Benjamin Franklin supposedly once said, “If you fail to plan, you are planning to fail.” Never is this truer than when you own a business. Every business owner, new or experienced, knows that a business plan should be used to plan where you want to go. And part of this plan should include designing your accounting department. You may think, “I’m just a one person operation, why do I need an accounting department?” The reality is, every business needs to track their finances closely and accurately in order to succeed. It’s not a question of if you need to keep financial records, the real question is how are you going to keep those records? What you need to determine is, what is the best type of accounting department for your business?
There are three basic choices to consider and various factors to assess to determine which is best for your business.
DO IT YOURSELF
If your business is just starting out, the accounting may be simple enough for you to handle yourself. Of course, this requires an aptitude, not just for numbers, but for attention to detail. This can be a great option for many as it can save money and give you a complete understanding of what is happening in the business. I recommend that you get assistance setting up the books and learning how to handle the day to day tasks involved. You will most likely still need assistance when it comes time to interpret the information and it would be advisable to have expert oversight as well. Unless you have a background in accounting, it is easy to make mistakes, overcomplicate or oversimplify the bookkeeping making it difficult to keep the books clean. With this option, you’re left to read the financial reports yourself and figure out how to utilize the information. This is probably okay as long as your business is fairly small and you do not run into cash flow problems. Once you grow a little it would be advisable to move to one of the other options.
OUTSOURCE TO A PROFESSIONAL
In my experience, the percentage of business owners qualified to handle their own bookkeeping is very low, and the number qualified to utilize the information correctly (taking it to more of an accounting level) is even fewer. I frequently come across businesses that believe they can’t afford an outsourced accounting department. This is short sighted. Cutting costs is important; skimping on the cost of keeping clean books is costly. Having an expert handling your accounting is worth the investment and should be part of your operating budget. This is often the best choice as you can have a qualified professional managing your books and helping you interpret the financial reports so that you can use it to plan your success. This is often more cost effective than hiring an in-house person, and you can get better qualified help as outsourced professionals specialize in handling all aspects of accounting.
HIRE AN EMPLOYEE
Once a business gets to be large enough, having an in-house bookkeeper and possibly a CFO becomes more practical. This is a step that should be well planned for in advance. Sometimes, hiring someone qualified to work as a bookkeeper and administrative assistant will make it more affordable. You may choose to start with someone with basic skills and continue to have oversight outsourced. Having an accounting professional available to assist your in-house help and to interpret the information can be most useful. This combination is very beneficial when the owner is not qualified to handle the books themselves (it really isn’t for everyone) but wants to have expert assistance available.
These three basic profiles can be mixed and matched to a certain degree as well. Often business owners start out handling their own accounting but as the business grows they find they don’t have the time to keep up on their accounting. Then it may be best to just keep doing the invoicing or paying the bills while outsourcing the rest. Or it might be great to have in-house help but have an expert to meet with regularly to evaluate what’s going on and to help with planning. As businesses grow and change so do their accounting needs. It’s best to evaluate where you are and what your needs are regularly to determine if it’s time to make a change.
Whichever method you choose, be sure you use qualified personnel. It’s easy to hand off the responsibilities to someone and forget about it, but it’s your business and you should keep an eye on what’s happening to be sure everything is being handled correctly. Knowing how to review the financial reports is paramount to your success; make sure you understand what you are reviewing. If you are not sure what something means, ask for an explanation. Learn and grow with your business and you will be able to plan where you want to go and how you want to get there; wherever you want to go.
Fun Facts :
Regarded by some as the smartest man who ever lived, even Albert Einstein was no fan of figuring out his taxes, once remarking, “The hardest thing in the world to understand is the income tax.”
Sherry Lutz Herrington is the owner of Sherrington Financial Fitness, a business consulting and accounting firm specializing in strategic business planning and solid financial accounting for businesses. She is also the author of Strong Women Thriving (https://strongwomenthriving.com/), a blog which focuses on empowering women to be financially savvy, particularly after experiencing financial abuse. Sherry is currently writing a new book that both shares her personal story and addresses financial abuse. She can be reached at firstname.lastname@example.org.