Should a Small Business Owner do their own Bookkeeping?

small business accountingEvery small business owner has a need to understand how their business is doing financially. Keeping track of sales, expenses and disbursements is the first step in this process. Once all this information is collected and entered in appropriate journals, analytical reports such as profit and loss statements and cash flows can be created.

For the very small business with limited transactions, using a good spreadsheet can provide the basics for this tracking and reporting. There are templates and pre-formatted worksheets available that make the job much easier. By entering the necessary information, a great deal of the work is done automatically, such as bringing forward totals and calculating ratios.

Use of Time

One of the challenges to accounting in small businesses and start-ups is time. It is important that all transactions be entered in their respective journals in a timely manner. It is very easy to get behind on data entry and to lose or misplace documents that are necessary to complete your reports. The owner of a small business has many priorities tugging at them daily and it is often easy to let something like accounting take backseat to other urgent issues.

By doing the accounting yourself, you may save on some accounting and bookkeeping fees. However, it is the rare small business person that knows enough general accounting to prepare an accurate balance sheet. People spend years learning the skills necessary to become a successful accounting expert.

It is also necessary to have all the information in a usable format for the preparation of monthly and annual sales and tax reports. If the data is not in a format that allows the bookkeeper to prepare those reports, time and money is invested in reformatting them.

For many businesses, their banks and investors require regular financials to be provided in standard formats. These are sometimes difficult to prepare in an accurate and timely manner with just spreadsheets.

Outsourcing the Accounting Function

For these reasons, many small business owners and entrepreneurs turn to recognized small business accounting packages for their companies. Programs such as QuickBooks and Big Red Book are based on years of experience in working with millions of small businesses. The programs are largely intuitive, meaning that it is easy to figure out tasks such as entering and writing checks, tracking sales and invoices, and managing vendors. Once an initial chart of accounts is established, the regular and timely entry of all the company’s financial information is straightforward.

One of the first steps in selecting a small business accounting program is visiting with your accountant or bookkeeper. It is important that the software you use is compatible with the software the accounting office uses. They can actually do the data entry for you if you are too busy. Most accountants maintain staff for this purpose. However, it is usually best to do the basic work in your company and then outsource the preparation of reports and taxes to the professionals.

These accounting pros spend years learning about small business accounting and taxes. Their experience is often invaluable in properly constructing your company’s financials and preparing accurate reports. When it comes to taxes, coordinating all these efforts with your accountant and having the right software often saves a lot of expense for the services provided. It also helps avoid serious and expensive tax problems.

An additional advantage to having professionals involved is in dealing with your bank and investors. There are often  technical questions or certain specific analyses desired that require more than surface-level accounting skills. With a professional on board, these types of problems are readily resolved.

Using Financials in Your Small Business

Regardless of whether they come from spreadsheets or a small business accounting package, the wise small business owner uses the financials produced to carefully monitor and manage the business. Sales journals show where a company’s revenue is being generated. They help deal with specific customers and focus attention on the proper marketing areas.

Tracking inventory and expenses is also an important aspect of managing a company’s financial expenses. Employees respond to management that continually focuses on maintaining close control over expenses and inventory costs.

These are just a few of the reasons that timely and accurate financial reports are important to every small business. Choose a method that works for you and use it to run your business well.

About David Dunne

David Dunne is a freelance writer and small business blogger based in Dublin, Ireland. Follow David on Google+ or on Twitter at @dunner222