Tuesday, August 9, 2011

How Much Accounting Do You Need?

The questions about accounting plague many business owners. How much, how often, and who should I use are the questions that we often hear. My response is, "It depends".

If you are a service business with straight time invoicing to clients for services and just a few expenses such as advertising, office supplies, website, travel, meals and entertainment, then you often can do your bookkeeping yourself. There is very little complex accounting involved for simple service professionals. You will want to hire an accountant to come in and set up a system for you and discuss what is allowable for tax purposes, but you can generally handle the bookkeeping yourself. If you are too busy to handle it or you just hate it, then I recommend hiring a bookkeeper to help you with the daily or weekly tasks.

It is beneficial to hire a good bookkeeper who can come in at a lower rate and deal with the detail and stay on top of getting your data into your system when you are operating under one of the following scenarios:
(1) your business is relatively simple but has a larger number and variety of transactions
(2) you are complex enough to warrant a purchase order system
(3) you have many clients and you need to track specific expenses or time to the various clients which leads to more complex billing.
She can also help you complete your invoicing and schedule payment of bills, freeing you up to work on the money generating activities that drive your business.

Where you start moving to the need for an accountant who has a more knowledge of accounting practices than a bookkeeper is when:
(1) you start having more fixed assets that you need to be calculating depreciation on and maintaining a fixed asset subsystem
(2) you have inventory and you need to be tracking inventory and need to understand the accounting related to that
(3) you have higher accounts receivable and need someone to be keeping an eye on that
(4)you have multiple employees so you might want an accountant with some internal control experience to set up and monitor internal controls for you so that you minimize your risk of embezzlement or theft
(5) when your transactions start getting larger and you can no longer handle the oversight yourself. Quite often you will keep your lower rate bookkeeper for the normal data entry and then use the accountant to come in to reconcile accounts, provide some of that internal control, and oversee all of the higher end functions that a bookkeeper might not be able to tackle for you.

Where do you start crossing into the outsourced CFO work? Again, it's not necessarily a function of how large you are. It's more of a function of how complex you are:
(1) you have added enough employees that you need more oversight
(2) you have multiple product lines and you need to be tracking the profitability of each and making decisions about which product lines to abandon and which to keep
(3) you have multiple locations so there is some consolidation or comparison of data
(4) you need to be doing more budgeting and forecasting
(5) you have large working capital needs and so you need someone to help you to monitor and make decisions regarding your cash flow.

Accounting is one of those functions that people don't like to pay for because they don't see an immediate payoff.  Those who have brought a bookkeeper and/or accountant into their business life will tell you that while the payoff may not be apparent right away, it will happen and having people with those skills helping will make your business easier to run and more enjoyable!

1 comment:

  1. I respect what you have done here. I like the part where you say you are doing this to give back however I would expect by every one of the remarks this is working for you also. Business license