If you run a startup or micro business, you’ve probably thought about one of the biggest questions for small business owners: when do I start outsourcing specialised work like bookkeeping?
The answer: as soon as possible.
While doing your own bookkeeping can be a good idea in the very early days of a micro business, it isn’t sustainable. By the same token, you probably can’t afford to hire a full-time bookkeeper, so outsourcing your bookkeeping can often be the best option.
In this article, we’re going to explain why you should hire a bookkeeper for your small business as quickly as you can.
1. You’ll Save Money and Time
The first and most obvious benefit of hiring a bookkeeper is the fact that you save time and money.
Routine tasks like invoicing clients, reconciling payments, and lodging BAS statements might seem simple, but they can be extremely time-consuming. In fact, the average micro-business (one to five employees) spends about 15 hours per week or 19% of its time completing financial administration work. Of this group, sole traders spend 31% of their time doing bookkeeping, and companies with one to four employees spend 25% of their time.
If you’re just starting out as a sole trader, sometimes it can make sense to save money by doing things yourself. For most businesses, though, those 15 hours per week are better spent on operations or business development – two critical functions that, unlike bookkeeping, can’t easily be outsourced.
Hiring a bookkeeper allows you to spend more time increasing revenue. Professional bookkeepers are also more efficient than most small business owners, so they probably won’t need to spend 15 hours per week on your books, which helps you save even more money.
Example
Rob owns a landscaping business. He has lots of clients and suppliers who need invoicing.
Rob’s financial admin tasks take up about eight hours per week. Rob charges at $50 per hour for landscaping, so, if he landscaped for those eight hours instead, he could make an extra $400 per week.
Sally, a bookkeeper, charges $40 an hour. It would take Sally just three hours to do Rob’s eight hours of financial work. Sally’s bookkeeping would only cost Rob $120, leaving Rob with an extra $280 in revenue per week.
This would also allow Rob to service more clients, which would help grow his business.
2. You Might Pay Less Tax
Tax is an increasingly complicated area of finance and law, and most small businesses owners don’t have the time to learn about the various deductions and minimisation strategies out there.
A good bookkeeper – especially one with experience in your industry – may be able to help you find additional deductions to claim on your tax return. For example, working from home might allow you to write off a percentage of your rent; you might also be able to claim asset depreciation on larger purchases like laptops and cars.
Importantly, a bookkeeper can also clarify what you can’t write off, which is just as helpful. Not knowing which expenses are tax-deductible can be confusing, and it can often seem easier just to play it safe and not claim anything at all.
When you hire a bookkeeper, they’ll be able to tell you exactly what you can and can’t claim, potentially decreasing the amount of tax you have to pay.
Example
Sarah owns a bakery. She makes baked goods that she sells from her shop; she sometimes also delivers them to clients.
Sarah recently bought a Toyota Hilux for $30,000 that she occasionally does deliveries in. Because she mostly uses her Hilux for private use, she didn’t try to claim any of the purchase cost back.
But Sarah’s bookkeeper, Mark, told her that, if she tracks her delivery mileage, she can claim back a portion of the car’s value each year. Sarah found out that she uses her Hilux about 20% of the time for deliveries.
Using the diminishing value asset depreciation method, Mark was able to get Sarah a tax deduction of $1,500 in the year she bought the car, followed by $1,125 the next year, and more the year after that. Without a bookkeeper like Mark, Sarah wouldn’t have known about asset depreciation or the different types of calculation methods.
3. You’ll Get the Information You Need
Understanding how much money is coming in and going out is essential to running any business. Hiring a bookkeeper means getting access to that data through accurate, professionally checked financial statements.
Some of the insights good bookkeeping will give you access to include:
- Projected revenue. This allows you to plan for the future and adapt your business strategy accordingly.
- Debt management. If your business has taken out a loan, you need to track the management of it (and other liabilities).
- Potential weaknesses. Successful businesses are constantly looking for and correcting vulnerabilities in their structure and operations.
- Refinement. Streamlining your business to improve profits and reduce costs can have a dramatic impact on your overall performance.
4. You Won’t Make Financial Errors
Hiring a bookkeeper can help reduce the risk of errors been made in your accounts.
The complexity of modern finances means making mistakes is easy, especially if you aren’t a practicing bookkeeper or accountant. Many business owners make mistakes with areas like:
- Tracking petty cash
- Claiming GST on purchases
- Reporting sales tax
- Classifying employees and contractors correctly
- Reconciling bank accounts
Although financial errors might not seem important, making a mistake can lead to serious sanctions and financial penalties from the ATO. Problems with staff – especially those relating to the right classification – can result in massive penalties that can potentially bankrupt a business.
By hiring a bookkeeper who fully understands financial compliance, you’ll protect your business from these kinds of situations.
5. You’ll Reduce Your Accounting Costs
By using a bookkeeper to keep your accounts tidy during the year, you can reduce the amount your accountant charges you when you need to lodge your tax returns.
Bookkeepers aren’t qualified and accredited in the same way as accountants. While this means bookkeepers can’t do things like give business advice, they generally charge a lot less per hour than accountants. The average bookkeeper costs $40 per hour; junior accountants start at about $100 per hour, and senior accountants can charge upwards of $300 per hour.
This means that it’s much, much cheaper to have a bookkeeper take care of financial admin tasks. If you get your bookkeeper to handle your finances throughout the year, you can save a lot of money at tax time.
6. Your Books Will Be Cleaner
The inherent benefit of hiring a bookkeeper is that your accounts will be tidy and easily comprehendible. While this might not seem important, well-ordered books can be essential for securing loans from banks and raising capital from investors.
If you’re seeking a loan to grow your business, the first thing lenders like banks look for is your ability to repay the loan. Your liquidity and your past financial performance are good indicators of that ability, and you need well-kept books to be able to prove both.
Growing your business may also require a capital injection at some point. The last thing you want is for investors to dismiss you because you don’t seem in control of your finances. Without proper financial data, investors can’t adequately assess investment risk, which will make them wary about investing with you. Bad bookkeeping is also a sign of inexperience or mismanagement – neither of which is conducive to investment.
