“Why do I need a bookkeeper?”
If my life was a song, this would be the chorus. I hear so many variations of it:
“I have a CPA, why do I need a bookkeeper?”
“My office manager/partner/husband (or wife) does the books, why do I need a bookkeeper?”
“I don’t do the books now, so why do I need a bookkeeper?”
My desire in writing this post is to relate a few of the many benefits of hiring an independent bookkeeper to handle your company’s finances. Without further ado, let’s move on to the first reason.
Opportunity Cost
Opportunity cost, simply put, is the cost of choosing one option at the expense of other options. In economic theory, it’s generally assumed to be the best option that’s chosen, but that is not always the case in real life.
Most business owners aren’t bookkeepers by profession – spending time keeping the books does not generate revenue for them. This means that when a business owner chooses to do the books, he or she is prioritizing the books over income.
Having a dedicated bookkeeper means maintaining the books is no longer a losing proposition for the business owner. If you’re an engineer who wants to spend time doing load calculations instead of frantically googling to find the difference between a meal 50 and a meal 100 in the tax code, it makes sense to hire someone to handle the accounts. Having a bookkeeper allows you to focus on the revenue-generating activities that you do best.
Specialized knowledge
There is a certain amount of knowledge that is required to be a first-rate bookkeeper, and almost every person who was not specifically trained as a full-charge bookkeeper does not have that knowledge. I know people often think that bookkeeping is just reconciling accounts, but it is much more than that. Financial reporting is one of the key activities of a bookkeeper, and so often it is overlooked or brushed to the side.
Everyone knows the adage “Knowledge is power.” Reports like the balance sheet, profit and loss statement, and statement of cash flows compile information from the accounts to provide an owner with knowledge of the performance of the business. With advances in automation, these reports have become much easier to create, but they are often very confusing for people who don’t read them regularly. With a specialized bookkeeper, you can tell how your business has performed, is performing, and likely will perform in the future based on the reports he or she generates; having a secretary or assistant reconcile the accounts doesn’t provide you with this same kind of knowledge.
Outsourcing
This argument is often seen by business owners as the best reason for hiring an outside bookkeeper. With an independent bookkeeper who works remotely, you never need to worry about vacation time, sick pay, health insurance, 401K, etc. By outsourcing your bookkeeping, not only do you free up time that can be spent on revenue-generating tasks, you also reduce your labor costs (you’re not paying that extra tax bill for an employee either.)
Cheaper than a CPA
“What’s the difference between a bookkeeper and an accountant?” is neck-and-neck with “Why do I need a bookkeeper?” as the question I’m most commonly asked.
The roles of bookkeepers and CPAs overlap. CPAs can do everything we can do, plus they have specialized tax knowledge that bookkeepers don’t have. Bookkeepers, however, are often much more intimately acquainted with the ins-and-outs of each business they handle; a CPA usually has a large client list with general knowledge of each client, while the bookkeepers who work underneath him or her have specific knowledge about the accounts they handle. It is similar to the situation between doctors and nurses: a nurse might not have the level of knowledge a doctor has, but information the nurse has collected and provided to the doctor can help in diagnosing a disease and creating an effective treatment for the patient.
While CPA is the highest certification anyone can attain in accounting, it also takes many years and a lot of formal education. As a result, this knowledge comes with a high price tag, which means that CPAs command a much greater hourly rate than bookkeepers. I charge a flat fee for my services, but if I break it down by the hour, an accountant charges (on average) about twice as much for bookkeeping services as I do.
I have no problem admitting that there are times when a business owner needs a CPA. There are certain areas I cannot legally touch as a bookkeeper. For instance, if I give tax advice, it voids my errors and omissions insurance. The obvious solution for the business owner is to use an independent bookkeeper to handle the books, while retaining a CPA for taxes and audits, saving money in the process while ensuring that the business is fully compliant with the IRS.
Time to hire a bookkeeper?
There are more reasons why retaining an independent bookkeeper is important – better information for tax preparation, financial statements that are prepared in the way lenders request, the piece of mind that comes with knowing the books will always be done, etc. – but there isn’t any need to make this article any longer than it needs to be. All you need to know is that the benefits of having a bookkeeper far outweigh the costs. If you’re wondering how to strengthen your businesses position, and the above reasons resonate with you, it may be time to hire an outside bookkeeper for your business.