It’s easy to think of accounting or recordkeeping as a “necessary evil,” created and maintained to satisfy government reporting — primarily taxes.
But the fact is that beyond being something you’re required to be doing under the law, accounting and recordkeeping systems are created for you to make informed customer, marketing, pricing, and vendor-related decisions.
In this post, you will learn the tasks associated with a company’s accounting and recordkeeping system, considerations regarding who should do the work, and the differences between an accountant and a bookkeeper.
Accounting Tasks
Successfully managing a small business involves managing your cash. Your accounting system is critical for knowing how much cash you have in the bank each evening and if you can meet your expected expenses.
Three general activities are required for setting up and maintaining an effective accounting and recordkeeping system.
- Setting up the system: Creating a process to track transactions and make projections can be accomplished using a notebook, spreadsheets, or accounting software.
- Entering transactions: Transactions entered may include sales made, cost of materials purchased, employee compensation and benefits, hours worked, rent, IT, insurance, office supplies, and other expenses paid.
- Reporting actual results or the projections of future results: Reports may cover the status of potential customers, sales made, sales made where customers have not yet paid, expense comparisons with the budget and same period last year, all sorts of tax reports, financial statements, and information needed to satisfy bank loan covenants.
To Outsource Or Not?
When you set up your business, one of your first decisions is to determine who should handle these accounting activities. The three choices are to do it yourself, assign someone on your team to do it, or to outsource to a bookkeeper or accountant. Often with a start-up, you are the only employee and there are limited funds available, so initially the founder frequently does all the bookkeeping.
As soon as you have sufficient discretionary funds, you can consider outsourcing the task. The key is to decide if bookkeeping is the best use of your time.
You started your business because you are good at selling, developing apps, manufacturing a product, consulting, or whatever other activities produce sales. Is it more valuable to spend your time producing sales or doing bookkeeping? Unless you are in the financial services sector, it is unlikely accounting is your strength.
If you decide to outsource, there are two types of financial professionals to consider: a certified public accountant (CPA) and a bookkeeper. Each has vastly different skills and rates, and you will want to retain both, but for different tasks.