According to an article on Entrepreneur.com, “most business owners keep their own books and records.” When detailing why this is, the article plainly stated: [When the business owner is responsible for their accuracy, it makes more sense for the owner to maintain them.”
Most small business owners despise accounting. Me included!
Maybe I dislike business accounting because it’s not a revenue-generating task and tends to suck time out of my day, making my goal of running a business more tedious than I’d like.
There is no way around it.
You will need to either tackle and master the task or hire an accountant.
I cover both options here.
Accounting Software For Small Businesses
One of the most essential tools in modern bookkeeping and accounting is your software.
You have many, many choices when it comes to accounting software.
Make Sure It Does It All
One thing you should understand is that there are well over 3,300 software products available today, and many are highly specialized. This is understandable; different types of businesses have specific needs, and many of these applications were written for those needs. The chosen software application should be flexible and capable of handling any accounting project you wish to perform.
Choosing Accounting Software
Another factor that should influence your software selection is the learning curve. Some accounting software is extremely complex, non-intuitive, and challenging to master. Others practically run themselves; plug in your numbers, and you’re ready to go.
The question of cost…
Accounting software can range from $100 to $1200, and price does not necessarily indicate better quality or usability.
An edition of PC Magazine gave high marks to four applications:
MYOB Premier Accounting
Peachtree Complete Accounting
QuickBooks Accounting Pro Edition
Of these four, QuickBooks received the highest score, primarily because, while it was not the top-of-the-line option, it offered the broadest range of user-friendly tools and features at the lowest price (around $200). There is also a QuickBooks Online option for less than $24/month.
MYOB and Peachtree received lower ratings and were substantially more expensive ($300 and $270, respectively).
Worth mentioning is FreshBooks, a Cloud-based accounting software that offers invoicing, time and expense tracking, payment management, and reporting.
The cost for FreshBooks is approximately $20/month.
It Pays To Shop
The prices above were listed in the PC Magazine review, but please note that they reflect the MRSP. If you shop around, you are likely to find some excellent deals. For example, the MYOB software listed in the review at $300 was available on another website for 1/3 of that price.
You can also get excellent prices on software on auction sites such as eBay and Ubid – if you are willing to go with software that is a year or two old.
Security — Cover Your Butt
I cannot overemphasize this: routinely back up all your financial data.
There are several reasonable solutions for this: an external hard drive you have lying around, or an online backup service such as Carbonite.
Pros and Cons
Accounting files are fairly small; initially, you may be able to get away with a 2- or 4-GB jump drive. These are also relatively inexpensive and can be had for under $20. On the other hand, they are small and easy to lose track of.
An external hard drive will run you between $90 and $200, depending on capacity. Once you’ve purchased, you’re done. Since these sit on your desktop, they’re easy to keep track of.
CDs or DVDs are probably the most cost-effective method, though few people have these around much anymore.
An online backup service is likely the safest choice, as your files are stored off-site. These services are actually quite reasonable, priced at less than $50/year; they’re definitely worth considering if you have concerns about office theft and data security.
Hiring an Accountant
When business accounting just isn’t in your wheelhouse, hiring an accountant will be your best option.
Locating an accountant will take nothing more than asking a friend for a referral or getting a recommendation from a rep at your local Chamber of Commerce.
There are some key benefits to hiring an accountant:
First, an accountant can provide tax advice and assist you if you are audited.
Second, an accountant can help you reduce your overall tax bill and help you strategize with tax planning for future years of your business.
Third, a qualified and skilled accountant tends to stay abreast of changes to the tax code. Small business owners generally don’t have time for such things and, therefore, must rely on someone with a “nose” for such things.
Questions to Ask a Professional Accountant
What services do you offer?
What can I expect for fees?
Questions For an Independent Accountant
If you choose to go with an independent accountant (e.g., someone who also works out of their house), there are a few basic questions you should ask to ensure the individual is qualified to handle your accounting needs.
Questions to Ask…
How many start-ups have you worked with?
What accounting degree do you possess, if any?
What specific accounting responsibilities have you had? (Accounts Payable, Accounts Receivable, General Ledger)
Have you performed bank reconciliations? For how many accounts?
What types of reporting do you do? Balance sheets? Income statements?
What is your experience with business audits?
Have you been involved with tax research or investigations?
Should You Hire a Specialist or Generalist?
Many accountants specialize in specific tasks, issues, or industries.
For example, the different types of accountants include:
- Generalist
- Financial Advisors
- Tax Professionals
- Auditors
There are accountants known as “auditing clerks” whose main function is to ensure everyone is honest.
These types of specialist roles are typically found only in large firms. Small businesses (which make up about 80% of the economic activity in the U.S., though you’d never know it by the way Congress bows and scrapes to the huge multi-nationals) depend more on general accountants, who pretty much have to do it all. As an independent bookkeeper, you, too, will likely have to be a jack of all accounting trades.
Tasks that you will (and probably will) want your accountant to perform include:
- keeping track of all transactions, posting credits and debits
- creating and posting financial statements
- verifying receipts against contract commitments
- preparing and processing vouchers and payments
- planning and forecasting financials
