I know, bookkeeping is one of those tasks that seems like a necessary evil in business. It’s boring. It’s tedious. It’s not really a “value add” task right? Wrong. There are many different misconceptions about bookkeeping and if you hold any of them it could be just the thing that is keeping you from the success you’re looking for in your business.
There is a reason I’m listing this as the #1 misconception about bookkeeping. This task is seeing as the main job of the bookkeeper. Make sure the account is reconciled, assign categories, run some reports. This is basic bookkeeping at its most boring. But there is SO much more that bookkeeping can and SHOULD do for you.
Result of this belief: You think you “should” do that yourself because ANY body can balance a checking account, amiright? But like the old saying goes, “Just because you CAN do something, doesn’t mean you should”. Yes, when you first start out you wear all the “hats” and do things on the cheap while you are building your business. However, there comes a tipping point where it is actually COSTING you money to keep doing it yourself (more on that later).
What is bookkeeping really: Strategic bookkeeping is about more than just reconciling your books. Reconciling is just the task that allows your bookkeeper to:
– See spending patterns
– Identify opportunities for tax savings/cost reduction
– See sales patterns/trends
Protecting yourself from an audit is a great thing! I am still surprised at the misconception about bookkeeping that the IRS only audits big businesses! Surprise, while this may have been true at one point in early 2021 the IRS actually ANNOUNCED that they planned to increase the total number of small business audits by 50% (see original article here).
When it comes to auditing I find that businesses are either terrified or not concerned at all. Ideally, I recommend healthy fear. You want to prepare so that if the IRS ever has reason to inspect even a portion of your books, they will be so blown away by your abundance of proof and organization they peek and leave. THAT is the goal, to not give them any reason to believe your books are anything less than pristine.
Now, that being said, this is should NOT be the goal of your bookkeeping.
Result of this belief: You miss the opportunities that true business finance can bring your business. Bookkeeping and business finance are like peanut butter and jelly and it all starts with making sure you’re gathering the RIGHT data. This is why I like being hands on in the bookkeeping. I can dig deeply into the business to see where we are missing key data points that affect things like: marketing, sales, churn, profits, margin, expenses and more.
Once I assure the data is being entered in such a way that we can extract that data effectively it gets REALLY fun! Instead of worrying about protecting from an unlikely audit – you can focus on increasing profits, targeted marketing, customer retention, pricing alignment, targeted sales strategies…. The list is truly endless.
THIS is what business finance is all about – using the data that bookkeeping gives you to provide real, actionable data to make strategic decisions in your business!
What is bookkeeping really: Audit protection is important – but only focusing on this misses that business finance is about:
– Growing your business using strategic marketing practices
– Aligning pricing strategy using data from your business
– Proactively planning your business success instead of only focusing on avoiding failure (IYKYK)
Remember that tipping point I discussed earlier? It goes like this, when you start out and the amount of money you are able to make on your own is LESS than you would pay a bookkeeper – it makes sense to DIY. Once you can earn MORE per hour that you would pay a bookkeeper for the number of hours you would SAVE – it’s time to hire.
If that seems simplistic, it’s intentional. As humans we vastly tend to under value our time investment in activities so if you are wondering how much time it is really taking you – track it. Set a little timer, tally it up and then multiply that by your hourly rate. Now would that amount cover or MORE than cover the fee for a monthly bookkeeper?
This is ONLY factoring in the time/cost savings – it doesn’t even TOUCH on the benefits that I mentioned in misconception #2. However, it makes good sense to make sure you can definitely pay for the service with the time you save – then all the extra financial benefits that strategic bookkeeping will bring you will be PROFIT!
Result of this belief: You accidentally stunt your business growth because you aren’t tapping into a business finance pro to add that higher level of strategy.
What is bookkeeping really: DIY is enough at the beginning – for real. But once you grow to a certain point, you are literally doing your business a disservice by not bringing in strategic help that knows:
– How/when/where to sell and at what price for maximum profit with minimum effort
– When to take an offer off the table – from a real data standpoint
– How to use the $ you’re making in your business into financial freedom