Should You do Your Own Bookkeeping or Hire a Pro?
Bookkeeping is the tracking of financial transactions, usually by entering them into accounting software. It provides a picture of where your money comes from, where it goes, and your potential tax deductions.
It’s important because:
- You need it for taxes
- You need it to borrow money
- It helps you catch errors before they cause problems
Want to Do Bookkeeping Yourself? Here’s What’s Involved
Separating business and personal expenses
If there isn’t a sufficient firewall between your personal and business finances, you could be held personally liable for debts incurred by your business.
Mixing personal and business expenses can also result in unnecessary stress when you need to file taxes.
Choosing single or double entry
With single-entry, entries are recorded once, as either an expense or income. Assets and liabilities are tracked separately. If you’re just starting out, single-entry is probably right for you.
Double-entry is more suitable for established businesses. Under this system, all transactions are entered into a journal, and then entered into the general ledger as both a debit and a credit.
Choosing cash or accrual accounting
With cash accounting, you record transactions after money has changed hands.
Many small businesses opt for a cash system because it’s easy to maintain, doesn’t require tracking receivables or payables, and tells you exactly how much cash you have on hand.
Using the accrual accounting method, you record income when you bill customers as accounts receivable. You record expenses when you’re billed as accounts payable.
Determining your transaction categories
The way you categorize transactions depends on your industry, but they generally fall into five account types—assets, liabilities, equity, revenue and expenses. Individual line items are then broken down into subcategories.
Organizing your deductions
Deductions must be both ordinary (a common expense in your field) and necessary to your business. This comprehensive guide on business deductions can help if you are ever confused about what IS or ISN’T allowable.
Making bookkeeping a habit
It’s easy to put off bookkeeping. Try scheduling a ‘bookkeeping day’ once a month. On that day, post missing transactions, review bank statements, and look over your financial statements from the last month.
DIY vs. Professional Bookkeeping
If your business is a side project, you can probably go the DIY route.
If you simply can’t find the time to get your books in order every month, you should hire a bookkeeping company.