You can think about accounting and record keeping as a “necessary evil.” It’s been created and maintained to satisfy government reporting — primarily taxes. Since this is something the law requires of you, the creation of accounting and record keeping systems now exist so you can make informed decisions regarding customers, marketing, pricing, and vendors. It’s important to understand what tasks are required here, what considerations you must make, who you should have done the work, and what the differences between an accountant and a bookkeeper are. Additionally, you’ll want to think about whether you should you hire an accountant.
Tasks For Accounting
Successfully managing your small business involves managing your money. This is where your accounting system plays a critical role. It tells you how much cash you have in the bank at night and if you can afford to pay for your expenses.
There are three activities you need when creating and maintaining an effective accounting and record keeping system. These include:
- Creating a way of tracking your transactions and making projections is important. It can be as simple as using a notebook or as complex as using accounting software.
- Once you have a way of tracking your transactions you must make sure you enter everything including sales made, the price paid for materials you buy, compensation and benefits for employees, hours worked, rent, IT, insurance, office supplies, and other such expenses.
- Reporting actual results or projections of future results including the status of any potential customers, sales made, money customers still owe you, expense comparisons with last year’s budget, various tax reports, financial statements, and information you need for satisfying any bank loans.
Deciding Whether To Outsource
When you set up your business, you must decide who will handle your accounting. You can do it yourself, have an employee handle it, or outsource the work to a bookkeeper or accountant. If you have a start-up where you’re the only employee, and you have limited funds, you’ll probably do all of the bookkeeping. Once you have enough discretionary funds available, you can think about outsourcing the job if you don’t feel bookkeeping is the way to use your time.
You started your business because you’re good at selling, developing apps, creating products, consulting, or some other type of activity that produce sales. Is your time better spent making sales or doing bookkeeping? If you’re not in the financial services sector, accounting probably isn’t your strength.
When you’re ready to outsource, you should consider either a certified public accountant (CPA) or a bookkeeper. Each has different skills and rates. As such, you’ll want to retain both of them for different tasks.
Certified Public Accountant (CPA)
A CPA has taken a test administered by the provincial examining board. When they pass the exam, you can rest assured they’ve met the state’s legal requirements. They have certain responsibilities including certifying financial statements. You can also hold them liable for professional misconduct.
Depending on where you live, and the complexity of the work, CPAs charge between $100 to $300 an hour. So, you only want to hire an accountant for complex or high-value projects, including:
- Quarterly financial reports, especially those you’re giving to a bank or that are seen by the government
- Tax filings
- Ongoing or case-specific advisory services
- The financial section of your business plan
You want to outsource these tasks instead of having a full-time accountant until your company reaches several million dollars in sales. The best way of finding a CPA is through word of mouth.
Bookkeepers are best for performing basic, day-to-day activities. These tasks include:
- Gathering employee time sheets
- Submitting purchase-order invoices, you need to pay
- Collecting customer payments
- Preparing bank deposit statements
- Entering all of your business transactions into your accounting and record keeping system
Depending on where you’re located and what you want the bookkeeper to do, they charge between $25 – $35 per hour. Many small businesses retain a part-time bookkeeper’s services to help them set up their accounting system and enter all of their transactions in it. This is great until your business grows enough to justify a full-time position. Even if you want to handle your own bookkeeping, you might still want a bookkeeper to help you set up the accounting system.
Bookkeepers who know about the inner workings of businesses like yours will know what revenue and expense categories you should typically track and report. This saves time in doing research. It also ensures that you have an effective system. When you’re ready to find a bookkeeper, ask an accountant for a recommendation of someone they’ve worked with in the past. Another option is placing ads in your local paper or on Craigslist.
Don’t Outsource It and Forget It
When you don’t have the time, skills, or inclination to do this work yourself, consider outsourcing to an accountant or a bookkeeper. However, you can’t hire someone and then forget about them and their work. Since this is your company, you’re responsible for the financial statements. After all, you’re responsible for signing the documents before giving them to a bank, filing your tax returns, submitting invoices to a government procurement official, or any other such use. As such, it’s important to understand them so you must review important materials and ask for explanations about anything that’s unclear.
Accounting and record keeping systems aren’t primarily for satisfying government reporting. They actually exist to help you make good decisions. So, when you’re thinking about getting help, think about where your time is best spent. Additionally, there are major differences in what an accountant and a bookkeeper know and costs. As such, you must hire each for the job they’re best suited for, so you don’t waste your money.
Thank you to the Ribeyre Chang Haylock accounting firm for putting up with all my questions about CPAs when writing this. I went to their office and asked them a bunch of questions in their board room. They were of extreme help.
As such, I’d like to give their location a shoutout, as I’d highly recommend them:
Ribeyre Chang Haylock
2071 Kingsway Ave, Port Coquitlam, BC V3C 6N2