Money is the lifeblood of your business, and arguably no member of your team does more to support you with the management of your cash flow than your bookkeeper. In fact, the very first team member you hire should be a bookkeeper—and that person should not be you.
If you’re serious about your business, you should not be doing your own bookkeeping. The job is simply too critical to your company’s success for you to try and fit it in with all of your other responsibilities. And the role really should be filled by a professional who keeps books for a living, not someone who took a few accounting classes in college.
Furthermore, keeping proper financial records is something that needs to be done properly from the very start of your business. So, even if your operation has yet to earn any revenue, consider paying for a bookkeeper out of your own pocket.
If you don’t have your finances set up correctly from the start, you’ll likely have a huge mess to clean up down the road. You also won’t have the resources you need to make insightful decisions to facilitate your business’ financial growth.
Seeing that bookkeeping is so critical to your operation’s success, we’re going to take a closer look at what effective bookkeeping actually looks like. The first thing you need to get clear on is what you’re looking for in an effective bookkeeper. By clearly identifying your bookkeeping needs, you’ll be able to guide your working relationship with your current bookkeeper or hire someone new. Here are some key questions you should consider.
Are you looking for a bookkeeper, administrative support, or both?
In the past, companies often combined bookkeeper and administrative assistant into one position. To this end, make sure you’re clear on exactly what kind of services you need when hiring a bookkeeper. While the two roles have been blurred into one, bookkeeping and administrative support really are two distinct skill sets.
For this reason, you’ll be better off keeping the two jobs separate by hiring different individuals for each position. Keep in mind, a trained bookkeeper is not necessarily a trained administrative assistant and vice versa.
What services should your bookkeeper provide?
Bookkeeping is much more than just keeping track of your company’s credits and debits—it’s about financial management. Among other things, your bookkeeper’s role should include weekly (if not daily) cash flow management, monthly review of your financial reports, monthly categorization of expenses, as well as quarterly updates of your forecasts and projections.
And as we discussed a few weeks ago, your bookkeeper (in concert with your tax advisor) also plays a vital role in helping you develop and implement your company’s tax strategies. You bookkeeper won’t actually prepare or file your taxes—that’s your tax advisor’s job—but he or she is instrumental in building the financial foundation upon which your tax strategies are built.
It’s important to note that effective bookkeeping requires sound systems. If your company’s bookkeeping systems aren’t set up the right way from the start, your bookkeeper isn’t going to magically fix them.
As your Family Business Lawyer®, we specialize in helping entrepreneurs set up effective financial systems, including bookkeeping, for small businesses like yours. Contact us for help this process.
Does your bookkeeper truly understand your business?
To properly manage your company’s finances, your bookkeeper needs an in-depth understanding of how your business functions. Again, the job isn’t just about plugging in numbers—it’s about supporting you in developing your overall financial strategies.
To this end, your bookkeeper should thoroughly understand all of the ways your company brings in revenue, as well as the various expenses that go into delivering your product or service. From there, your bookkeeper will be able to create a meaningful chart of accounts and financial reports based on the specifics of your operation.
These resources allow you to clearly see all of your income sources and expenses broken out separately, which you can use to make strategic financial decisions based on hard data.
For instance, this data enables you to decide which products and services you should most focus on, which products and services you might want to eliminate, and find areas of your operation where you might be bleeding cash. Without these reports, you are basically in the dark about your company’s financial health.
Meet regularly with your bookkeeper
You should meet at least monthly with your bookkeeper to review your profit-and-loss (P&L) statement and ensure all of your expenses are properly categorized. Developing an effective system for categorizing expenses will keep you from scrambling to get your books in order come tax time and enable you to maximize deductions when you file.
Each month when you review your P&L, you’re looking for variances from the prior month as well as improperly categorized expenses—or expenses that aren’t categorized at all. It’s crucial to properly categorize expenses, so you can measure financial trends and write off as many deductions as possible against your taxable income.
A properly categorized and reviewed P&L can also help you to make wise, strategic decisions from one month to the next, and you should definitely use it to engage in quarterly strategic planning, if you are not already doing so.
If your business is earning six figures or more each year, you may want your bookkeeper to prepare weekly financial reports for your review. These will show you how much you have in the bank, how much is coming in, and how much is going out at any given time.
Many of our clients choose to have us attend these meetings with their bookkeeper. If this is something you’re interested in, let us know, so we can work out a schedule.
Go paperless for more efficient recordkeeping
You should create a paperless filing system with your bookkeeper, so you don’t have to keep any paper records yourself. You should be able to send everything to your bookkeeper electronically, and he or she should keep all of your invoices, paid bills, and other important financial records in a digital file for you.
Likewise, make sure you’re banking with a bank that provides electronic copies of your checks. Then be sure to send your bookkeeper a copy of the invoice or bill you’re paying with each check. That way, if any discrepancies arise in the future, you can easily reference checks and invoices to sort things out.
Keep close track of accounts receivable
Your bookkeeper should also keep track of any accounts receivable and include them in monthly reports submitted to you. Accounts receivable that go unpaid for too long or get overlooked are more likely to go uncollected.
What’s more, having these details included in your reports will allow us to better help you should you ever need collection support.
Stay apprised of your company’s financial health
The most critical best practice is to make it a habit to closely monitor your company’s financial status. This means setting aside at least an hour every week to review your financials. You can use the information you obtain to proactively address any issues that might come up. It will also help you know what to look for during your monthly meetings with your bookkeeper, when you review your P&L to keep it up-to-date.
Ultimately, effective bookkeeping involves putting sound financial systems in place and having a good working relationship with your bookkeeper. As a key player on your team of financial professionals, your bookkeeper’s role in your company’s success should never be taken for granted.
Don’t wait to get started
Don’t procrastinate when it comes to finding the right bookkeeper. Hiring a highly experienced bookkeeper with whom you can build a tight relationship might require an investment of time and money upfront, but the ultimate payoff in terms of your financial strategy and tax savings will more than make up for the effort and expense.
If you need support in finding the right bookkeeper, meet with us for guidance. We can refer you to bookkeeping professionals we trust, and help you put systems in place to ensure your company has a rock-solid financial foundation. Contact us today to get started.
This article is a service of Stafford Law Firm. We offer a wide array of business legal services and can help you make the wisest business choices throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.