Should you do your own accounting/bookkeeping?

If you own your own business, chances are you’ve reached out to an accounting firm at one point or another. It could have been when you first started/opened, when you hired your first employee, when you had to pay sales tax, or when it was time to file your income tax return.

Sometimes, we get contacted by new business owners that are looking for year-round accounting/bookkeeping support from day 1. In theory, it may seem like a good idea to have an accountant who is well versed in financial statements handle everything for you. And while it would be more lucrative for us to say “Sure, let’s do it. Pay us $200 per month or $500 per quarter and we’ll handle everything for you”, most of the time it’s not in your best interest. At the end of the day, it’s our job to keep your best interests in mind.

We believe that it is in the best interests of new business owners to handle the accounting/bookkeeping themselves at the beginning. Reason #1: cash flow. In general, most business are not profitable right off the bat. And paying an accounting firm upwards of $2,000 per year to manage your books isn’t a great way to become profitable! Reason #2: It’s very important for business owners to understand the numbers. Doing your own books at the beginning will force you to become an expert in Income Statements and Balance Sheets, both of which are extremely important to the long-term success of your company.

What we do recommend is a two-part process. Part 1 is typically an e-mail exchange where we’ll discuss a few different things you should know for accounting and tax purposes (business bank accounts, credit cards, types of deductible expenses, etc.). Part 2 is when we’ll help set up your accounting software in the cloud once you have experienced a wide variety of business transactions. You will learn how to set up “rules” for recurring transactions, the correct way to pay yourself, what “fixed assets” are, and receive a crash course in the important financial statements. The combined price for both parts is much less than the $2,000+ per year you would have to pay a firm to do all the work themselves.

Only once your business starts to generate a stable monthly profit of at least $4,000-5,000 should you consider outsourcing your accounting/bookkeeping needs. And even at that point you could continue doing it yourself unless you are stretched too thin.

Taxes, on the other hand, are a different story. All that money you saved by doing your own books during the year should be used to pay a tax accountant who is an expert in the field. Incorrectly categorizing a few transactions won’t make or break your bottom line, but filing an incorrect tax return could have devastating implications.