It’s a common story…busy and hard-working small business owner tries to do the bookkeeping themselves only to end up in a mess when the tax deadline swiftly approaches. Most people start a business because they are good at something, whether it’s landscaping, automotive repair, marketing, etc. Usually, they don’t start a business because they’re well versed in bookkeeping practices and love accounting. If you are one of the few who solely carry out all your business functions, consistently reach your numbers, and generally have it all together, more power to you! If something is amiss when it comes to your business’s financial well-being, involving a bookkeeper might be a simple solution. Here are 8 red flags telling you that it might be time to hire a bookkeeper:
#1. Your bank statements haven’t been reconciled in months
To gauge how your business is performing, bank statement reconciliation is crucial. Reconciliation allows you to eliminate any errors that may exist in your financial data. Without reconciliation, you’ll be in the dark about how much money you really have in your accounts. This can lead to bounced checks and overdraft fees. Staying up to date on your bank reconciliation can also help to minimize the risk of an audit come tax season. Monthly reconciliation is ideal, so if you are having trouble fitting this into your schedule, it may be time to hire a bookkeeper.
#2. You’re behind on your invoices
Invoices get you paid. After all, that is why you started your business in the first place – to do what you’re good at while getting paid to do it. If you are behind on your invoices, that is a major red flag. Being too busy to send out your invoices will certainly begin to affect your cash flow. Clients have no reason to pay you because they haven’t received a bill yet. This means that your collections are slow. It also means that you need to devote more time to account management or hire a bookkeeper.
#3. Your customers aren’t paying on time
Maybe you have time to send your invoices, but you don’t have time to chase your clients for payment. Collections can be a double-edged sword. Sometimes clients just need a simple reminder that payment is due and then the invoice is paid, and everyone is happy. Other times it becomes a real hassle that can get…awkward. If you don’t have time or simply don’t want to chase your money, having a bookkeeper to do the dirty work might be your best bet. This prevents you from running the risk of jeopardizing your relationship with the client and frees up your time to focus on growing your business.
#4. Your company is busy but profits never increase
All that hard, time-consuming work you’re doing to bring in new business and keep your clients happy counts for nothing if you’re not making more money in the process. If your revenue is increasing but your bottom line will not budge, it’s a sign that you need to find ways to increase your profit margins. Prepared financial statements from a bookkeeper can help you to better recognize where you need to cut costs in order to make your business more profitable.
#5. You’re not sure what your legal obligations are
Things can start to get more involved and more confusing as your business grows. When you hire employees or sub-contractors, you are entering into a whole new world of financial management. There are several regulations that must be adhered to as soon as you take on personnel. Navigating this space can be cumbersome, especially if you’re a hard-working business owner without adequate knowledge of payroll taxes, workers’ compensation, and other responsibilities that result from hiring. Having a dedicated bookkeeper on hand can take the guesswork out of navigating your obligations.
#6. Your accountant does your bookkeeping during tax season
Believe it or not, some business owners don’t touch their books for the entire fiscal year. They will print out their bank statements, gather some receipts and hand them over to their accountant during tax season. This might seem ideal for some, but it is a very impractical way to handle your business finances. In fact, it is nearly impossible to make sound business decisions because you have no idea where you stand financially throughout the year. Not to mention, your accountant is going to prepare a tax return but might not necessarily produce retroactive month-to-month financial records for you. Having detailed records is so important when it comes to bringing on investors, securing loans, or selling your business. Utilizing bookkeeping services makes tax season a breeze for both you and your accountant. After December 31st, your bookkeeper hands off your financial records for the year to your accountant. Your accountant uses those records to file your taxes. You receive a refund and sleep better at night knowing the status of your business’ fiscal health.
#7. You seem to miss out on tax write-offs
Suppose you just found out that, since those seminars and webinars you’ve been joining help to improve skills that are required in your current business, you may be allowed to deduct some of the cost for attending. That’s great news, right? Only, now you’re thinking about all the years you spent without filing this deduction. How much money could have been saved? Part of a bookkeeper’s job is to take every business expense you incur and categorize it properly. In the process of doing so, they can spot obvious deductible expenses such as business-related education. Ultimately, an accountant with industry experience is most qualified to give you guidance regarding tax write-offs. But many business owners only involve their accountants during tax season. If you hire a bookkeeper who understands your business, they can help you out during the rest of the year.
#8. You have no idea what your quarterly estimated taxes should be
There are a few approaches you can use to figure out how much to budget for quarterly estimated taxes. These methods depend on knowing your average month-to-month income. Coming up with an accurate calculation of your estimated taxes is tough if your bookkeeping is out of date or you don’t have financial statements on hand. An inaccurate estimate can result in an underpayment to the IRS, leading to a hefty, avoidable fee. It can also result in an overpayment, where the IRS effectively secures an interest-free loan from your business. A bookkeeper can help manage your expenses, simplify the process, and make sure your estimated taxes are accurate and on time.
Now, keep in mind, this is not an exhaustive list. But if you’re experiencing any of these red flag scenarios, it’s time to reevaluate what your business needs are when it comes to managing your financials. Knowing the right time to hire a bookkeeper can go a long way towards the future financial success of your business.