Small business owners typically have a lot of items on their plates. They must seek out new clients and opportunities, manage customer relationships, and ensure their staff performs the basic functions of the business well.
In addition to all of these tasks, they need to make sure that their finances are attended to. But most small business owners aren’t trained in accounting. That’s why many companies turn to skilled bookkeeping services for assistance.
What Does a Bookkeeping Service Do?
A bookkeeping service provides accounting services to companies that don’t have the in-house staff to manage their financial operations. These services can include managing accounts payable, accounts receivable, and financial reporting. They may also provide payroll services and collaborate with tax planning professionals to ensure tax returns are provided accurately and on time.
Oftentimes, a three-pronged approach is necessary when you’re integrating your company with a bookkeeping service.
First, an appropriate accounting software program must be selected by your company. Oftentimes, a bookkeeping service will recommend specific programs that they are familiar with. Common programs are QuickBooks Online, Xero, and Zoho Books.
Each program has its own benefits and drawbacks. Some are more expensive than others or offer limited features.
A qualified bookkeeping service will analyze your accounting needs. They may consider specific aspects of your business, such as:
- Yearly revenue
- Number of transactions per month
- Whether your business is centered in one country or has global customers
- If you have transactions in a variety of currencies
- How many invoices are issued per month
- Amount of customers you have
- Typical amount of expenses each month
- Whether you hold inventory
- Types of services or products you offer
- How much you are able to spend on bookkeeping services
Each of these factors can be important when you determine the appropriate accounting software and the level of input you will need from your bookkeeping service provider each month.
Once your accounting software and level of service are established, your bookkeeper will input your accounting details into the program. This will include all of your current customer and vendor data, as well as account details and banking information.
Next, a chart of accounts will be created and customized reports can be designed to be appropriate for your company. A full-charge bookkeeper will be assigned to your account.
Your bookkeeper will record all transactions that occur within your company. They will note when new invoices are issued and when payments are due to vendors. These transactions will be noted in your general ledger.
If you have employees or independent contractors, the bookkeeper will ensure that they are paid on time. The bookkeeper will reconcile accounts each month and provide appropriate documentation.
In some cases, an individual who acts as a controller may be assigned to your account. They will act as the manager of the bookkeeper and review the transactions recorded in your ledger. Their responsibility is to ensure the accuracy of your books. They may also provide you with financial advice regarding the way that your business is managed.
Typically, controllers are responsible for financial reporting, which could include the preparation of a balance sheet, income statement, or statement of cash flows. A controller will typically be licensed as a certified public accountant (CPA).
The Role of Bookkeeping Services
As more individuals have started freelancing and opening small businesses, the need for bookkeeping services has significantly increased. Upwork estimates that the number of freelancers in the United States may increase by 10 million over the next year.
Currently, more than 57 million individuals within the United States perform some type of freelance activity. With all of these freelancers and small businesses comes the need for help with proper accounting.
Companies that don’t have the cash flow to accommodate their accounting in-house often opt for outsourced bookkeeping services. In some cases, business owners choose to seek out virtual bookkeeping services in lieu of traditional location-based providers.
With localized providers, company owners are able to regularly meet with their full-service bookkeeper as needed. They can also benefit from connections to local business tax advisory services that the bookkeeper may have.
A local bookkeeper may be more expensive than virtual service providers, but in-person services can be beneficial to clients who desire more personal communication.
But virtual bookkeeping services are on the rise, too. With this approach, business owners can discuss their finances via online meetings or calls. Typically, most of the communication occurs via email. Virtual services may operate in different time zones from the business itself. However, the providers work with companies to ensure that timely reporting occurs and any questions can be answered promptly.
Virtual bookkeeping services often assist many clients. They may offer a tiered cost structure according to the level of service that is required by their customers. Usually, a dedicated account manager will oversee the activities of the staff to ensure that monthly bookkeeping needs are met.
What Are the Benefits of Using a Bookkeeper?
A full-charge bookkeeping service helps companies to implement and maintain consistent financial processes. This strengthens the fiscal health of a company, which is especially important when you plan to scale your business in the near future.
Having appropriate financial controls in place can help to ensure that your company is protected from financial risks and potential obstacles down the road.
The benefits of a bookkeeper quickly become evident when they coordinate with you and your team. As financial reporting and analysis patterns are developed, a bookkeeper can share valuable insights into the performance of your business, including your workflows. This can lead to better decision-making for your leadership teams.
A bookkeeping team also works to reduce your overall expenses. They can alert you when specific expenses don’t positively impact your bottom line. They also ensure that your ledger is on track for tax filing purposes. This can help to prevent under- or over-reported income, which could potentially lead to fines or penalties if the event of an auto from the IRS.
In addition to reducing the risks your business might face, a good bookkeeping service can ensure that you have accurate, complete, and timely financial statements. This allows you to make quick decisions to reduce potential costs to your business.
Instead of devoting your time trying to perform accounting tasks all on your own, you will have an expert in place who can provide those services for you.
The best bookkeeping services save your business time and money. The processes and consistency that a well-qualified accounting team can introduce can greatly increase the longevity and efficiency of your business.
How to Choose a Bookkeeping Service
Selecting an appropriate bookkeeping service can be difficult, depending on the specific needs of your organization. Some businesses handle a lot of complicated transactions, while others have to communicate financial information with a large number of customers and vendors. These companies typically require a service that can be involved in financial tasks on a daily basis.
