Should You DIY Your Bookkeeping for Your Small Business?
(you) - I need to understand where my money is going! I must do my own books and learn.
(also you) - Do I have to? It's too complicated, and I don't care.
What a conundrum! But in business, you're going to have to deal with a lot of them. Like when it comes to who will do your bookkeeping.
Sometimes when I mention numbers, I can see the room deflate. Eyes glaze over. Phones come out. Boredom hangs heavy overhead. People do not enjoy facing the numbers. It's not a game, it's a chore. And it can be expensive. *Whomp, whomp*
Lots of new businesses grapple with this question: DIY the books or hire a pro?
The truth is ... there's no one right answer. So much depends upon the size of the business, your skills, and the demands on your time. Check out the scenarios below and see which one you relate with more. You'll see what you should consider and some signs on which way may be best for you.
This is not a definitive list, but it's a great place to start. Here's a list of things you should consider or signs on which way might be best for you.
When to do your own bookkeeping
Straight up, you don't have the funds. That's fine. 42% of startups use less than $5,000 to get started. Most of that money comes from their own savings or a full-time job.
You understand accounting and bookkeeping and you enjoy doing it. You know you can do it well, it's relaxing, and it's fun. For instance, even if I ran a bakery, I would do the books. I love playing with the numbers so I would have fun.
Your business is super simple. Your offer services that depend on time and expertise. You are a one-person show and with some VA or contractor support. You do the work, send an invoice, get paid and that's it.
You don't have a lot of transactions each month and only a couple of financial accounts. You have well under 50 transactions. Including money coming in, money going out, and money moving between accounts. You have one checking account and a business credit card.
You are religious about keeping your business and personal finances separate! (You have good boundaries here, right? If not, please read this blog because you do need to.)
If you need permission, yes, you can do your books yourself. Here are my tips to help you get started and do it right.
Take a short course. you need to get the lay of the land and understand in general what you're doing.
To set up a system, you can either use a free app, like Wave, or a low-cost one, like QuickBooks Self-Employed. Or a spreadsheet. Anything is better than nothing. Like this one here, spreadsheets can be an organized and cost-effective way to start.
It's definitely possible to DIY your books, even your taxes, and do it right. It's complicated, but if you're reading this then I bet you're a capable person. ;)
When not to DIY your bookkeeping
You have zero time. You're so busy and have little interest. You would rather be working on something else instead of investing the time to learn and do your books.
You have business partners or co-owners. Things can get sticky here and fast. It's best to have a neutral third party handle the books. This reduces the risks of anybody being sneaky, or the perception of someone being sneaky. A partnership depends on trust so don't DIY it here.
You have a lot of loans. If your business requires a big investment, it's worth investing in an accountant. New businesses and owners often have to sign a personal guarantee to get a loan. This means that you agree to pay for the loan if your business goes bankrupt. It's a way around the "legal liability" (which I covered here and still recommend). Working with a financial pro gives you credibility and comforts your lender. Plus, it makes you more likely to be profitable and invest that startup capital in the right places.
You're required to in some contract. I've seen this before in large consulting contracts and franchise agreements. Read through the loan documents to see if it says a professional must do the financials. You could hire a pro to review your work or to maintain everything.
You have more customers than you can serve. At that point, you're losing money by doing your own books. You're ready to create more margin in your biz, which will help you grow and work less. I wrote about how to create more margin here in this blog. The best strategy here is to delegate.
Your spreadsheet is out of control. If you have a lot of transactions, you'll want to pull your hair out. It'll feel impossible to catch up. You'll forget how you categorized that vendor in the past. It'll suck to do it. And, to add insult to injury, you will miss something. Over 90% of spreadsheets have errors.
You're not the best at tech. Nowadays accounting is all in the cloud. This is good news because it is way more efficient and powerful. It can reflect your business back to you in real-time. But if tech is not your forte, then there's no need to mess with it.
It's not getting done. If you extend your taxes because your books aren't done, then you shouldn't be doing your books. Even if you're waiting until early April to finish your books, you should not be doing them. Your books can help you out with managing your business. You get very little value out of them if you're that far behind.
It's taking up time when you should be enjoying your personal life. Nights and weekends are for your family and friends. If you are squeezing in the books during your supposed free time, stop. You need to recharge. It's not good for your health nor your business in the long run.
As you now know, there are many reasons why you may decide to DIY your books or not. It really does come down to the complexity of the business and your abilities. For now, you may be good on your own. You can revisit your decision anytime.
There isn't a specific number when you reach that you should be hiring somebody. It all depends on your business and the amount of work that goes into it. Even some businesses with lots of revenue have pretty simple books and are possible to DIY.
You may not need all-or-nothing help as well. Many small businesses are fine having a pro look over their books quarterly or when they do their taxes.
Once you get to one of the conditions on the “Not to DIY” list, then you should pass off the responsibility. You can use that list as an easy reference when you make your decision.
For many entrepreneurs, offloading the accounting to-do's takes a burden off their shoulders. It's one of the most hated tasks by small business owners. If you can relate, don't make business harder than it needs to be. You've got plenty else you can focus on and likely do very well.
The next time you're debating whether to do it yourself or offload the task, check out the scenarios above. Many biz owners can handle their own books. At least starting out, you can do them yourself.
Doing your own books for a while is a rite of passage. The main principles are pretty easy. It can get complicated as your business grows.
To recap, it depends on your type of business, your transaction volume, the type of work, and your skills.
I'm here for you with lots of free info and resources. And for more hands-on help, send me a note and we'll figure out what you need.