Small Business Bookkeeping: Three Methods Explained
Small Business Bookkeeping
Let’s face it. You didn’t start a business to become a bookkeeper. According to a TD Bank survey, more than half of all business owners say that bookkeeping is their least favorite task.
Small business bookkeeping can be time consuming and difficult. And bookkeeping mistakes can be costly. But no matter how tedious bookkeeping may be—it’s an important function of any successful business.
The Right Bookkeeping Option for Your Small Business
Choosing the right option for your business can be difficult. Today’s landscape is crowded with hundreds of accounting firms and software solutions to choose from. You can ask around, but what works for one business owner may not work well for you and your business.
Before you can even begin to consider which service provider to choose, you first have to decide which method is right for your business.
When it comes to bookkeeping methods, there are three main options. We’ve gathered the most important information for each, including how they work and what they mean for your business.
The “Traditional” Method: Accounting Firms
The most traditional method of bookkeeping is to hire an accountant or accounting firm. These physical firms and freelancers do offer some benefits over the DIY method— including the fact that you’ll barely have to lift a finger. You’ll also be privy to their expert insight, which can be a big deal if you want someone who’s only a phone call away.
This traditional method also often comes with higher fees and slower turnaround times. It’s common to be charged high hourly fees for consultations, which can make it hard to determine exactly how much money you’ll be spending on bookkeeping each month or year.
If you use the traditional method you’ll have to decide whether you’d like to hire an in-house bookkeeper or an external accounting firm. Both methods can be expensive, between providing salary and benefits to in-house hires or paying high hourly fees to external firms. Business owners should evaluate all costs associated with each option before deciding which traditional bookkeeping option they’d like to move forward with.
The “Semi-Traditional” Method: DIY Software
DIY software is an increasingly popular bookkeeping option for business owners. Companies like Quickbooks provide robust software that can help facilitate advanced accounting functions. These software platforms can also help business owners save the expense associated with hiring a traditional accountant. Although this is a great option for some, it may not be optimal for all business owners.
Having a great software license doesn’t necessarily make you knowledgeable about the US tax code, regulations, or other complex bookkeeping functions. You will want to be careful not to miss out on deductions, disqualify yourself as a compliant business, or face IRS auditing through improper tax filing.
Even if you feel confident in your accounting skills, owners should still consider the value of their personal time. Anyone who has started a business knows what it’s like to be pulled in different directions every day. Bookkeeping is a time consuming task, and you’ll need to ask yourself if reconciling transactions is the best use of your time.
The “Fully Automated” Method: Software as a Service
The third and final option are software as a service options. This hybrid option provides the best of both worlds, giving users access to customized software as well as a dedicated bookkeeper. Instead of having to reconcile your own transactions, a bookkeeper will do it for you.
Some of these services offer unlimited consultation at no hourly cost. Many of them prefer to follow the “Netflix” model of a monthly flat-rate fee. This gives many business owners the comfort of knowing they can reach out for advice without fear of incurring extra costs.
This software as a service option will not be for everyone. If you manage an extremely large or complicated corporation, you’ll likely want to go with more traditional methods. However, for the majority of business owners this bookkeeping framework is likely to be the most inclusive and cost effective.
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