Small Business Success: Benefits of. Bookkeeping Services. Bookkeeping Services August By Claire Moore. August, 2012

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1 Small Business Success: Benefits of By Claire Moore August, 2012 A pproximately 99% of businesses in the United States are classified as small businesses according to the Small Business Administration. Running a successful small business entails countless tasks and responsibilities, especially in the early years of the business. Often success or failure depends on how well the entrepreneur can balance all the necessary duties of running a small business. During the first six years or so in the life of a small business, the main objective is survival. The initial focus is on getting established, building relationships with vendors and customers, creating an identity in the marketplace, and most important, generating sufficient sales revenues to cover operating costs and repay debt service. How many small businesses are successful at accomplishing these objectives? According to research in May 2002 by the Small Business Association (SBA) Office of Advocacy, the six year survival rate for small businesses is only 39.5%, and it lowers to less than 20% after ten years. 1 What accounts for the relatively low success rate of new businesses? Research conducted on 300 small businesses in North Carolina in 2001 through 2003 focused on the problems typically encountered by small businesses. The owners of the businesses tracked in the study had sought assistance from their local Small Business Center. 1 Harris, Michael Lee. "The Types of Problems Encountered by Small Business Owners that Receive Counseling from Small Business Centers and the Relationship between these Problems and Selected Business Characteristics: A Regional Analysis." North Carolina State University, United States -- North Carolina: ProQuest Central; ProQuest Dissertations & Theses (PQDT); ProQuest Entrepreneurship. Web. 13 Aug Small Business Bookkeeping Network page 1

2 Researchers found that the problems typically encountered by those seeking assistance fell into three main categories. 2 Administrative 33.3 %: finance, accounting, personnel management Operating 12.7%: marketing, production, inventory, purchasing Strategic 54.0%: business planning, feasibility studies, market research One could easily make a case that having timely and accurate financial data and knowing how to interpret that data are key components in dealing with all three categories of problems. The tracking of financial information and the creation of financial statements are really a means to an end. The financial data serves as valuable input for the many decisions that must be made by business owners, managers, creditors, and government regulatory bodies. These decisions include: setting the company's overall goals evaluating the performance of departments and individuals deciding whether to add a new product line or discontinue one hiring and laying off employees The Need for Financial Data Before a business opens its doors the owner must create a plan for operations and secure the necessary funding to start the business and keep it afloat during its startup phase. Few entrepreneurs are able to cover all the costs of startup on their own. In order to persuade outside lenders to provide funding a business plan that includes financial projections will be needed. Completing the business plan will usually require input from outside sources such as business counseling services and financial professionals. 2 Harris, Michael Lee. "The Types of Problems Encountered by Small Business Owners that Receive Counseling from Small Business Centers and the Relationship between these Problems and Selected Business Characteristics: A Regional Analysis." North Carolina State University, United States -- North Carolina: ProQuest Central; ProQuest Dissertations & Theses (PQDT); ProQuest Entrepreneurship. Web. 13 Aug Small Business Bookkeeping Network page 2

3 Then, once the business opens its doors, the day-to-day tracking of financial information begins. To meet all the obligations imposed by lenders and taxing authorities the accounting system must track the following: sales operating expenses cost of goods sold payroll and payroll taxes asset purchases and sales inventory purchases accounts receivable and payable But compiling accounting information isn't enough to help ensure business success. The business owner must be able to squeeze every bit of intelligence from the numbers. The numerical data provides invaluable information about the profitability and efficiency of operations. Lenders and potential investors analyze the business financial statements. It's just good management for the owner to do the same. Because many business owners have little experience in reading and interpreting financial statements, again, the services of an outside expert can prove to be a valuable investment Small Business Bookkeeping Network page 3

4 Bookkeeper or Accountant? Bookkeepers typically carry out the day-to-day tracking of financial data but many are also experienced and qualified to assist t the business owner in preparing and interpreting the financial data. Moreover, many bookkeepers are capable of carrying out payroll duties and completing all payroll tax returns. Many business owners find that the ideal situation is to have a bookkeeper track financial data on a monthly basis and then have a CPA review the information quarterly to provide management advice, tax assistance and income tax preparation. Because bookkeepers typically charge an hourly rate that is less than that of the CPA, the business owner is able to afford the best of both worlds: complete, timely data collection and expert oversight and advice. Hiring an accountant is made easier by virtue of the CPA designation because it requires a degree, internship, and a rigorous exam. CPAs are also bound by a code of ethics and Generally Accepted Accounting Principles (GAAP). Bookkeepers, in contrast, often come from a variety of backgrounds and training programs. There is no mandated form of certification for bookkeepers. While an accountant must become certified through the American Institute of Certified Public Accountants (AICPA), there are two certification choices and administering organizations in the U.S. that provide professional designations for the bookkeeper. Organization American Institute of Professional Bookkeepers (AIPB) National Association of Certified Public Bookkeepers, (NACPB) Designation CB (Certified Bookkeeper) CPB Certified Public Bookkeeper When hiring a bookkeeper, administering a skills test is a good idea. A free 10- question bookkeeper hiring test can be obtained from the AIPB web site Small Business Bookkeeping Network page 4

