What Does a Bookkeeper Do, and How Can They Help My Business?
Bookkeepers ensure that all of a company’s expenses, income, and transactions are recorded in the company’s books and reconcile the company’s financial accounts, typically on a monthly basis. Bookkeepers might also help with financial statement and financial report preparation. Although bookkeeping can be in-house staff position, most businesses employ bookkeepers on a freelance basis.
Bookkeepers can wear many different hats depending on what a business needs. That said, most bookkeepers nowadays use business accounting software to do their work. Plus, there are a few things that almost every bookkeeper can take care of for your business. Though the role of a bookkeeper is multifaceted, there are some core tenets to what bookkeepers do.
What Does a Bookkeeper Do?
There’s no one simple way to answer this question. Just like any other field of work, bookkeeping can look different from business to business.
However, these are the most common tasks that bookkeepers tends to tackle:
Record financial transactions
Reconcile bank accounts
Manage bank feeds
Handle accounts receivable
Handle accounts payable
Work with your tax preparer and assist with tax compliance
Prepare financial statements
Take on some payroll and human resource functions
Make technology and process streamlining recommendations
Reconcile Your Bank Accounts
The most important task for any bookkeeper is to reconcile your financial accounts. Account reconciliation ensures that transaction details in your accounting software match transaction details on your bank account statements, credit card statements, and other financial account statements.
How to Set Expectations for Your Bookkeeper
As a business owner, you are probably used to being pulled in a million different directions. You can only do so many things and do all of them well; at some point, you have to decide which tasks you are willing to delegate. For many business owners, the best choice is to hire a bookkeeper. This can be a great way to make sure that all of the important details are attended to while taking a little bit off your own plate. Before you hire someone, though, you need to set some expectations. Use these guidelines to help you set expectations for your bookkeeper.
Your bookkeeper needs to understand the basic terms that are commonly used in bookkeeping and accounting. There are five basic types of accounts: assets, liabilities, equity, income, and expenses. Your bookkeeper needs to know the differences among all of them.
Your bookkeeper needs to be detail-oriented. Bookkeeping is all about the details, and it doesn’t do you any good to hire a bookkeeper if you have to watch his every move. Your bookkeeper must be able to deal with all the little details that are involved in your financial operations.
Your bookkeeper needs to get the big picture. There’s more to it than simple math. When the time comes to make a big purchase, like a piece of equipment, your bookkeeper needs to know how to set up asset and liability accounts and allocate the payment to interest expense and liability principal reduction.
Your bookkeeper needs to follow through. Once again, you can’t check up on them all the time or track down every detail. You need to know that you can rely on your bookkeeper to take care of the details and complete all aspects of your financial projects.
In House Accounting Vs Outsourcing
In their earliest days, many small business owners will choose to take care of their accounts themselves. For some, this can be a helpful way to familiarise themselves with the inner workings of their business and its financial process. For many, it is simply a way to keep costs down until they find firm footing. But as the business grows, almost all will choose to hand over this task to someone else. At this point, a decision must be made as to who will be responsible for one of the most complex, but important, aspects of the business moving forward.
Weighing Up The Cost
Cost is obviously one of the biggest factors behind any business decision, but particularly one that involves a potentially major expense such as hiring a new employee. If you’re going to take on such an expense, you need to know that you are getting enough in return to justify it. For the majority of small or medium sized businesses, there simply is not the volume of work to warrant a full-time financial role.
Weighing Up The Potential Quality
As you likely already know, bookkeeping and accounting are not particularly easy tasks. They are complex processes that require various mathematical skills, an incredible eye for detail, and years of training to master.
Factoring Efficiency In To The Equation
Bringing someone in to manage your books can be appealing for many reasons, not least of which is the ability to see that they are working, and working solely for you. Many employers simply feel more comfortable with having someone on-site at all times, with a vested interest in the success of that business. But apart from the costs associated with this, and the increased risk of mistakes, the argument can easily be made that this is a counterintuitive approach
The Risk Of Employee Fraud
The final point is one that not usually a major consideration for most people, even though it unfortunately should be. Unfortunately, research how shown that between 22 & 28% of businesses are victims of employee fraud, with small businesses being the most likely to be affected. And the longer an employee has been with a company, the more likely they are to commit fraud, and the greater the size of the fraud will be.
