Identifying and choosing a bookkeeper can be a critical decision for a small business. A bookkeeping service aligned with your business and business systems as well as being able to compliment your skill set are critical factors to consider.
There are some other basic factors that you should consider when choosing a bookkeeper.
Decide if you need an Accounting Service and a Bookkeeping Service?
Many business owners use the terms Accountant and Bookkeeper interchangeably. However, they are two very different animals and choosing the service that meets your requirements can save you time and money.
For an overview of the differences between these two professionals and what making the right choice could mean for your business, read this article.
Ask yourself if location matters
It used to be important to have your company’s accountant located nearby. But today, more companies are collaborating online, using cloud-based technology to manage their business. This means that location is less of an issue. With cloud accounting, you and your accountant can view identical real-time data at the same time – no matter where you are.
The decision about where to find your accountant really comes down to what suits your company best. Depending on how you want to handle the finances, your accountant could really be based anywhere in the world. For example, if you’re happy to collaborate via email, phone calls, video-conferences, or secure accounting software, then you could be in New York and they could be in London. If your accountant can be anywhere in the world, you don’t need to make compromises based on their location. You can find someone who really understands the specifics of your business or industry.
On the other hand, you may prefer face-to-face contact and find it useful to have someone who’s able to go to business meetings with you. If this is the case, then you’ll need to limit your search to accountants who work nearby or are willing to travel to your premises from time to time.
Wherever they happen to be based, make sure they’re an expert in the tax laws that apply to your business.
What bookkeeping system to use?
A more detailed article on how to choose a bookkeeping system for your business is coming soon but, in summary, you have only a handful of options:
- Manual accounts
- A spreadsheet
- Free online accounting software (Wave Apps)
- An ‘off the shelf’ accounting package that you either subscribe to or purchase outright (MYOB, Reckon, Quickbooks, Xero – our preferred, etc.)
Your decision will be dependent on the complexity of your business, your reporting requirements, your knowledge of accounting principals and your budget.
Implementing your accounting system
Regardless of the type of accounting system you use, you need to ensure that it meets your compliance obligations, such as GST or other tax compliance.
This is done by setting up classifications, also known as a chart of accounts.
Chart of accounts
A chart of accounts is a listing of all the accounts needed to account for the financial transactions of the business. Classifications are used to separate profit and loss calculations so as to show where your business is making or losing money. They are also used to determine the overall financial position of your business in a balance sheet.
Normally we set up (or refine your existing) chart of accounts as part of the onboarding process. This process is carried out with significant input from you and/or your tax accountant.
Below is an overview of the process:
- Define the various accounts to be used in the business, such as different classes of assets, liabilities, expenses and sales revenue
- Make a list of all of these under the financial classifications as noted above – that is each different type of account for assets, liabilities, sales revenue and expenses
- Allocate a numbering system for each account within the chart of accounts. For example allocating all asset accounts to the 1000 number series and all liability accounts to the 2000 number series, etc.
- Depending on the level of information you need, determine if each sub account needs sub accounts.
- Set default GST rates for each account.
The chart of accounts is very important to the overall effectiveness and accuracy of your bookkeeping.
Source documents are the original invoices, receipts, statements or other document that contains the details to substantiate a transaction. You can keep these either in electronic or paper format. If in electronic format, you need to be able to be print them off, if required.
As a business owner in Australia the Australian Tax Office requires you to keep any source documents relating to your tax returns for five years from the date that you submit your tax return.
If you run a company or trust in Australia Section 286(2) of the Corporations Act requires financial records to be kept for seven years.
It should be noted that there are a seven requirements for a tax invoices to be valid. Tax invoices need to meet these requirements in order for tax credits to be claimed.
Running your accounting system
Start off with an honest question and answer session with yourself. Do you want to do the bookkeeping for your business? If so, great. But if not, who’s going to do it? Have a plan! The following are five options to consider if you decide on choosing a bookkeeper.
Option 1: Learn your chosen accounting system and input items yourself
I know this strikes fear in some of your hearts. In fact, this is probably why you currently aren’t on top of your bookkeeping. But you still may want to hold off outsourcing or delegating any part of the process until you put in a few hours a week to learn the basics, like inputting figures. At the bare minimum, you need to be able to view and print reports and check the accuracy of the work.
As well as helping you to set up your accounting system a professional bookkeeper should help you to learn the system as well. This is something that you should insist on.
The Tasmanian Government provides a comprehensive document explaining the benefits for small business owners in understanding bookkeeping and the systems they use. It is worth a read for every business owner.
Option 2: Hire a family member to keep up the books
This is a great way to have the teenagers or young adults you’re supporting financially earn their keep while also learning about entrepreneurship and business. They’ll learn about the heart and soul of your business by doing the books. Adding them to the payroll can also a great tax benefit.
Option 3: Choosing a Bookkeeper external to your business
Signing up for a bookkeeping service can free up your time so you can do what you do best: Generate more income for the business.
Choosing a bookkeeper external to your business provides you with flexibility. You only use them when you need them while still gaining access to their specialised accounting knowledge. This is also a natural step in the growth of a business before choosing option 4. Remember, this person will probably not prepare your taxes or do significant planning for you; they’ll simply maintain your books affordably so you can focus on more pressing tasks.
Option 4: Employ someone “in house”
If your business is large enough to employ someone you could hire staff to input data and print reports.
You will need to provide some supervision, or you could have your existing contract bookkeeper supervise your in-house bookkeeper.
It can be extremely convenient to have an employee available to keep things in order. You can also hire someone to wear different hats and help with other tasks. Like answering phones, scanning, doing collections, shipping, or running errands. Employing someone does come at a cost though. This post provides a detailed comparison between employing someone and outsourcing.
Option 5: A blend of any of the previous options
Many businesses use a mix of these options.
Some clients like doing data entry themselves and just have us check their work to ensure compliance. Others simply scan invoices and upload them so that their bookkeeper can look after the entire bookkeeping process from there.
A good bookkeeper provides you with a service that fits with your existing business processes and your preferred level of involvement.
What else should you look for when choosing a bookkeeping service?
There a number of other blog posts (below) that will help you to choose a bookkeeping service that fits with your business.
We have written an article outlining 12 key offerings that a good Bookkeeper should provide.
You can find more information on these sites:
Business Victoria – A comprehensive list of questions that you should ask your bookkeeper
Australian Department of Industry, Innovation and Science – Provides an excellent overview of the various financial professionals available to small businesses and differences between them.