separated from your accounting, you put in place a system of checks and balances. The accountant will have not entered the data, and they will make sure it is done correctly.
Why on-boarding your bookkeeper right before the beginning of your next fiscal year?
Typically, when a bookkeeper starts at a new company, he or she wants to recapture all past data of a current fiscal year. For example, let’s say your fiscal year starts on January 1, like most companies. If you are in April, the bookkeeper would want to enter all data from January to April. Typically, they will charge you a one time cost to do so (often called a “catch up fee”) that could range from $1,000 to several thousand dollars depending on the volume of transactions generated by your business and how many months the catch up covers. The later you will bring a new bookkeeper in your fiscal year, the higher the catch-up fee.
An easy way to avoid this: have the new bookkeeper start working for you right at the beginning of the new fiscal year. They have no catch-up to do (assuming the books of your previous fiscal year are accurate), and they are going to bridge the data from your past fiscal year with the new one; that will still require some work, but not as much as if you were starting during the year.
A suggested timeline to search and to on-board a new bookkeeper can look like this:
6 months before the beginning of your next fiscal year, you start searching for a bookkeeper
3 months before the start of your next fiscal year, you select one bookkeeper and start the on-boarding process. You will need to :
give them access to your past accounting books, your bank account(s) and credit card account(s) if you have any,
explain how you operate and they will set you up on their platform
review and potentially update your chart of accounts. The charge of accounts is an index of all the financial accounts in the general ledger of a company; it is broken down into subcategories and provides a breakdown of all the financial transactions that a company conducted during a specific accounting period. You can read more about setting up your financial reporting in this post.
at the start of the new fiscal year and when the books of the previous year are closed, you should plan some time to spend with your new bookkeeper to go over actual expenses and their classification in your financials so that he/she can understand how your company operates.
At Olari Consulting, we help founders set up the operational infrastructure of their business; we can recommend and manage bookkeepers and accountants for your company. Contact us to find out more.
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