Reasons Why Your Bookkeeper is Your Greatest Asset
One thing I have learned is that people are extremely sensitive about their books. And they absolutely should be! Bookkeeping is vital to the functionality of your business in America; the IRS has made that abundantly clear.
Unfortunately, business owners don't often take the time to understand the work, effort, time or knowledge that goes into properly handling a company’s books. When you are in business, the only thing you strive for is financial freedom. So, that means a great deal of care needs to go into your finances.
Why are bookkeepers vital?
It is no secret – I am a bookkeeper by trade. I have had the pleasure, and hair-pulling experiences of working in many industries. Through direct employment, an accounting firm, and contract basis.
While it may seem biased as to why I believe a bookkeeper is your best asset, I have seen the results of business owners trying to do it all themselves with zero interest or limited knowledge in the field. It is not pretty.
I am by no means saying it cannot be done, I am just saying it is generally very painful for everyone and more expensive in the long run.
Believe me, I get it. As a start-up business owner, you are doing everything you can to build your company. That means you are wearing all the hats and generally all at once.
Money can be tight, but the truth of the matter is you cannot avoid paying taxes. I secretly believe that is the main, if not the only reason start-up companies even go through the motions of putting their books together.
The first year is the hardest because you are learning so many new things and you need to have learned them yesterday. This generally translates to your books being put off because three different fires broke out between then and now.
I know I keep saying this – but I get it.
However, continually putting it off does not change the fact that it is just creating a huge mountain of problems later.
Bookkeepers deal with that mountain, so you can focus on why you became a business owner to begin with.
What do bookkeepers provide you?
Through the years, this is the short list of what I have seen a bookkeeper can bring to a company:
Peace of mind
A second set of eyes to catch mistakes
An accounting level of understanding you may not posses
Advice on overspending
Timely tax filings so no penalties or fees are incurred
Timely bill pay so no late fees occur
Keep a watchful eye on customers who are slow to pay – collection calls
Run payroll
Payroll reporting
Prepare W2’s
Keep track of 1099 vendors
Issue 1099’s
Security
Can help explain your bottom line
Create traceable systems that will hold up in an audit
Saves you time
Bills your customers
Bank Deposits
Change runs
Bring structure and order
Simply seeing and knowing the transactions going in and out of your bank account and knowing what you have on hand is not the same as having your books together and will not give you the full picture of your business' finances.
A good chunk of why I say this is because when your books are together, you know when you are missing expenses. You will capture the expense that otherwise would have been missed without the structure of the checks and balances that come with complete books.
A bookkeeper takes the everyday, monotonous tasks off your plate. This allows for it to be done thoroughly and with precision.
Think of it this way – money is what drives your business.
Having that be someone’s main or only focus in any company is good business sense and most accountants do not do bookkeeping work. If they do, it tends to be extremely expensive. They just want the final product to produce the tax filings.
Consequences?
Like I already mentioned, most business owners only keep books so that the IRS does not come after them. If a company or individual does not file their taxes on time, penalties and interest start to accrue. For the lovely IRS, interest compounds daily. Let us have some fun math time!!
Say that Amelia owns a single member LLC and is a single individual. An LLC is a pass through entity so Amelia will incur the tax liability. Let us say that after everything is said and done, she is being taxed on $50,000.
Looking up 2020 tax brackets Amelia will be taxed at 22%, which equals owing $11,000 ($50,000 x 22% = $11,000).
Using this simple tax calculator, assuming she filed on time and did not pay until 2021, she will owe a minimum of $428.97 in straight interest on the $11,000 alone.
However, this simple model does not include the potential of penalties. Were estimated taxes paid? What penalties were applied for non-payment? If Amelia did not file on time, a late filing penalty will be applied. And of course, interest also gets compounded daily upon those penalties.
Also, none of this includes state penalties and interest. Every state is different so I cannot lay that out as easily, but a conservative estimation is to do half of whatever the IRS amount is. It could be more, it will most likely be less, but please look up your state laws to get a full understanding of potential consequences so that you are not taken by surprise.
Penalties and interest aside, Amelia’s books still need to get done. If she needs the entire year's worth of books to be put together, that will either produce her overworking herself to accomplish a timely filing, or pay a lot of money all at once for a bookkeeper to put it together.
However, one thing I have noticed with the latter of the two is that:
Last minute compiling of books costs a lot of money and those who put it off tend to not see value in the amount being charged to them
Bookkeepers still need to be fed the documents and information about what the business bought and that leads again to not seeing the value of the bookkeeper because the owner still needs to accomplish tasks
Frustration when the final product is not what you thought your finances would look like
Monthly maintenance costs you a LOT less because it will not only give you assurance in understanding where your finances are at, it will also physically cost you less money to maintain books as opposed to catching them up. That is coming from years of experience – I have seen it time and time again.
Recommendation:
If I somehow did not persuade you to retain a bookkeeper, I have some alternative options for you.
Right as you are starting up, have a professional set up your chart of accounts and show you around your software of choice. This way you can be set up for success and have some tools under your belt.
Keep a bookkeeper on retainer so you can reach out at any point if a situation stumps you. This way it does not overwhelm you and lead to putting it off.
Request only quarterly maintenance. This way you will not feel burdened by the monthly bill but still have a relatively up-to-date understanding of where you are at.
Bookkeepers are just as essential as tax professionals because you cannot file your taxes without having your books together. Though, we are living in a world of DIY.
This is what led to the creation of The Graceful Penny. I have seen time and time the result of bad bookkeepers and owners attempting to DIY and put together years worth of books between multiple entities and mingling funds. I want this information out there so that people can make informed decisions and ultimately, succeed.
If you are wanting to DIY it, that is amazing!! I really do not want to discourage that, but everyone needs help sometimes or a further understanding of more complex situations, especially regarding finances. The Graceful Penny is here to help you with everything DIY!