5 Why Hiring a Freelance Bookkeeper is Vital to Your Success: You ll save the extra employee s expenses for payroll taxes, sick pay, vacation pay, insurance: medical, dental, and worker s compensation. You ll save on space in your office. You save yourself from having to manage another employee. You avoid the problems of employee turnover and the cost of recruiting and hiring a new employee. You won't have to worry about covering for an employee who is ill or goes on vacation. A freelance professional will care as much about your business success as you do and will go the extra mile for you. You won't have to worry about training a new employee and making sure that they are current on tax filing requirements. You will save time, money, and aggravation by utilizing the services of a professional whose focus is on completing your bookkeeping needs accurately and on time Small Business Bookkeeping Network page 5

6 Cost vs. Benefit According to the 2011 Intuit rate survey, the average rate charged for bookkeeping services is $68 per hour 3. While this may seem high compared to what you would pay a staff bookkeeper, consider the fact that the costs of maintaining an employee will include the following: employer payroll taxes at a rate of 7.65 % of the gross pay federal unemployment tax at a rate of 6.0% unemployment insurance if required in your state worker's compensation insurance vacation, sick pay, and family medical leave the costs of recruiting and training a new employee healthcare and life insurance costs if provided equipment, software, furnishings and space to house the employee Some Human Resource specialists estimate that the effective cost of an employee can run as much as 25 to 30% on top of the base salary each year 4. Even counting the additional costs of an employee does it make sense to hire a freelance bookkeeper and pay their hourly rate? 3 Intuit's Average Billing Rates Survey 2011 from Michelle L. Long, CPA 4 Why a $14/hour employee costs $20 by Catherine Clifford, March 26, Small Business Bookkeeping Network page 6

7 Think about it. If you've ever struggled with installing and setting up accounting software you know that it can take more time than it's worth. And if you do the setup incorrectly, finding and fixing the errors can be a never-ending nightmare. Suddenly the great investment in technology becomes a millstone around your neck taking time and energy from your staff and dollars from your bottom line. By hiring an independent bookkeeper you can avoid virtually all of the headaches and gain all the advantages of computer technology to help you track your financial data. A freelance bookkeeper will likely have the software experience needed to not only complete your monthly bookkeeping tasks in record time, but will be able to train your staff to efficiently input daily activity and prepare the necessary backup materials for all your reporting needs Small Business Bookkeeping Network page 7

8 What Should You Look for in a Freelance Bookkeeper? Experience: Ask a bookkeeping candidate about their previous experience and if they have ever worked with a business like yours. Special skills: Ask if the candidate has any experience with payroll taxes and income taxes. This isn't crucial in a bookkeeper as you may decide to have a CPA do your taxes. However, the more they know and have experience with taxes, the more value they will provide to you. Qualifications: Bookkeepers are not required to have a degree or certification in order to practice but you should ask how much schooling they have and if they have any professional certification. Work history: Check out their work history and call previous employers or current clients. You want to make sure that they exercise honesty and competency in all their dealings. Computer skills: If you're like most small businesses in the U.S. you're using some kind of computerized accounting software; probably QuickBooks. Be sure to ask about your candidate's computer skills and if they are QuickBooks certified. Software skills: Ask if your candidate has the same software that you use. This doesn't have to be a deal-breaker as your bookkeeper can come in to your office to do the work. However, it helps if they have their own copy of the software and experience in using it. Communication skills:. Make sure that your bookkeeper candidate is someone that you can communicate with. You want someone who will be available during business hours and can answer your questions accurately and in a way that you understand. Training skills: You'll gain more value from your freelance bookkeeper if they can train your staff in the daily recordkeeping tasks required to efficiently input financial data and create the backup materials for your filing system Small Business Bookkeeping Network page 8

9 Tips for Better Bookkeeping Pick an accounting system and stick to it. Develop a system for tracking the checks you write. Reconcile your bank statement every month.. Separate your personal finances from your business finances.. Use a filing system Keep a calendar of all your tax due dates. Use numbered purchase orders and invoices. Have a professional install and setup your computer software. Use a chart of accounts to code your transactions. Always use a check, ATM debit card, or credit card when paying for business expenses or purchases. Review your financial reports each month. Learn about online banking and use it. Get expert help with your bookkeeping Small Business Bookkeeping Network page 9

10 Conclusion If growth and efficiency are primary goals for an organization, then utilizing the services of a freelance bookkeeper is a choice that can reap many valuable benefits. Though the hourly rate charged by a freelance bookkeeper appears to be much higher than that of a staff bookkeeper, the gap between the two costs quickly closes when one considers that ultimately the cost of an employee tends to run much higher than the hourly rate paid. Moreover, a freelance bookkeeper brings added value that can be measured in more than cost savings. Freelance bookkeepers maintain their own computers and software, take responsibility for their own training and benefits, and make sure that your financial reporting needs are met all year long without interruption. In addition to these benefits, the freelancer can also be called upon to train your staff in the correct usage of your accounting software and in the efficient management of daily recordkeeping. About the Small Business Bookkeeping Network Small Business Bookkeeping Network was created to support those who start and run their own small business and for those bookkeepers who serve them. It is also a focal point and meeting place for readers of the book Jumpstart Your Bookkeeping Business; the definitive guide to starting your home based bookkeeping business in a few weeks and for little cost. To learn more about the Small Business Bookkeeping Network visit our web site at or us at info@smallbusinessbookkeepingnetwork.com 2012 Small Business Bookkeeping Network page 10