Ready to Outsource Your Bookkeeping? Here's What You Need to Know
I'm constantly recommending that other folks outsource the parts of their businesses that they aren't the best at, and for a lot of soapmakers, that's bookkeeping! So, today, we're diving into what you should know to outsource your bookkeeping, straight from a CPA's mouth. ;)
Q+A with a CPA: Outsource Your Bookkeeping
Over a year and a half ago, I took that very piece of advice and I've come to the conclusion that I can't live without my CPA, Gabe! He keeps me on the straight and narrow, ensuring that I make sound financial decisions in my business with the numbers to show it and provides endless valuable insight into what is and isn't working for Modern Soapmaking. Plus, I'm more responsible about my expenses because I feel accountable to the numbers (and to Gabe!)
Q+A with a CPA: Outsource Your Bookkeeping
To briefly introduce Gabe, he’s a personal and small business CPA located in Springfield, Missouri. He’s married & has two kidlets, plus he’s an entrepreneur so he *gets* us. He’s one of those weird folks who enjoys working with numbers (because he’s crazy) and studied accounting at Missouri State. He has a slew of happy clients, both locally and nationwide (myself included!).
I rounded up tons of fabulous financial questions from members of my Facebook group and popped them over to my CPA. He graciously answered almost every single question, and I'm here to share them with you! I’ve taken all the questions Gabe answered for us and broke them down into four easy-to-digest articles for the Q+A with a CPA series. The last post in the series was about getting started with bookkeeping.
Today, we’re talking about what you need to know to hire a pro for your books:
Q: I’m at the point of looking for a bookkeeper, what is a reasonable fee to expect and how do I find one I can trust?
Gabe says: The fee for services is going to be dependent on the amount of work involved. Sorry for being captain obvious! :) It will depend on the complexity of your business, the amount of detail you are looking for in your reporting back from the bookkeeper, and how much work you want to have them do for you.
Bookkeepers also come in many various flavors. Some will charge by the hour and some will charge you a flat monthly (or quarterly) fee based on the complexity of service provided. You will also pay differing amounts based on the background and experience of the person you decide to hire. Not to bash others in my profession, but many "bookkeepers" take a QuickBooks course or two and hang out their own shingle. They don't have any idea about how to do proper accounting. Obviously, you are a business owner and not an accountant yourself, so you will want to get referrals from others in your industry and from other business owners that you trust.
Overall, I would expect to budget a few hundred dollars a month to outsource your bookkeeping and find a qualified bookkeeper to do most of the work for you. If you're looking to do most of the work yourself and have someone else clean-up each month or quarter, you could save a few bucks each month (if you don't make a bunch of mistakes!) Most competent professionals would be glad to give you some time to discuss your situation in more detail and provide you a quote for working together.
Q: What credentials should I look for and how much should I budget for their services? (CPA, EPA, bookkeeper?)
Gabe says: Traditionally, you might be looking for separate services and it would be helpful to understand the difference.
A bookkeeper is someone who performs accounting services on a predetermined basis (usually monthly, quarterly, or yearly). A bookkeeper can be a CPA (certified public accountant), an EA (enrolled agent), a person with a degree in accounting, or someone who has no formal designations or education in accounting but has work experience in the trade. Unfortunately, there are also many "bookkeepers" who took a class on Quickbooks and hang out their own shingle. Because of the varying degrees of competency, the cost for services can be quite wide. For a competent monthly accounting service, I would plan to spend at minimum $150/month, if your business has any amount of volume or complexity at all.
For a tax accountant, I would recommend only using an CPA, attorney, or EA as the tax code changes drastically each year and all of those designations have continuing education requirements. I'm sure there are other competent tax professionals, but that is my take on it. You could also use a one of the chain services (HR Block, Jackson Hewitt, Liberty Tax, etc), but they mostly specialize in returns with a few simple W-2s, not small businesses.
Q: Is it worth outsourcing my taxes or is it logical to use something like TurboTax to do it myself?
Gabe says: It depends on how complex your business is. If you've done a good job of keeping track of your expenses on a cash basis (meaning you count income when it hits your bank account and the same for expenses) you could use TurboTax or other similar online software providers and do just fine. There was a study and/or article published where they gave 10 tax accountants the same return and all 10 accountants came up with a different amount for the refund! There are many areas of the tax code that are subject to interpretation, so it is easy to understand how that could happen. If "making a mistake" doesn't scare you, you would probably do just fine.
The one area of difference is tax planning. If your business is growing and becoming more complex, I believe good, competent tax advice is worth much more than actually preparing the return. If your operations are simple and you don't need help with tax planning, I think you would be just fine.
Q: How can I best utilize an accountant's services on a limited budget? (For example, is it best to pay someone to set up your bookkeeping software initially but do the daily recording yourself? Consult them at the beginning of the year to organize for that year's taxes and tax reporting?)
Gabe says: This is an important question! If you don't have the budget to completely outsource your bookkeeping and hire someone on an ongoing basis, it would be best to pay someone to set up your bookkeeping and then have them teach you exactly what you need to do on a monthly basis. It is important to know early on whether or not you have the knack for bookkeeping.
If you do, then the above scenario will work out great. If not, you either need to grow sales to a point where you can afford the service or look at some other options (maybe trade your products for services or other creative ideas). It is impossible to run a business profitably if you have no idea of the financial health of your business.
Separately from bookkeeping is taxes. You can DIY your taxes or hire some flavor of a tax accountant. Again, with budget in mind, you should ask the tax accountant up front exactly how he/she would like you to get them the information. How can you make their life easier and save them time? Ultimately, that will save you the most money by helping them be efficient.
Q: What is the best accounting program for a business owner to use when meeting with a CPA, accountant, or bookkeeper to review your books?
Gabe says: Each accountant is going to have her/his preference for accounting software. I personally only use Xero or QuickBooks Online. If you have heavy needs for job costing, you might have to use QuickBooks desktop version. It will also depend on who is doing what (what you are doing vs. what the accountant is doing).
The takeaway? If you aren't going to do your books right, pay someone else to talk the numbers.
Obviously, I highly recommend Gabe if you are planning on outsourcing your bookkeeping, but there are thousands of professionals across the country that can competently manage financials for a small business! You can hire someone local, if it's important to you to meet face-to-face, or you can hire someone who lives anywhere, if they are familiar with your business and the local regulations and laws. Gosh, how I love technology!
If you’d like to learn more about Gabe (& his services), pretty please stop by his website and get in touch. Stay tuned for the third round of Q+A with a CPA, where Gabe answers soapmakers’ questions about keeping tabs on your inventory for proper financial record keeping.
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