Our Small Business 101 series is for anyone who owns a small business and for anyone who's thinking about starting a small business. It draws from lessons we've learned while working with thousands of Canadian small business entrepreneurs over the years. It's the class we wish we'd taken before starting Origami. And the night class you should be taking right now.
Bookkeepers record and categorize financial transactions for small businesses. These transactions are regularly summarized in financial statements that help small business owners monitor and manage the performance of their businesses. Financial statements are also the inputs CPAs need to prepare and file corporate tax returns. The Canada Revenue Agency doesn't appreciate it when businesses don't file their tax returns. There are better reasons, but that should be reason enough to care about your bookkeeping — and how it gets done.
What's a financial transaction? Good question.
- You make the first deposit in your business bank account. That's a transaction — but it doesn't affect your profit.
- You hire a designer to create your logo. That's a transaction — but it's not a financial transaction. There's nothing for the bookkeeper to record.
- She finishes the work and sends you an invoice. That's a transaction — it does affect your profit, but it doesn't involve cash.
- You pay the invoice a couple of weeks later. That's a transaction — it doesn't affect your profit, but it does involve cash.
Confused? Well, hang in there. Because you've handled just three out of what may be hundreds of financial transactions your small business will generate every month! While it's true that bookkeeping software like QuickBooks Online makes things easier than it's ever been, that's only provided you know what you're doing or you're willing to learn.
But, hey, bookkeeping isn't rocket science, right? Sure. Nothing is — except rocket science. Given time, patience, and determination, most people can pick up and get good at a lot of things. Bookkeeping included. The question to ask yourself is: Did I start my business to learn how to be a bookkeeper? Or did I start it to build it into a smashing success? You only have so much time, patience, and determination in any given day. How do you want to spend it?
No one wins alone in small business. There's too much to know and too much to do. You need a strong team — good people and good suppliers in the right roles — to help you achieve your goals. Choosing a knowledgeable and motivated bookkeeper is one of the underrated moves small business owners can make to bolster their odds for success. Let us tell you why.
1. Competence pays for itself (and then some) quickly
When you do your bookkeeping yourself, you'll always have a nagging doubt whether you did it correctly. Did you miss or forget something? Did you put something in the wrong place? How do we know this? Before we started Origami, we used to do our own bookkeeping too.
Competent and experienced small business bookkeepers make far fewer errors during routine data entry. They've seen the routine and not so routine transactions countless times while working with other small businesses. And when they review the financial statements after the bookkeeping is done, they'll often be able to catch and correct any errors they've made.
They'll even catch payment errors and mismatches in receivables or payables the month after they occur. They'll know how to handle and record more complex transactions, the kind that will have you stumped and Googling when the kids are in bed. And they'll be more up to date on valid business deductions for tax purposes, helping you lower your tax burden and keep more money in your pocket.The big thing, though, is better bookkeeping improves your input data quality. That improves the representativeness and quality of your financial statements. That matters, because, to get your business to where you want it to go, you'll be relying on your financial statements to steer, so you'll want to trust the information that's in there.
2. The importance of being organized
Small business owners often neglect to stay on top of their bookkeeping. This leads to a painful scramble to get everything ready come tax time. Or the more painful scenario of being late in filing and incurring interest and penalties, as well as large one time payments for tax and catch up fees.
Working with an experienced small business bookkeeper can keep you organized with your record keeping and on top of your tax filings and payments. They'll set up systems to help organize your receipts and other paperwork and a routine to follow to make sure this important work gets done. They can also help you with AP and AR if needed, by preparing reports and reminding you to collect from customers and pay suppliers.But certainly the most important benefit of staying organized and on top of your bookkeeping is timely, reliable financial statements.
3. Timely, reliable financial statements
The point of good bookkeeping is to produce timely, reliable financial statements. These statements show you how your business is doing right now, how it's doing against your targets, and what you need to work on next. They show you the essential numbers for your business: sales, profits, cash flow, your money in the bank. Think of these numbers as heart rate and blood pressure, the vitals that tell you what kind of condition your business is in. You have to be aware of the condition of your business at all times.
Small businesses go from healthy to sick to walking dead to deceased much quicker than human beings do. It's not knowing and not paying attention that puts your business most at risk. And it costs you so much wasted time. Look at it this way. Investors use financial statements all the time to figure out if a business is worth owning or putting their money into. If they decide to invest, they then use financial statements to see if their investment is paying off.
Why is it any different for you? After all, you're your business's primary (or sole) investor. You need to make sure your investment is generating returns. You're also the CEO, the person responsible for producing those returns. In both roles, you have to understand your financial statements and use them to make your decisions. Just like the investors and CEOs of bigger businesses do, just like the owners of successful small businesses do.
4. Understanding where you stand, aka Understanding your financials
Financial statements have been around forever. They're a big part of the language of business. They communicate the financial results for any business, big or small, in a standard, easy-to-understand form. If you live in the business world, you gotta learn the language. Because if you don't bother to learn, you're going to spend the better part of your days confused.
An experienced small business bookkeeper can not only generate financial statements for you, she can help you understand them. She can help you see what the numbers are telling you about how your business is performing. Point out where you need to put in work. Put the numbers in a general context with the numbers she's seen from other businesses in your industry.
