Six Ways a Bookkeeper Saves Your Small Business Money
Owner, General Manager, Marketing Manager, and Bookkeeper
Most small business start-ups operate on a very tight budget. Often the owner or the business will start a small business as a side-line or side-gig in the hopes of one day replacing a job income. For this reason the focus of many small business owners is to keep costs low. In the start-up phase of a small business a bookkeeper can be seen as a luxury that the business can do without. The business owner will often wear many hats – one of those hats is as the businesses bookkeeper/accountant.
If the business has a solid plan and a good marketing strategy however the small business can quickly outgrow the one-man lean start-up model. In this case one of the best business functions a small, but growing business can outsource is its bookkeeping function. It is important that the bookkeeping function, however it is performed, is controlled from the start.
Spending on a Bookkeeper May Save Money
Since few business owners go into business with the love of keeping the businesses books in mind it can be relegated to the bottom of the pile in terms of priority. But by not keeping the businesses accounting books up to date the business owner is missing out on the opportunity to manage his business to its greatest financial advantage.
Hiring a good bookkeeper is usually seen as an expense that a small business can’t afford. The reality is quite the opposite though, as having a good handle on a business’s finances can end up adding to the bottom line. Here’s how….
For the love of Bookkeeping
Few business owners start a business because their passion is the bookkeeping function (unless they start a bookkeeping business!)
1. Owners Time Better Spent Elsewhere
If freeing up the business owners time allows him/her to generate revenue for the business in excess of the bookkeepers hourly rate then the small business will be better off.
It is also important to remember that the cost of the bookkeeper is a tax deductible expense for the business. So that $25 an hour really costs the business less on an after tax basis. How much less depends upon the tax rate the business pays which in turn is dependent on the legal structure the business operates under. (eg: sole proprietor, partnership, company etc).
It is important to understand both of these issues when considering whether its time to hire a bookkeeper. The cost isn't as ,much as you think
Would you continue to do business with a business that didn't pay you? Probably not!
2. Control over Accounts Payable
A bookkeeper will also keep tabs on day to day financial transaction of the business. With a dedicated bookkeeper you have the financial transactions of the business as their top priority. This means that more timely and accurate accounting data will be available to the business owners.
Accounts Payable, that is monies owed by a business to its short term creditors will be controlled to avoid late payment fees and taking advantage of early payment discounts. These two amounts can become substantial if vendor invoices are not paid promptly.
Prompt payment also ensures that credit terms offered to the business are not suspended for late payments. The last thing any small business needs is a supplier critical to the business withdrawing terms of trade.
When you extend credit beyond the your terms of trade you are effectively giving your debtor an interest free loan. Consider late penalty payments and restriction of trade to collect on old debts.
3. Control over Accounts Receivable
Accounts Receivables represent the money coming into the business which makes their management crucial to the longevity of the business. If a business isn’t taking in money it will not last long. A bookkeeper will keep tabs on when invoices issued to clients and customers are due.
Invoices should be aged to determine the quality of the debt. The older a debt becomes the less likely it will be paid/recovered. They may also apply late payment penalty invoices and perform debt collection activities in an effort to expedited overdue payments.
This may not ultimately bring in the outstanding amounts but it will highlight when a debtor is in default and give the business owner the option of not extending additional credit.
4. Cash Control
Keeping tabs on the businesses bank account also means that any excess cash is highlighted as available for investing, or debt reduction purposes. It also prevents checks cut for suppliers bouncing. Not only do bounced checks potentially harm relations with creditors they also attract additional fees from the band that a small business just doesn’t need.
Each of these functions in one way or another can save a business money – but only if the business is aware of their present financial position.
Does your small business have a bookkeeper?
5. Reduce Accounting Fees
There is an irrefutable fact about small businesses and bookkeeping. Someone has to do it. Someone, sometime will a small business get their books in order. Its best to have plan for doing so from the outset.
Often the business owner takes on the task. At least initially.
Another option is to dump your business receipts on your tax accountant to make head or tail of. Tax accountants will want your businesses books to at least trial balance stage before performing their primary task – doing your taxes. This is probably the most expensive way of having your businesses books done. Your tax accountant will have in-house bookkeepers to undertake the task, but they will be hired out to you at a premium rate.
Eventually most businesses will hire at least a part time bookkeeper. Especially if the business grows in size. As mentioned above the bookkeeper’s wages are a tax deductible expense that also has the benefit of minimizing the accounting fees you pay to tax accountants and general accountants. An accountant’s role is not data entry, it is using the data generated by the bookkeeping function.
Learn the Bookeeping and Accounting Basics
If your small business can't afford a bookeeper think about learning about accounting yourself. Follow along with our Accounting Basics series of hubs which will include examples and exercises to test your understanding.
6. Better Business Management
As a business grows so does the business owners need for information. Without a dedicated bookkeeper getting that information is just one more task that the business owner will get to. This can cost a business in not knowing what their true financial positions is or what their cash flow situation looks like.
Bookkeeping takes the day to day financial transaction data of a business and produces information in the form of Financial Statements. Accountants and business owners can tell a lot about the state of business from these reports. At a glance it is obvious if a business is making money and how much.
The idea of a small business is to make its owner a living. Hopefully a good one. Without having a clear and timely picture of a business’s revenue and expenses a business owner cannot possibly know where their business stands financially, let alone plan for the bigger business decisions like whether to expand, hire staff, or invest in capital equipment.
A bookkeeper will help put the business owners focus on future business and take it off the recording of business transactions already completed.