Small Business Bookkeeping: IT’S HARDER THAN YOU THINK
Every business has a bookkeeper and in the world of small business, it’s often a family member or someone you are loyal to. After all, how hard can it be to keep the books, right? Here’s the thing: it’s harder than you think if you want good books.
Your books are a record of your company’s financial and non-financial life. Poor, sloppy bookkeeping can have a negative impact on your business in many ways:
Paying more taxes than necessary
Cash flow problems
Penalties and interest on payroll, GST, and other remittances
Poor business decisions based on incorrect information
CRA reviews and audits
Increased year end preparation fees because the accountant needs to rectify your books
A good accountant can’t do effective work based on shoddy books. In the past, we’ve often had to spend a lot of time fixing clients’ books before we could prepare their financial statements or tax returns. This is costly for our client, who has already paid the bookkeeper for what we now have to fix, and it is an ineffective use of everyone’s time.
WHAT GOES WRONG WITH BOOKKEEPING
There isn’t one single right way to do bookkeeping. How your books are kept needs to be based on what information you need to make good decisions for your business. A good bookkeeper works with you to understand how you and your business work and what information is needed. A good bookkeeper also has a strong understanding of accounting and of your accounting policies and procedures, and is able to effectively manage your cash flow.
WHAT TO LOOK FOR IN A BOOKKEEPER
Many business owners think all bookkeeping is the same and are unable to tell a good bookkeeper from a poor one. Here are a few things to look for to determine whether your bookkeeper is working for you:
Your bookkeeper asks a lot of questions. Great! You’ve got a good bookkeeper. It may be a pain to have to answer questions, but if your bookkeeper doesn’t ask questions, you’ve got a problem, because your accountants are going to ask them at your year-end. And your accountants will charge you more.
Your bookkeeper refrains from offering tax advice. In general, bookkeepers are not tax experts and should not be advising you on matters related to tax.
Your bookkeeper embraces automation. We’re living in the 21st century with a lot of technology at our fingertips. Using it can reduce the cost of bookkeeping or give you more value for your money. For example, rather than keeping all of your receipts in a shoebox to bring to your accountant, technology allows you to snap a photo of the receipt and you’re done. Easy as that.
Your books are always up to date, allowing you to make timely decisions.
There are very few adjusting entries at the end of the year. This indicates that the accountant spent minimal time fixing the books.
How to Manage Bookkeeping for Your Small Business
For new entrepreneurs especially it can be overwhelming to wear so many hats so much of the time. Some things are bound to fall to the wayside, and one of the most commonly overlooked responsibilities is bookkeeping. This article addresses the basics of bookkeeping for small business.
Very small businesses and solopreneurs tend to handle bookkeeping internally, not making enough to justify having an accountant on call. Established small businesses may have an accountant who handles their books, but that doesn’t mean there aren’t ongoing responsibilities to organize and track revenue and pending. Let’s take a closer look at some of the best practices you should follow to make bookkeeping a simpler, less overwhelming task every month.
What Does Bookkeeping for Small Business Entail?
Bookkeeping is a specific component of accounting focused on collecting, organizing, and maintaining financial documents for your company. When your accountant asks for your receipts and invoices every January, a bookkeeper (or you) should have been organizing those documents throughout the year to handoff.
Choosing Your Method of Bookkeeping
There are two primary methods of bookkeeping for small business. Which you use will largely depend on the type of business you operate. They include:
Single-Entry Bookkeeping – This means simply that when a transaction occurs, you record it once in your ledger. So if you sell something for $50, you note a $50 sale and you’re done.
Double-Entry Bookkeeping – This method is most commonly used by companies that maintain a physical inventory of goods. You’d first enter the $50 sale but then deduct the value of the item sold from your inventory.
Another major question for your accounting system is whether it will use a cash or accrual basis:
Cash Accounting – Cash accounting records a transaction on the date that money changes hands. Even if you invoiced for a service or good in March, if the payment isn’t made until April or May, that’s when you would record the transaction.
Accrual Accounting – Accrual on the other hand records transactions when they are initiated. So when the invoice is delivered, you would record the transaction.