Many small business owners get into business without a formal business background. If you're in this camp, an experienced bookkeeper can translate the language of business until you start to become fluent yourself. And if you're already fluent, an experienced bookkeeper is a second pair of eyes helping you focus on the numbers that matter.
Note, it's extremely rare to find a bookkeeper who's able to fill this valuable role. It requires a level of training and understanding that falls well outside of the typical bookkeeping career path. To be fair, though, helping you understand financials and how your business is performing is something that CPAs also find difficult. It's too far outside their wheelhouse, which is tax.
This is a big focus for our team at Origami.
There are three options for finding experienced small business bookkeepers: hire, freelance, outsource. We're going to give you our perspectives on each, but, before that, we're going to lay our cards on the table: You should work with us! We're a committed, motivated team that comes to work every day thinking about how we can help our clients reach their financial goals. We'd love to work with you.
Hiring a small business bookkeeper
Hiring a small business bookkeeper means facing some of the same challenges that we face: recruiting, training, retaining. You'll have to pay at least a market wage plus provide coverage when your employee takes vacation or sick days. Because there's usually not enough bookkeeping work to keep this person busy, she'll often be asked to take on other tasks in the company. These other responsibilities will provide cover for the bookkeeping not being current.
You'll have to manage your employee and provide some scope for career advancement and professional development. If the employee performs below expectations, you'll have to let her go. If the employee leaves, you'll have to start all over again. Small businesses that choose this option have usually grown big enough to have an accounting department, so that it's not a single hire.
Working with a freelance bookkeeper
This is a roll of the dice, because you're not working with a company, you're working with a person. It's a gamble when you choose a company too, but, in general, you're taking on more risk when you choose to go with an individual. If anything comes up in the freelancer's personal life and she goes off grid, you'll have no one to call. (This happens more often than you think. Think about it. When life throws you a curve ball, what choice do you have but to drop everything?)
You also have to rely on good time management skills on the part of the freelancer. they can be more flexible with the type of arrangements they can take on. For example, they may come to your office once or twice a month. With a roster of clients with varying needs, habits, and workloads, however, a freelancer really has to work to stay on top of all her commitments. You may find yourself lower on her priority list more often than you'd like.
Fees will vary, but you have to be careful with anyone charging a comparatively low rate. That person is putting themselves in a precarious position; with low rates, they have to take on more work to make ends meet. More work inevitably leads to falling behind, shortcuts, or, worst of all, succumbing to the temptation of collecting fees and not doing the work.
Freelancing isn't easy. We find the best and most reliable have a roster of loyal clients that have been with them forever. They don't need or want more work. You may be looking for them, but they're not looking for you.
Working with a bookkeeping company
A dedicated bookkeeping company will have more than one bookkeeper on staff. This provides redundancy for when staff take vacation, get sick, or quit. It should also have a management layer to train and manage bookkeepers and make sure work is getting done and at a high standard. Clients should be able to contact customer support or account management to discuss any issues they have with the service. The service will usually be all online. Smaller shops may be able to send someone to your place of business, but that doesn't scale. Fees tend to vary, because some of these firms will outsource the work to low cost countries, usually in Asia.
One thing to watch for is turnover in who's handling your file. There are inevitably going to be new faces doing your work. Bookkeeping companies have to manage staff promotions and turnover. If there's too much turnover or there don't seem to be enough controls to make sure a new person is sufficiently knowledgeable with your file when they take over, then you're going to be spending more time than you'd like answering questions you've already answered.
Another thing to watch for is how much a priority the company makes it to produce timely, reliable financial statements that you can understand and use to manage your business. Bookkeeping companies often treat the work as a volume business. They get through one file, they move on to the next. They don't have the bandwidth, either because of their pricing or because of their skill set, to work with clients on setting and achieving targets.
Finally, you might experience some friction in the yearly handover to your accounting firm for the tax work. The two sides may have different perspectives and expectations when it comes to a set of "clean books," and this could lead to stand offs with you stuck in the middle.
Working with an accounting firm
Accounting firms will sometimes offer all-in-one services to small businesses, including bookkeeping, financial reporting, year end corporate tax, payroll, AP, AR, etc. Origami falls into this category. We don't want to talk about anyone else. We think that we're the best option for small business owners looking to succeed with their businesses. In fact, we've written another post about it: You Want to Build a Better Business, Pt. II.
The big advantage with this option is that, because the team includes both CPAs and bookkeepers (who are often training to become CPAs themselves), the overall skill level and professional standard is high. And, if, as we've done, you layer onto this strong base a system for helping small business owners better understand and plan their financials, you really improve the odds for small business success. At least, that's how we've seen it, from over a decade working with small businesses across Canada.
The thing to evaluate here is the general philosophy of the firm — do they consider themselves a traditional accounting firm that begrudgingly added bookkeeping or are they far enough in their thinking to see that the problem the small business client wants help with isn't just bookkeeping and accounting, it's how to win. And, of course, the ability to deliver. Trust us, scaling to provide a high level professional service like this for small businesses across Canada is a real challenge. But we're more than up for it.
Thanks for reading! If you're ready to start building a better business, give us a call at 1-888-745-1315 or get in touch with us by filling out our Get Started form. We're always happy to hear from you and learn about your business. We'd love to see your small business succeed, and we'd be proud to be a part of your success.