Spreadsheets, receipt tracking, accounting, oh my!
It’s easy to get lost in spreadsheet fatigue, checking account strain and receipt tracking as a business owner when you don’t have a proper bookkeeping system in place.
Every year, entrepreneurs around the world are overwhelmed scrambling to get their accounting in order for taxes, investors, and end-of-year budgeting.
The good news is, you can avoid wasting hours, resources, and stress by choosing a bookkeeping option that makes filing taxes and tracking expenses a breeze. In today’s technology-driven world, you can quickly improve your financial reports with the click of a button.
So, what is bookkeeping, how does it affect your company, and how can you take care of bookkeeping efficiently?
Think about this article as your ultimate guide to bookkeeping and accounting. By the end, you’ll know exactly how to manage your bookkeeping and accounting so your business can truly thrive.
Let’s start with the basics.
Whether you’re a new entrepreneur or a seasoned owner, you can probably agree that the semantics of bookkeeping is confusing and unclear. In the most simple terms, bookkeeping is the day-to-day process of tracking money as it enters and leaves your business.
Bookkeeping provides the tools you need to strategically track expenses and revenue, which is crucial for the success of any company. Think about it as the eyes and ears of your company’s finances. Without it, you’re taking a shot in the dark and expecting to successfully file taxes, streamline your business plan, and set goals.
Proper execution of bookkeeping opens your eyes to every monetary aspect of the company.
Bookkeeping is more than just plugging in numbers to spreadsheets and hitting the “save” button. If you want to gr your enterprise, you’ll need to thoroughly track your finances.
There are 5 main reasons why your business needs bookkeeping:
1. Tax Preparation: Taxes are overwhelming and intimidating when you’re unprepared. Instead of throwing your records together at the end of the year, you should use bookkeeping to record and categorize your transactions to stay on track for a painless tax season. Bookkeeping elements chances of you missing out on tax deduction opportunities or being audited by the IRS. This is by far one of the most important reasons for you to properly manage your bookkeeping and accounting systems.
2. Compare to Industry Standards: Recording your inflow and outflow of money will allow you to quickly compare your income and spending to competitors. Why does that matter? You should compare your records to industry standards to evaluate where you can improve your expenses and business model. Imagine that after bookkeeping for a year you find that you’re spending $10,000 a month of web services when the industry standard is only $5,000. You can now research the competition to find their web service providers so you can save $5,000 a year on expenses! Amazing, right?
3. Track Progress: Create financial reports that tell you the state of your enterprise, and that lets you to quickly review yearly sales and expenses. Tracking progress allows you to quickly compare yearly and monthly financial reports to determine how your business is regressing or progressing. Bookkeeping makes creating a realistic budget possible. No more guessing games with your finances.
4. Set SMART Goals: Review cash flow, receivables, spending, liabilities to create SMART goals. Rather than throwing numbers out there and expecting them to stick, use bookkeeping records to establish specific, measurable, attainable, realistic, and timely profit and sales goals. Key performance indicators and goals are the simplest ways to analyze your company’s efficiency to keep you on a revenue-growing track.
5. Get New Investors: Do you want to grow and scale your business? If you answered, “Yes!” then you’ll likely want investors or loans to help expedite the process. Investors and loan managers will base their decision to invest in your company off of its profitability. How will they know if your company is profitable? You guessed it. Bookkeeping financial reports.
The list of reasons to take care of bookkeeping efficiently goes on-and-on. When you’re on top of your bookkeeping, you can manage your money, plan for the future, and file taxes quickly, accurately, and on time.
If you search for synonyms for the word “bookkeeping” you will find “accounting” as one of the results. According to a thesaurus, the two words are interchangeable, but this isn’t the case.
While bookkeeping tracks your finances day-to-day and month-to-month, accounting looks at the big picture - think yearly. Let’s dive a little deeper.
Bookkeeping manages individual transactions to calculate overall income and expenses. This will breakdown your finances on a micro-level. On the other hand, accounting uses bookkeeping reports to analyze and interpret data to summarize it in order to produce predictive advice on a macro-level.
Although the two are different, they go hand-in-hand, as you need both to ensure the success of your company. For example, at some point, you will want a qualified accountant to help you plan for the future of your business, and make adjustments to help you save money. To get help from an accountant, you need good bookkeeping records.
The more comprehensive, organized, and up-to-date your bookkeeping is, the easier it is for your accountant to help you manage and grow your revenue. Equipping your accountant with detailed financial records will also decrease their workload, which saves you time and money. Win-win!
Now that you understand why you need bookkeeping and its importance to your company’s financial success, are you ready to kick off your bookkeeping journey? As a business owner, it is up to you to decide how to take care of bookkeeping efficiently.
Luckily, you have three options to choose from.
