For all businesses, especially small businesses, robust financial reporting is essential.
Messy books can make or break a business’s future. By contrast, accurate, detailed financial reports help companies succeed by giving business owners a real-time window into financial performance so they can catch and amend issues before they become serious problems. Detailed financial reports also help business owners secure loans and write off certain expenses as tax deductions.
Good bookkeeping is necessary to produce accurate, detailed financial reports. Skilled bookkeepers comb through, monitor and manage a company’s day-to-day financial records, such as transactions, invoices and payroll. They understand how these details add to the big picture, setting the stage for accountants, CPAs and CFOs to perform their best work. In short, accurate bookkeeping is the backbone of accurate accounting, tax advice and financial direction.
The Changing Role Of A Bookkeeper In Today’s World
Unfortunately, bookkeeping is an often misunderstood profession. Some people equate it with data entry. While historically, bookkeepers conducted “basic data entry” tasks, this has been changing over the years, especially considering that, given the advent of artificial intelligence, most data entry jobs are expected to become automated.
The bookkeepers of today need to become the controllers of tomorrow. A controller, according to Investopedia, “oversees internal control implementation, assists with budget preparation, ensures reporting compliance, and manages the transaction reporting process”—taking “ownership of the financial reporting process” at firms. Rather than being data entry operators, bookkeepers are increasingly becoming data architects with deep knowledge of various types of data and how that data interacts and flows through companies.
Financial Expertise For Small Businesses
Every small business needs a team of knowledgeable financial professionals in charge of monitoring numbers and handling reports. One professional should be at the center of the team, overseeing all the data inputs, managing software integrations and ensuring that accurate outputs (financial reports) are issued each month.
Usually, this professional is a bookkeeper or a controller whom a business owner hires internally or contracts out; however, there are rare instances where in-house or fractional CFOs take charge of these functions. Sometimes, business owners opt to do their own bookkeeping. A 2021 survey by Quickbooks Live Bookkeeping found that 34% of small business owners personally manage their bookkeeping functions. In some cases—notably, really small family businesses—hiring a bookkeeper isn’t absolutely necessary, especially if someone on the team has enough knowledge to regularly maintain the company’s books. This person doesn’t need to conduct deep analysis or calculate financial ratios and usually just handles two main tasks: inputting transactions and making sure the bank accounts are reconciled.
In general, once a small business reaches a point where they’re dealing with more assets and liabilities, such as purchasing expensive equipment, dealing with extensive inventory or making substantial investments, that’s when a business owner should consider consulting with a professional bookkeeper and an accountant. As a baseline, this professional should be able to frequently assess the company’s balance sheets and make sure they can correlate each line item with the right figure.
Green Flags To Look For When Hiring A Bookkeeper
Business owners who want to hire a bookkeeper should look for several green flags.
First, they should seek someone who grasps the big picture. While bookkeepers do focus on details, they need to understand how those details tie back to a company’s finances as a whole. Details without broader understanding and analysis are just that—details. Details accompanied by a comprehensive understanding and analysis tell a company’s financial story.
An effective way to screen for big-picture understanding in a bookkeeping candidate is to ask them to provide examples of issues and how they approached them, such as, “May you please tell me about a time when you came across unreconciled books, and explain how you resolved it?” Look for specificity in their answer. Someone who can confidently walk through the issue and their solution step-by-step likely has the expertise and analytical capabilities needed for the job. If the candidate gives a vague response, that indicates that they don’t have big-picture knowledge.
Another green flag for bookkeeping candidates is their ability to build and maintain a cycle of tasks they can regularly tackle. The candidate should be able to articulate which tasks go into the monthly accounting cycle, how they will correctly complete those tasks for accurate financial reporting and what processes they’ll implement to catch and rectify any mistakes.
As for mistakes, they often happen due to human error. A bookkeeper who can effectively set up and leverage various automations, such as software integrations, can help you minimize mistakes. An excellent bookkeeper sets up processes to regularly review, identify and resolve the inevitable errors.
Finally, business owners should seek a bookkeeper with strong communication skills. Financial statements are complicated, and CPAs and CFOs often speak a different language than business owners. Ultimately, a bookkeeper who can clearly explain the intricacies of financial statements can give a business owner the information they need to make sound financial decisions for the business—while also making sure the other members of the finance team, such as the CFO and CPA, get the reporting they need for their functions.
Article by Forbes
