In the CPA world, we call the accounting method of throwing all the receipts in a box “shoebox accounting.” You know what I’m talking about. You throw all your receipts in a box, and a few times during the year, you pull it out and vow to spend the weekend getting caught up.
But the weekend comes and goes, and it never does really get caught up until you’re right at a tax deadline. Now what? Well, let’s take a step back and look at how you got here. There are generally 6 approaches to bookkeeping for the busy small-business owner.
Approach #1: Ignore it. You’ll deal with it when you have time.
PROBLEM: You lose all ability to make informed decisions for the business by having to wait to get a financial statement. By the time you finally get one, it’s too late to do anything about the trends you see.
Approach #2: Box it all up and send it to your CPA at the end of the year.
PROBLEM: You lose all ability to make timely, informed decisions — PLUS you pay the highest CPA rate at a time when he or she really doesn’t want to deal with it.
Approach #3: Do-it-yourself. You work long nights and weekends to get the bookkeeping done.
PROBLEM: Chances are you’re not a top-notch bookkeeper. The only reason you’re doing the bookkeeping is because you’re trying to save a few hundred dollars, or maybe because you’re the only one you trust with your information. As far as the cost: Ask yourself how much your time is really worth. Could you use those hours to find more business or fulfill on more contracts? You may be way under-valuing your time if you spend your time trying to figure out your bookkeeping. And as far as trust: Do your due diligence to make sure the person or company has the integrity and ethics you need.
Approach #4: Hire a family member or friend to get it done.
This is great, as long as your family member or friend has real, honest-to-goodness accounting education and experience. Otherwise, if it’s someone who took a class years ago but never really worked in the field, you may end up with a major problem at the end of the year. And, if you’ve ever worked with family in your business, you know that could come with a whole new set of problems.
Approach #5: Hire a bookkeeper who works for you.
You may be at the point where it’s time to hire a bookkeeper as an employee. Ultimately, every business will likely have an accounting department. There is an intermediate step, though, that can be a major problem. In between having an outside company do the bookkeeping, and having a full-fledged accounting department (2 or more people), there is a risk to having just one bookkeeper who does it all. The problem is that one bookkeeper who controls everything also has an open checkbook, if he or she decides to take some money.
Before you say, “That will never happen to me!” please consider this. Over half of all businesses deal with an embezzlement, so the chances are good that you will too. And the person most likely to take money is the bookkeeper, in a one-person bookkeeping department inside a small business.
Approach #6: Hire an outside bookkeeper.
This is, without a doubt, the easiest solution. You need to make sure the bookkeeping company knows what they are doing, and if they work virtually, like our firm does, that they have a proven and safe system for data transmission.
You will also likely find that an outside bookkeeping firm can be much cheaper then having someone in house. You don’t have to furnish a desk, a computer, training, supplies, admin support, or computer support.
The worst approach is to simply ignore it. Financial statements tell you how your business is doing. Without that feedback, the best you can hope for is good luck.