1. Traditional Bookkeeping: Your first option is to hire an internal or external bookkeeper who will provide consultations and manage your reports. Freelancers and brick-and-mortar corporations are available for hire and are easily accessible. The major downfall of traditional bookkeeping is the high hourly rates. Hourly consulting fees can quickly add up and prove to be an expensive option. This, however, is a great option for those who want to be walked through each step of the process.
2. Semi-Automated Software: If you prefer the “do-it-yourself” (DIY) route, then you should consider purchasing an accounting software so you can save time on spreadsheet creation and receipt tracking. If you deem yourself a bookkeeping wizard, then this is a great option for your business. Before choosing a DIY tool, consider the time and education you’ll need to properly manage tax regulations to avoid being audited. It’s important that you’re properly prepared to “do it yourself” because tax regulations can be confusing, leaving a lot of room for error. For those who have accounting skills, but want to save time on project management, this is a great option.
3. Fully-Serviced Online Bookkeeping: The final option is more of a “done-for-you” approach. Online bookkeeping services like Bench (affiliate link) charge a monthly flat rate, handling your bookkeeping for you while giving you intuitive software to track and manage your finances. It’s no surprise that we think this option is the best of both worlds. In fact, Empire Building Masterclass uses fully-serviced online bookkeeping because of its benefits. This is a great choice for companies that want a professional bookkeeper at an affordable price who can set up bookkeeping, track transactions and deliver intuitive financial reports. In addition to having a real person manage your books, you can also get one-on-one consulting when you need it.
See, best of both worlds!
All three options come with their own strengths and weaknesses. The table below gives you a quick overview. Again, the best part about bookkeeping is that you have options. Truly consider your company’s size, revenue, skills, and growth-goals before you make your bookkeeping decision.
Are you thinking, “I’m still not sure which option is best for me"?
We know the impact that good bookkeeping has on an enterprise, so if you’re still worried about choosing the right option for you, we’ve got you covered. Below, we’ve broken down all three of your solutions so you can answer the question, “Is this right for me?”
A traditional bookkeeper is a local professional who does your bookkeeping for you. They may work independently as a freelancer, in partnership with other bookkeepers or accountants, or as part of a large national firm. One benefit of hiring a local, traditional bookkeeper is that you can meet them in person. So, if your company relies on a lot of paper financial documents, that makes it easier to share them with your bookkeeper.
Most bookkeepers charge between $20 and $50 per hour, often with a set monthly minimum. The amount of time they need to spend on your books each month will depend on the complexity of your business.
With any bookkeeper, you should be prepared to spend a couple of hours each month—in case they need more information before categorizing transactions, or you need to deliver hard copies of transaction records.
Small businesses ready to have their bookkeeping handled professionally. Traditional bookkeepers are especially suited to companies with a lot of paper records.
With accounting software, you enter your business transactions and categorize them yourself. The software separates them into different sections, and can automatically generate financial reports for you. While accounting software streamlines DIY bookkeeping, it doesn’t handle it for you—meaning you’ll still need to spend time every month entering and categorizing transactions. And, if you make any mistakes, they’ll result in inaccurate books.
Xero, one of the most popular software options, ranges from $9 to $70, depending on the complexity of your books and which features you opt for.
The amount of time you spend bookkeeping will depend on how many transactions you need to enter each month, and how complex your enterprise is. For a simple solo business, you should expect to spend at least several hours every month.
Accounting software is a good choice if you’re just getting your business off the ground, and you need basic bookkeeping functions to help you stay on track until you can hire a professional.
For this example, we’ll be using Bench, the largest bookkeeping service in North America. Bench gives you a team of bookkeepers who do all your bookkeeping for you. They automatically import transactions, categorize them, and prepare monthly financial statements for you. You can track your finances and communicate with your team through the Bench app real time.
Bench starts at $119 per month (Starter), ranging up to $299 (Corporate.)
Your team categorizes your transactions for you. But, if an unusual transaction shows up, they may ask you to categorize it in the Bench app. You should expect to spend less than one hour per month categorizing stray transactions. The longer you’re a client, and the more familiar your team becomes with your books, the less likely they’ll need to ask your input.
Bench is a good choice for any company that’s grown beyond the just-a-hobby phase. It’s especially suited to business owners already familiar with handling banking and other back-office tasks online. Empire Building Masterclass is a huge fan of this option and we are using Bench ourselves.
If fully-serviced online bookkeeping is a good fit for your organization, you can sign up here (affiliate link) for a 20% discount off of your first six months using Bench. We believe that you’ll do best when you can focus on your business while we focus on your bookkeeping.
As a business owner, you know the headache that managing your expenses and revenue is. Luckily, it doesn’t have to be that way. We understand that no two companies are the same and that each comes with its own unique set of skills and needs. Ultimately, it is up to you to examine and determine where and how you need the most help.
The most important thing is that you feel comfortable and confident in your bookkeeping to set your businesses up for real growth. With these bookkeeping options at your fingertips, you are sure to take care of bookkeeping efficiently so your company can thrive.