Other companies have low revenue, few customers, and no employees. They may just need assistance with recording a few transactions each month, along with the preparation of financial statements for the upcoming tax season or the end of the fiscal year. These companies may only need a few hours of assistance each month.
When you’re choosing a bookkeeping service, it’s important to have an understanding of what you need right now and what you might need in the future from a full-charge bookkeeper.
Here are a few questions to ask yourself before you start your search for a qualified bookkeeper:
- Are you seeking to scale your growth for the long-term?
- Do you expect revenues to grow significantly in the next few years?
- Will you be hiring employees or independent contractors soon?
- Do you want to work with someone who is available locally?
- Are you comfortable with working with an online bookkeeping service?
- Do you want assistance with financial planning or forecasting?
- Do you want a company that provides CFO services or tax preparation?
- Is there a specific limit to how much you are willing to pay for a professional bookkeeper?
- Do you operate using cash basis or accrual basis accounting?
- Are your current financial records up to date and accurate?
- Are you comfortable with outsourcing or do you want an in-house bookkeeper?
- What are your monthly reporting needs? Do you expect monthly financial reports?
All of these questions will impact the type of accounting service that you should hire. Your answers will also impact the monthly fee that you can expect to pay, as some providers offer custom pricing designed especially for the needs of your business.
Evaluating the Cost of a Bookkeeping Service
The cost of hiring a bookkeeping service will vary depending upon the services you require, the qualifications of your bookkeeper, and whether you choose a local or virtual service.
While it’s difficult to provide an estimate for bookkeeping services, some of the industry averages are listed below:
- Local bookkeeper at 5 to 10 hours per month — $150 to $250
- Virtual bookkeeper at 5 to 10 hours per month — $100 to $200
- Full-service local bookkeeper at 80 hours per month — $2,000 to $4,000
- Full-service virtual bookkeeper at 80 hours per month — $1,500 – $3,500
- Certified public accountant (CPA) at 20 hours per month — $1,000 – $3,000
Again, the price you can expect to pay for bookkeeping services can vary significantly, especially if you have a lot of add-on/additional services.
When you’re hiring a bookkeeper, it’s important to choose someone who has significant expertise in accounting, not just someone who is comfortable with data entry. True accounting requires a lot of judgment calls and a deep understanding of generally accepted accounting principles (GAAP). In short, the job goes beyond simply calling customers when their invoices are overdue or checking the balance of bank accounts!
Understanding the Qualifications of Bookkeepers
Bookkeepers may have a range of qualifications. Typically, they start out by earning an accounting degree. This may be an associate’s or bachelor’s degree. Next, they generally start to earn expertise by managing the books for a company. Some of this experience may be obtained while working for a small or medium-sized business. At that point, they may join a firm to provide bookkeeping services or start their own freelance business.
There are additional qualifications available to bookkeepers. These include:
National Association of Certified Public Bookkeepers (NACPB)
To earn a certification with the NACPB, a bookkeeper must enroll in the program and complete several classes related to accounting management. Topics include accounting, payroll management, and bookkeeping software, such as QuickBooks Online.
These courses will teach the bookkeeper how to reconcile a bank statement, understand business needs, and report monthly expenses.
Once classes are completed and an internship or experience as a bookkeeper has been obtained, the individual may apply for their certified public bookkeepers’ license.
American Institute of Professional Bookkeepers (AIPB)
The AIPB program is based on self-study materials and examinations. No formal education is required.
Bookkeepers who are interested in obtaining this certification will need to enroll in the program, purchase the books, and take a test. Once the test is passed, they will receive the qualification.
QuickBooks ProAdvisor Certification
The QuickBooks ProAdvisor certification is entirely free, but it is also quite helpful for bookkeepers who work mostly within QuickBooks Online. Once the certification is obtained, the bookkeeper will be able to show potential employers that they are well-versed in the software. This is beneficial for companies who want someone who is intimately familiar with the program.
Are Tax Prep Services Generally Included in Bookkeeping Plans?
Generally, a bookkeeper will not handle income tax returns for a company. This responsibility is usually performed by a certified public accountant (CPA) or enrolled agent (EA). However, the CPA or EA will be reliant on the information provided to them by the dedicated bookkeeper.
Unless the company undergoes a yearly audit or review with an outside accounting firm, the bookkeeping service will be required to put their stamp of approval on financial records for the year. Managers for the bookkeeping service will examine the financial transactions for the year to ensure their accuracy. The overall responsibility for the accuracy of the financial records, however, will reside with the company’s owner.
If the company does undergo a financial review or audit, the auditing firm will perform a set of specific procedures designed to investigate financial accuracy for the period. This can be especially helpful for companies that are seeking to expand or need funding.
Banks and investors want to know that a company’s books are in compliance with accounting rules before they agree to issue any funding.
Once the company’s financial records are proven to be accurate and up to date, the CPA or EA will review them before preparing the company’s yearly tax return. Thus, while the responsibility for tax services does not lie with the bookkeeper, they are responsible for accurate financial reporting.
Bookkeepers may file less rigorous types of tax returns related to sales or payroll. These types of tax returns are usually done on a quarterly basis. They may be created on the basis of revenue or actual salary payments to employees.