While the days of dusty ledgers and paper receipts are becoming a thing of the past, bookkeeping is here to stay. From better budgeting and tax preparation, to planning and peace of mind, good bookkeeping equals good business. But it’s so much more than writing down numbers in a ledger or a software program and tracking money in and out.
So, what exactly does a bookkeeper do? Let’s take a look.
The short answer is that a bookkeeper tracks and records all of a business’ day-to-day financial transactions. That includes handling customer receipts, invoices, payments to suppliers, client billing, payroll, tracking and maintaining budgets, recording depreciation and reporting issues as they arise.
In addition, bookkeepers:
At this point you may be asking yourself “isn’t that what accountants do?” Well, no.
Bookkeepers are primarily concerned with the daily transactions of a business and handle more of the financial administration, while accountants take a more “big picture” approach to your financials, offering insights and information based on what bookkeepers do. Moreover, accountants often help business owners with tax strategy and planning, completing tax returns and financial forecasting.
That depends. Because bookkeepers and accountants work in tandem to provide you with a clear picture of your business, having both on staff is important as your operations grow. Initially, many small businesses opt to do it themselves or hire a bookkeeper part-time.
According to Entrepreneur.com, until a company’s revenue rises well above the $1 million mark (or 30+ employees), most businesses don’t have enough work to keep a full-timer busy every day. Hiring a bookkeeper part-time can range from $15 to $60 an hour, depending on location, workload and other factors.
Whether you choose to hire part-time or just DIY, here are seven tips to keep things running smoothly:
Explore the types of bookkeeping options available to you, which range from handwritten ledgers to Excel spreadsheets to automated systems, and choose the right solution for the way you work. If you can hire a part-time bookkeeper, talk to them about what they’ve used for similar clients and allow them to help you select the best option for your business.
It will fall into one of two general categories:
By keeping personal and business expenses separate, you can ensure that you won’t deduct costs outside of your business, which could land you in hot water with the IRS.
By keeping your receipts for dinners with clients and dinners with employees separate, or keeping your business insurance premiums separate from your health insurance premiums, you can more easily isolate your deductions during tax season.
Be sure to generate a filing system that’s well organized and easy to access. That way, it will be simple to find what you need when you need it. And if you do get audited, it will be easier to deliver the documentation.
Deductions can be useful for small businesses because they can reduce the amount of taxes you owe. Make sure you know what small business deductions you’re eligible for.
If you’re hiring a bookkeeper, make sure to allocate plenty of hours each week to keep your files up to date. Or, if you’re acting as the bookkeeper, give yourself enough time every week to do the work. If you’re forced to play catch up every time you begin the process, information is more likely to fall through the cracks and mistakes are more likely to happen. This mistake can prevent you from understanding your business’ financials and make audits even scarier.
Now that you understand what bookkeeping is, you can decide what’s right for you: hiring a professional or doing it yourself. As you know, time really is money for small businesses, so weigh your options and make your decision.