When starting a business, one component that often gets pushed to the side is setting up proper accounting records such as QuickBooks or Xero. It's not until you need to file taxes or apply for a loan that business owners realize they don't have their affairs in order. If you are reading this, you are ahead of the game and are likely wondering whether you should DIY your business bookkeeping or hire a third-party bookkeeper. Today, we will share the pros and cons of DIY business accounting and what plan we recommend all businesses to follow.
Pros of DIY bookkeeping
Deeper Understanding of your Business
We recommend that all businesses do their own accounting in the beginning. Despite the cons below, it is worthwhile because you end up gaining a deeper understanding of your business. By delving deeper into the nitty-gritty financial details, it provides you with the small elements that make your business run and the bigger overall picture. This designer loves doing her own bookkeeping and she explains why.
When you know and understand all the aspects of your business, from how much pens cost to your 5-year projection, you are in control of your finances.
Furthermore, you will be able to understand firsthand how to correctly enter invoices and bills, based on your needs. When it comes to hiring a full-time bookkeeper, you would know what to expect from them.
In addition, when it comes time to pursue outside financings, such as investors or a loan, you will be able to comprehend the data you are supplying and present a comprehensive explanation.
Cost
Another benefit of DIY bookkeeping is that you save money. Hiring a professional outsourced bookkeeper can be expensive, so taking on this task yourself could make a vital difference in your net profits, especially at the beginning.
Cons of DIY Bookkeeping
Foundation of Knowledge
The primary con of DIY bookkeeping that often scares off new business owners, is the foundation of knowledge needed to create and maintain good books. We are not going to claim that it is easy. Accounting can be confusing, and it can change as new technologies and apps evolve. Although QuickBooks, Xero, and other apps are relatively easy to grasp, there is still a learning curve. To be an adequate bookkeeper, you have to learn and develop accounting skills.
If you are not good with numbers or are uninterested in learning about this subject, it will be daunting and difficult to pursue simply because you don't want to do it. If either of these facts are true about you, hiring a professional may be the best option instead of trying to do it yourself.
Time
Accounting can be time-consuming. In the beginning, when you are implementing your account systems and learning the ropes, it can take days, if not weeks of work to get everything running smoothly. From there, you will need to schedule time each week to update your finances to maintain good books. Setting aside that kind of time can be an obstacle, especially when trying to get a business off the ground.
Additionally, as your business grows and becomes more successful, you will find yourself short on time. Eventually, you will have to determine whether your time is best spent running numbers or completing other tasks to benefit your business. The day may come when you discover that brainstorming ideas, manufacturing a product, or running operations is a more valuable place for you to use your time. If and when that arises, it will be necessary to hire a pro.
Doing your bookkeeping in-house? Make sure you have a reputable Accountant to review your books and double-check your work
If you are doing your bookkeeping by yourself or by an in-house bookkeeper, it is important to get them reviewed by a good accountant/CPA.
What is that? A double-check is when you have a professional accountant look over your books before year-end. This is done to "double-check" that you have completed everything correctly since you likely have learned all of your accounting skills from blogs or online courses without any formal training. Many businesses find that they messed up somewhere along the line, and had they moved forward without a professional review, it could have cost them thousands.
You Can Always Hire Later On
Overall, if you are a small business, just get off the ground, start by DIYing your accounting, and getting a double-check at the end of the year. This will likely not be forever. After you have built your foundation of knowledge and got your business running successfully, most business owners find that the time spent outweighs the money saved. When you reach this point, it will be time to look for an in-house bookkeeper.
We understand that accounting can be challenging, which is why we encourage you to continue reading our accounting articles. If you have any questions, please feel free to reach out to us or comment below.