Picture this: You're planning to release a new product to your customer base, and you've got multiple tasks to attend to, including team meetings and an external sales consultation. Aside from internal matters, you're hoping to obtain funding from an interested investor, but you must keep your financials up-to-date. Where should you start?
Founders know the struggle of managing their time and trying to accomplish everything on their to-do lists. However, one thing you shouldn't spend your time on is crunching numbers, especially without prior startup bookkeeping skills. Even if you're not ready to hire someone full-time, you can likely afford an outsourced one.
Read on to explore the role of a bookkeeper and determine when hiring one is appropriate.
What Is Bookkeeping and Why Is It Important for Startups?
Bookkeeping for startups involves recording a company's financial transactions. Bookkeepers record every action that impacts a company's financial position, including payroll, receipts and disbursements, and other business expenses. An experienced one will use bookkeeping best practices to give you a clear picture of your organization's financial status and keep your financial statements up to date.
Startup owners typically operate without a bookkeeper, especially in the early stages of their business. However, the earlier you hire a finance expert to assist you, the better.
The Role Of A Bookkeeper
Bookkeeping duties involve recording all the daily transactions that occur in your business. A bookkeeper will use your accounting software to record incoming customer receipts, prepare invoices for clients, and document new accounts payable. If you have a team of employees or independent contractors, your bookkeeper might also manage your payroll.
Some bookkeepers handle cash deposits with your bank. They can also record non-cash transactions, such as depreciation on equipment or machinery.
Overall, this person should act as your support for all financial activities that occur in your business. Some bookkeepers also handle minor tax filings, such as payroll and sales taxes. However, most founders use an experienced CPA for annual business tax returns.
When To Hire a Bookkeeper: 5 Signs
At some point, you'll need to relinquish control of your company's finances! That way, you can spend time on activities that prepare your business for future growth, like new products and services or marketing plans. There are several signs to look for when it's time to hire a bookkeeper.
1. Increase in Revenue and Sales
If you've noted an increase in revenue and sales, it's likely time to hire a bookkeeper. You've got more products to sell, and need to keep your accounting records up-to-date while you hustle to grow the business. They'll record each transaction promptly, so you can see which products or services bring in the most money.
2. More Complex Financial Transactions
Your business likely started with startup funding and minimal transactions. As your startup matured. hiring employees or purchasing equipment began to increase the complexity of recording your growing transactions. A bookkeeper can ensure they record complicated transactions per accounting standards like GAAP or IFRS in a timely fashion.
3. Need for Accurate Financial Reporting
You should ensure accurate financial reporting, beginning from day one of your business. However, accuracy will become even more crucial when you seek external financing. Any investor or bank will take a fine-tooth comb to your finances before providing any funding, and someone dedicated to managing your books helps guarantee that your financials are on point.
4. Difficulty Keeping Up With Bookkeeping Tasks
You may have enough time to manage your bookkeeping in the early days of operation. However, success can quickly alter your situation, and you may have less free time, setting back accounting activities. A qualified bookkeeper manages your finances, saving you time and resources while you do things only you can do for your business.
5. Compliance and Legal Requirements
Startup founders with no legal or accounting background may be unfamiliar with compliance requirements like quarterly taxes and payroll filings. A qualified bookkeeper can assess your company's financials and determine what compliance activities are necessary. Staying compliant in financial activities is crucial to prevent unnecessary fines or penalties.
How To Find and Hire the Right Person
Partnering with an experienced bookkeeper can set you on the path to success. But there are several things to consider to make sure you bring the right person on board. Here are some things to consider:
Qualifications To Look For in a Bookkeeper
Ideally, your new hire will have an education in accounting, and a two-year degree in Accounting will usually suffice. You can also look for someone with a Certified Public Bookkeeper license or who has prior experience maintaining the books for other companies. Start by looking for candidates with positive reviews or references.
Tips for Finding and Interviewing Bookkeepers
If you have office space, you might prefer your bookkeeper work onsite. That way, you can ask them questions and oversee their work. Check with friends to see if they can make recommendations. Post the job on a career site if you can't find someone through your professional connections.
Business owners who are still deciding whether to hire a full or part-time bookkeeper can consider outsourcing the task to online bookkeeping services or freelancers. Sites like Upwork are a great way to find bookkeepers. You can use filters to limit the location of applicants, so they're still in your time zone.
After you have a list of candidates for the position, you'll want to interview them to find the right fit. Inquire about their experience, and ask basic accounting questions to test their knowledge. If your background isn't in accounting, use an online skills assessment to ensure they know what is necessary to oversee your books. You should also feel comfortable communicating with the person you hire.
The Importance of Clear Communication and Setting Expectations
Once you decide on your new bookkeeper, setting expectations and promoting transparency is critical. You'll want to establish a timeline for your month-end close and ensure your bookkeeper makes any compliance filings according to state and federal deadlines.
You should also ensure your new hire knows how to reach you if questions arise, especially if they're working from home. You might consider setting up a weekly call or in-person meeting to connect with them.
How Much Does a Bookkeeper Cost?
The amount you pay your bookkeeper will depend on their experience, responsibilities, and location. According to Payscale, the average hourly rate of a bookkeeper is $18.87. Whether you employ them or leverage an independent contractor, you may pay more or less.
In some cases, business owners choose to hire an accountant instead of a bookkeeper. An accountant typically has a Bachelor's degree in Accounting or Finance and will likely be more knowledgeable about accounting standards. Accountants earn an average salary of $54K per year, not including benefits.
Most startups don't need an in-house CPA, at least in their first years of business. They might hire a CPA to prepare their fiscal taxes or financials before seeking funding. A CPA has the highest level of knowledge of all accountants. In addition to their Bachelor's degree, they'll have a CPA license from their state, and they may also have a master's degree. On average, a CPA earns $73K yearly.
We Have Bookkeeping Software, But Is That Enough?
Simply having bookkeeping software isn't enough to maintain your financials.
While your bookkeeping software may contain automation features that make it easy to record transactions, it can't track your compliance and won't typically tell you if there are mistakes in your books.
A bookkeeper can reduce your chances of significant errors affecting your taxes or year-end financials. They'll work to ensure that your financials are complete and align with GAAP or IFRS standards.
For example, consider a company that automates its bank transactions through online accounting software. The software records all the cash transactions, but the owner doesn't realize that certain non-cash transactions, such as depreciation or accruals for future purchases, should be recorded.
In this situation, a bookkeeper could quickly assess the missing transactions and record them in the accounting software. Without this expert backing you, the software would overlook the entries, potentially resulting in inaccurate financial statements or fiscal tax returns.
Experienced professionals work in tandem with software to cover you on all ends. The software automates daily tasks giving your bookkeeper time to work on larger projects. If the software doesn’t have an error safety net, your bookkeeper can complete manual audits to ensure everything is cohesive and accurate.
With both a bookkeeper and an accounting platform like Zeni, you'll streamline and improve the overall financial management of your startup. You won't need to worry about accounting errors that might not be outwardly obvious, especially to founders who don't have an accounting background.
Is Hiring a Bookkeeper Worth It?
While hiring a bookkeeper is an investment, it will make your life much easier. You'll be free to concentrate on your company's operations, not administrative activities like recording transactions. You'll gain a thorough and accurate understanding of your financials, making it easier to make critical decisions when needed while avoiding costly errors.
If you see the signs that it's time to start building your finance team, don't ignore them. You'll find that the cost of a bookkeeper is well worth it, giving you the satisfaction that your financials are current and accurate.