No small business owner – even those who proudly claim the title “solopreneur” – can manage every task alone.
In fact, smart, successful business owners know that trying to do it all yourself will quickly lead to overwhelm and a bad case of burnout.
Still, you need to weigh the benefits of hiring outside help against the cost – not only in dollars, but in your time and frustration level as well.
Hiring an accountant or bookkeeper is no different. Sure, you can probably do your own taxes and manage your own books, but is it worth the time? Maybe not.
The Differences Between a Bookkeeper and an Accountant
Simply put, a bookkeeper keeps the books.
He or she manages your income and expense records, most often using a software such as Quickbooks to ensure all receipts are properly filed so that when it’s time to calculate profit and loss and quarterly or year-end taxes, all the information is available.
Note from author: I use the 2012 Pro version of Quickbooks. There is a bit of a learning curve but you don’t have to use all of the features to get the job done. Drop me a note if you have questions about how I am setup as a solopreneur.
An accountant, on the other hand, takes this information and uses it to determine how much you owe in taxes and when, and to offer advice on potential tax savings.
He or she will help you decide if it’s better to claim your new computer as an expense, or to depreciate it over several years.
Your accountant’s job is to ensure you are taking advantage of all the tax benefits available to you, while avoiding the fees and penalties that can occur if you are incorrect in your calculations.
Your accountant can also help you set up a basic bookkeeping system that you can manage yourself, allowing you to avoid having to hire a bookkeeper for the job. You will find that once setup, you are good to go.
Do-It-Yourself Pitfalls to Avoid
Keeping your own books doesn’t have to be difficult, but there are a few things you need to keep in mind before you make the commitment to do so.
If you’re not organized or disciplined about it, you’ll be better off letting someone else handle the task.There are organization tools on my Tools For Success page like the brand name Franklin Planners which I use to map out my activities. Great stuff! Combine this with the Shoeboxed system and you are 90% there.
Letting your receipts pile up all month (or year!) is a recipe for disaster. Much better to set aside an hour or so each week to keep everything organized.
I use the Shoeboxed service for a monthly fee and trust me, it is well worth it. Shoeboxed is a very friendly company that mails me a postage free envelope in which I enclose my monthly receipts and mail back to them.
They categorize my receipts and scan into their database so I can view online and re-categorize if necessary. Once you categorize your receipts online a few times , they pickup on the system and it moves toward being automatic.
Come tax time, you have all your records in an acceptable format (with totals, sub-totals-whatever you desire) ready for the accountant. Given my experience, I do my own taxes and can say that this process saves me hours.
Remember, organization a critical step unless you are feeling charitable and want to give more than your fair share to the tax man. Also being organized is a lot less stressful, and you’ll have a lot less risk of missing something important.
You need to be sure you fully understand how income and expenses should be classified within your accounting system.
If you’re recording a business expense, is it rent, or office supplies, or capital equipment?
Incorrect categorization can cause trouble at tax time, and end up costing you more at the accountant’s office. When in doubt, give your CPA a call and ask.
Don’t make the mistake of trying to handle your own tax returns and quarterly tax payments.
Your accountant is up-to-date on the latest changes to the tax code, and you are not, so unless you want to devote a lot of time to learning to be a CPA, you’re better off paying him for his expertise.
So do you have to have a bookkeeper and an accountant if you’re just starting out?
Not necessarily. If you’re earning a few hundred dollars as a sole proprietor and don’t want the hassle of deducting your expenses, you can simply include your business income in your personal tax return and call it good.
But once your business grows to the point that it’s earning a significant income, and you’re looking at different business structures like LLCs and corporations, it’s time to get serious about your accounting practices.
The money you spend on a good accountant and bookkeeper will be recouped many times over in time – and maybe even taxes – saved.
When you get to the point of needing an accountant or bookkeeper or both, be sure to check out our friends at Elevation Tax for a free consultation.
And don’t leave without checking out the article on Taxes and Budget Planning for more tips for your success.
To your success!
p.s. leave your comments below and let me know what content you’d like to see.
Also make sure you sign up for additional blog posts to keep you abreast of business essentials as well as opportunities to save money!