Some small business owners try and keep their bookkeeping costs too affordable and it ends up costing them more in the long run. Some solutions to lower your bookkeeping costs are to hire a lower wage employee or take on the bookkeeping yourself. Quite often these tactics end up costing the business more in the long run. If you try and make your bookkeeping too affordable you may do more harm than good and the costs go beyond just the financial aspects.
The $15 Per Hour Bookkeeper
I tell business owners all the time that there are plenty of bookkeepers out there willing to work for $10-$20 per hour, but that is just not us. If you find a good bookkeeper for that price my advice is to hang on to them or maybe even offer them a raise. Many bookkeepers that are willing to work in that price range are just not that good. Maybe they learned bookkeeping in their spare time or do it on the side. A good bookkeeper should add value to your business, not just enter data. Your bookkeeper should act like a business partner, not a bookkeeper. Choosing a bookkeeper solely on price is dangerous. You wouldn't choose a doctor for a major surgery solely based on price would you?
Handling the bookkeeping on your end will save you money, or will it? I feel that many people don't consider opportunity cost when choosing a bookkeeper and when making other life decisions. I don't change my car's oil because it is not cost effective in my mind. I take into consideration my hourly wage expectations with most of the decisions I make in my life. If I am going to lose money by handling a task on my own I outsource it. I also take into consideration the attractiveness of the task. If it is a task that I might enjoy then I would consider taking it on myself. If it is something that doesn't sound fun (examples for me are plumbing, drywall and electrical work) I pay a professional to handle it. Make sure to consider the opportunity cost of trying to handle your bookkeeping on your own.
Inaccurate Bookkeeping And Reporting
Inaccuracies in your bookkeeping can cost you a lot more than just money. If your basic bookkeeping transactions are not being recorded properly then your business financial reporting will be inaccurate. One common example I see from inexperienced bookkeepers is booking large purchases as an expense instead of an asset. You may not catch mistakes until several months later. Meanwhile you have been running your business based on falsified information. If you go through an audit and mistakes are found you may be subject to penalties and interest.
Inability To Grow And Reach Sales Goals
Your bookkeeping system should be a valuable tool for your business, not just a way to track your financials for taxes to be filed. If you don't have an accurate and up to date bookkeeping system you can't measure your progress against your budget and sales goals. Accurate financial reports will allow you to keep your business on track. Using your financial reports to look for sales opportunities and areas to cut expenses will help maximize your profit. Use your business financials to hold your key team members accountable for their goals and budgets.
If you file inaccurate taxes you may be hit with penalties and interest from the IRS or your state tax commission. Simple bookkeeping mistakes can lead to huge mistakes that can cripple your business. The IRS will hold you accountable for any errors, not your CPA or bookkeeper. You will want a bookkeeper and CPA that work well together and make sure that your CPA thoroughly checks your bookkeeper's work and ask questions.
You may want to consider an outsourced bookkeeping service before you try and make your bookkeeping affordable in your eyes. You need to consider other things besides price when figuring out how to get your bookkeeping done. Your minimal expense approach may cost you more in the long run than you might think.