When Does DIY Bookkeeping Stop Making Sense for a Small Business?
Doing your own bookkeeping makes sense when your business is small, there are relatively few transactions, the accounts are simple, or keeping everything up to date does not take much time.
Sometimes, in an effort to save money, we tend to think about saving every penny. Doing your own bookkeeping saves you money every month. You know that, which is why you are doing your own books. However, as your business grows, there often comes a time when doing your own books starts to actually cost you money. The reason—it’s taking your time away from your business.
Here are two broad indicators of when doing your own books may no longer be worth it to you: 1) it is interfering with you running the business, and 2) you are beginning to lose confidence in the financial information your books are producing. Below are clear signs it may be time to consider a more structured bookkeeping process.
1. Your books are consistently behind
Bookkeeping can be easy to put off when customers, employees, and day-to-day operations need your attention. The problem with that, however, is that a small delay can turn into a much larger one. A few unreconciled transactions can become several months of work, and questions that would have been easy to answer when a transaction occurred may be much harder to resolve later.
If the books are regularly behind, the issue may no longer be finding time to catch up. It may be that the business has reached the point where bookkeeping needs more consistent attention.
2. You are spending more time on bookkeeping than you want to
Bookkeeping involves more than simply entering transactions. Accounts need to be reconciled. Transactions need to be categorized correctly and consistently. Customer and vendor activity may need to be reviewed. Unusual transactions may need to be investigated, and errors need to be corrected.
None of those tasks are necessarily difficult on their own, but together they can take a meaningful amount of your time. Sometimes, it’s not about whether you can do bookkeeping; it’s about what is the best use of your time.
3. You do not completely trust your financial reports
Financial reports are only useful when you have confidence that the information behind them is reasonably complete and accurate.
If you regularly look at the income statement or balance sheet and feel like something doesn’t seem to add up, then you begin to stop using those reports and start to use your bank account as the source of truth. The danger of that is when you have receivables, payables, or other forms of loans or assets, you end up creating a broken financial system where you rely on the bank to tell you one story, but then try to use your books to tell you another part of the story. The problem with that is that those two systems aren’t really communicating anymore, which leads to you not seeing certain information correctly.
Reliable bookkeeping does not mean every financial question is answered automatically, but it does mean that you can more readily obtain the answers you need in a more timely fashion and with more confidence.
4. Bookkeeping problems are becoming harder to fix
As transaction volume increases, bookkeeping mistakes can also become more difficult to unwind. An incorrectly recorded transaction may affect more than one account. Old reconciling differences can become harder to research. It’s easier to remember what a purchase or sale was yesterday than five weeks ago.
At some point, maintaining the books consistently may take less time than repeatedly trying to repair them after problems have accumulated.
If the books are already behind or contain significant issues, a bookkeeping cleanup may make sense before moving into an ongoing monthly process.
5. You only look at the books when you have to
If the books are mainly updated for tax preparation, a loan application, or another outside requirement, you may be missing much of the value they can provide during the year.
Current financial records can help answer practical questions such as:
- How is the business performing compared with prior periods?
- Are certain expenses increasing?
- How much do customers currently owe?
- What bills and obligations are outstanding?
- Does the cash balance agree with the accounting records?
- Are there unusual changes that deserve further investigation?
Bookkeeping will not answer every management question, but reliable records provide the foundation needed to answer many of them.
What should you expect from a monthly bookkeeping process?
The exact work will depend on the business, but a good monthly bookkeeping process should generally focus on keeping the accounting records current, reconciling relevant accounts, identifying issues that need attention, and producing financial reports based on information that has been reviewed.
As your business grows, it is important that the bookkeeping process become consistent and the information be reliable. The goal is to create an ecosystem of information that you can call upon to answer questions and from which you can make strategic decisions concerning where your business has been, where it is, and where you want it to go.
The decision comes down to time and reliability
There is no universal point where every business should stop doing its own bookkeeping.
For some owners, DIY bookkeeping may continue to work well for years. For others, the combination of transaction volume, complexity, and limited time may make outside help worthwhile much sooner.
A useful way to evaluate the decision is to ask two questions:
- Is bookkeeping taking time away from more important parts of running the business?
- Do I trust the financial information my current process is producing?
If either of those questions is becoming a concern, it may be worth considering a more structured bookkeeping process.
Need help keeping your books current?
ICA Light Business Management provides monthly bookkeeping services for small businesses that want reliable financial records without having to manage the bookkeeping process themselves.
We also provide bookkeeping cleanup services for businesses that need to get their existing records back in order before moving into an ongoing monthly process.
Learn more about our bookkeeping services at icalightservices.com.