Handling your business’s bookkeeping in-house can seem like a great idea at first. After all, it saves you the cost of hiring an outside accountant.
But this method can end up costing you thousands of dollars in the long run. Here are four reasons why:. 1. Hidden Costs. 2. Time is Money.
1. Time is Money
The cliche “time is money” is more than just a clever phrase; it’s an important reminder that every moment counts. In business, time spent on tasks and activities can directly impact financial outcomes. Ineffective use of time can lead to wasted effort, lost income, and missed opportunities while productive, efficient use of time can increase revenue, profits, and overall success.
For many small business owners, handling their own bookkeeping and accounting is a point of pride or a way to save money. However, this approach can actually be costing them thousands of dollars in terms of lost productivity and expensive mistakes.
While modern accounting software makes the task easier and more manageable, it’s still a human process that can make errors. Mistakes like a misplaced decimal point, or entering a transaction in the wrong account can send your numbers into an accounting nightmare, incur penalties at tax time, or cause you to miss out on financial optimization opportunities. Even if you are careful, mistakes can happen, and the only thing worse than a costly mistake is wasting countless hours fixing it.
The cost of a DIY bookkeeping approach is more than just the amount you spend on software and tools; it’s also the time you lose to these tasks that could be better spent on your business growth. It’s also the energy that you spend on tasks that don’t energize you or motivate your passion, resulting in decreased productivity and potential burn out. And let’s be honest, you only have so much time in a day anyway!
In a survey by Empower, Americans revealed that they value their time at $240 per hour. This is an enormous sum and is more than eight times the average U.S salary. It’s no wonder that people feel wealthy if they can buy a little more time with their family, or if they can enjoy an experience that enlivens their sense of well-being. It’s a reminder that time is the most valuable resource we have, and it is worth protecting. This is especially true for small business owners.
2. Errors & Mistakes
Accounting is not the most exciting or appealing part of running a business, hence why Denver Bookkeeping Services are hired. Unfortunately, many small business owners take matters into their own hands and try to handle their books on their own. This can lead to a series of errors that are costly to the health of your business.
Errors in recording transactions are a common problem that can affect your financial statements. Misclassifying expenses is one of the most common errors and can lead to inaccurate financial reports. This could cause you to pay too much taxes or miss out on reimbursable expenses.
Another common error is not reconciling your accounts at the end of a month or quarter. This ensures that your records match the bank account. Not doing this can lead to unnoticed discrepancies, which will be discovered only when you do a close on your books.
Failing to back up your books is another huge risk for DIY bookkeepers. This can lead to major problems if your computer crashes or data is corrupted. Always back up your financial data in multiple places, including on external hard drives.
Another big problem is not preparing for tax season. Not preparing for taxes can lead to fines and other fees that can seriously drain your bank account. A professional bookkeeper can help you prepare for tax season and file your taxes correctly.
Finally, failing to monitor your accounts receivable can have a devastating impact on your cash flow. This can be caused by not sending out invoices promptly or not following up on outstanding debts. This can put your business under a lot of stress, so it’s important to review your accounts receivable regularly and establish a system for timely invoice reminders and follow up.
Taking care of your bookkeeping is a vital component to the success of your business. Don’t let errors or mistakes cost you thousands of dollars. A professional bookkeeper can save you time and money by avoiding costly errors that are easy to make. Contact Steadfast today to discuss your accounting needs. Our team of experts are standing by and ready to help!
3. Taxes
A business’s balance sheet offers a clear lens into its financial health. It shows what the company owns (assets), what it owes (liabilities), and what has been invested in the business (equity). While managing your business’s finances on your own may seem like an affordable option, the hidden costs of DIY bookkeeping can end up costing you more than you think.
When you manage your books yourself, it can take valuable time away from your core business operations. This means you’re not making sales, meeting with clients, or working on product development. Instead, you’re spending your time in the back room crunching numbers and preparing tax documents.
If you’re not familiar with accounting and tax regulations, your DIY bookkeeping could end up costing you in the long run. Incorrect data entry and missing compliance issues can lead to expensive fines or even costly audit problems. A professional bookkeeper can ensure your business is always in compliance and can help you find tax-saving opportunities.
One of the most overlooked costs of DIY bookkeeping is that it can be time consuming to reconcile expenses. This process involves going through your books and ensuring that all of your company’s expense transactions are recorded properly and that they match up with your bank account. This is important because it helps you avoid IRS fines at tax time and it ensures your books are accurate so you can claim all of your eligible expenses.
The hidden costs of DIY bookkeeping can add up quickly. Recognizing when you need to seek professional assistance can save your business money and give you peace of mind knowing your financials are in good hands. If you’re ready to put an end to costly mistakes, stress, and missed opportunities, contact a bookkeeping service today. A good bookkeeper can help you manage your business’s finances efficiently and accurately while allowing you to focus on growing your company. We’ve seen many businesses go from DIY to professional services and experience significant improvements in accuracy and financial stability. Here are some of their success stories.
4. Payroll
Often, small business owners neglect bookkeeping as they focus on the core functionality of their businesses. However, keeping up with accounting and bookkeeping tasks is essential for maintaining accurate records and ensuring compliance with tax regulations. In addition, a well-established bookkeeping system can save your company money in the long run by increasing profitability, decreasing taxes and penalties, and avoiding costly mistakes.
While DIY bookkeeping is often cheaper than hiring a professional, it comes with its own set of disadvantages. For one, it can be a time-consuming and tedious process. Additionally, it can be difficult to stay on top of all the details, especially when you are also running your business. As a result, some small business owners may fall behind in their recording and reporting, leading to costly errors.
Another risk of DIY bookkeeping is that it can lead to missed tax filing deadlines and expensive penalties. This is a serious concern, especially for service-based businesses, which can have complex income and expense reporting requirements. For example, some states require that service-based businesses charge sales tax on their services, and others have specific rules for tracking employee wages. These rules can be confusing, and they often change, making it more difficult for small businesses to keep up with their tax obligations.
As a small business owner, you may be tempted to take on the task of DIY bookkeeping in order to save money on professional fees. However, it is important to consider the pros and cons of this approach. While it may be more affordable than hiring a professional, DIY bookkeeping can be complicated and time-consuming, resulting in inaccurate or incomplete records. In addition, it can be difficult to stay on top the daily transactions and records when you are juggling multiple responsibilities.
The good news is that despite its many challenges, DIY bookkeeping can be done effectively and inexpensively. If you are willing to invest in the right tools, software, and training, it can be an effective way to track your financials and understand how your business is performing. Ultimately, by putting the right systems in place and automating as much as possible, you can ensure that your DIY bookkeeping is as accurate and stress-free as possible.