Bookkeeping 101
Should I do bookkeeping myself
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We are all DIY warriors one way or the other. We get our hands dirty and build things. I always enjoy watching woodworking project videos, and have tried a few myself around the house with some success. When running a business, we are constantly solving new problems, coming up with creative & effective solutions. We are problem solvers who are not afraid of DIY when necessary.
How about DIY bookkeeping? Can I do it myself? I say certainly. As a matter of factor, this skillset is good to have (not a must though) for business owners. The question is, should we do bookkeeping ourselves? Let’s explore this common question.
What is the process of deciding whether you should do bookkeeping yourself?
First of all, I hope you don’t expect me to you a formula that produces a simple answer. Because I don’t have one. What to do and what not to do as a business owner or manager are complex decisions. But we can talk about the framework of the decision making process.
Let’s start with a few factors & ingredients that are necessary for the decision.
Summarize all the data together and evaluate the pros and cons of the options.
Make a decision based on the info and objectives, and test it out.
After a few months, come back to re-evaluate and adjust. Business improvement takes iterations.
Key ingrediencies of the process
There are some factors playing important roles. Let’s first go over them one by one, and then put them together to evaluate whether you should take care of your own books.
Skillset & experience. Understand the bookkeeping principles and best practices for common business transactions. Know all the essential bookkeeping tasks for your business (see what do bookkeepers do?). Familiar with a bookkeeping software as everything about bookkeeping can be done efficiently & cheaply with a software nowadays. This requirement is fundamental before moving onto other things below. If you don’t have the skill yet, you will need to learn it. Otherwise, it’s good to get some help.
Your interest and preference. How much you enjoy bookkeeping? Does it energize you? Do you enjoy going over all the numbers? Or does it make you feel stressful instead? Bookkeeping requires weekly or bi-weekly repeated effort. If it’s dreadful to you and consumes too much of your energy, that’s something to keep in mind.
A quick note: It’s beneficial to get involved in the details of the books but it can be a little exhausting so it’s a balance act: being on top of things without exhausting yourself. It is helpful to always know your numbers on a high level, and ready to drill down the details when needed.
The phase of the business. Business evolves over time. During early stages, when the revenue is still low and transactions are few, it makes sense to consider DIY bookkeeping while the business is relatively simple. As business grows, financial activities also grow and can get complex pretty quickly. Many things will be added to your bookkeeping: accounts payable (bills to vendors) & accounts receivable (invoices to customers), sales taxes, payrolls (as your team expands), inventory, asset deprecation, etc.
Business needs & objectives. Another relevant factor is the needs for complex & higher resolution bookkeeping. Depending on the business goals (i.e. growth, efficiency, profit improvement, …), what level of the details do you need in your reports? Do you need a cost analysis for each project? Do you need to understand how different services perform? Is your business seasonal? How does business perform after a major change (e.g. hiring employees, introducing a new service)? You may need a nuanced reports that give you insights for decision making and review. The additional information needed for your business needs has to be included in the bookkeeping process, and it will certainly require more efforts.
Cost. Either doing bookkeeping yourself or outsourcing it has its cost. There is a cost of hiring a bookkeeper for your business needs (either hourly or monthly flat rate). Ask around or even interview a few bookkeepers to understand the cost structure and get a range of the cost. If you plan to do it yourself, there will be a cost of your time / energy, and cost of not doing other things for your business (opportunity cost).
Other factors. Each business and owner’s situation is unique. It’s possible that I missed some relevant factors. You may care about the personality and work style of the bookkeeper. The point is it’s good practice to write them down, and gather all the ingredients on the table before making the call.
Put all factors together
After you go over all the relevant factors, you have done your prep work. Great. Let’s put everything together for evaluation. Below is just a demonstration of how you may evaluate your options. The numbers can be different for your case. The goal is to see how it can work and you can do something similar for your business.
As long as you believe all the numbers and assumptions are reasonable, and there are no major things missing. Go ahead a make a call, and make a plan of actions. Don’t over think otherwise it’s easy to stuck if you are waiting for the evaluation to be perfect.
Test run
Follow your plan and test run for a few months. Say you’ve decided to try DIY your books. Give yourselves 3 months or so and during the testing period, be mindful of the following
Collect real data. How many hours do I actually spend on the bookkeeping tasks each month? What’s my competence level? How do I like the experience of it? Do the reports serve the purpose of my business now?
Update the info for each factor. Now that you have a few months of actual data, you can update the previous assumptions and info used in the evaluation.
Post mortem & adjust. Understand what went well that you want to continue and what didn’t and will need to re-evaluation or adjust. Running business is a journey of learning & improving, right?
Periodically re-evaluate
Every quarter or half year, re-evaluate the effectiveness the bookkeeping process, especially when the business situation changes over time. The requirement of bookkeeping may also change. Make sure the quality of your books don’t lag behind the business needs too much.
Conclusion & final thoughts
Overall, when the bookkeeping is straightforward, and you have the knowledge for bookkeeping and software (or don’t mind learning), it makes sense to do the books yourself. If the bookkeeping requires more time and skills based on your company needs and stage, don’t let the bookkeeping keep you from doing more valuable and impactful things. Bookkeeping should serve your business, not drag you down. Find a bookkeeper who is a good match for you and your business.
Be thoughtful when considering all the factors listed above. But don’t over think when making a decision. You are allowed to make adjustments later on as you learn.
Congrats on being an entrepreneur. I am proud of you and I am cheering you on~
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