But have you considered the true cost of DIY bookkeeping? From time and resources to expensive errors, the price might be higher than you think.
To help you explore whether to continue doing your own small business bookkeeping, we’ve compiled a list of five hidden costs to consider.
1. Your Time
As a business owner, your time is valuable, and it’s important to do a quick opportunity-cost analysis to decide whether doing your own books is worthy of your time. Any hours you spend on bookkeeping can’t be spent on other tasks – for instance, ones that generate revenue.
To simply calculate the value of your time in dollars, follow these steps:
- Start with your annual income and break it down to calculate your hourly “wage.” For example, if you earn $200,000 and work approximately 2,000 hours each year (50 weeks x 40 hours), your hourly rate is $100.
- Next, estimate the time you spend each month on bookkeeping, being sure to include administrative or organizational tasks. Although they may seem small, those items can add up – for instance: entering and categorizing expenses, uploading receipts, and running reports in your accounting software.
- Finally, multiply the hourly rate from step 1 by the number of hours you’re spending on in-house bookkeeping, estimated in step 2. If you spend ten hours on bookkeeping tasks and two hours on organizational tasks to complete your bookkeeping each month, then it costs you $1,200 per month (12 hours x $100 per hour) to manage your books – time you could spend focusing on building your business and growing earnings.
2. Errors
When it comes to accounting and taxes, getting things wrong can get expensive – fast. Your bookkeeping is only valuable when it’s accurate, according to Alex Detweiler, Vice President of Accounting Services at NEWITY. Business owners who manage their own accounting may be more likely to make mistakes, especially if they’re rushing or focused on other aspects of their business.
There are a variety of ways these errors can have an outsized impact on your business:
- Tax deductions – Your bookkeeping data is likely used to prepare your taxes, and therefore helps determine your eligibility for deductions and credits.
- Key business decisions – Bookkeeping data is often relied upon to help business owners make important decisions, including equipment or inventory purchases, whether to apply for a loan, and more. Erroneous information about your company’s performance can mislead decision making and result in costly obligations.
- Fines & penalties – Missing important deadlines or submitting incorrect information in your disclosures can result in expensive fines or even damage your credit score. These mistakes are easy to make if you have other responsibilities – like managing the rest of your business – but can be easily avoided by hiring experts to manage your bookkeeping, freeing your time to focus on other business-building activities.
3. Lack of Financial Insight
Unless you opened a bookkeeping business, the odds are you did not start your company with the intent of becoming a bookkeeping expert. Accounting professionals bring valuable experience and up-to-date knowledge, meaning they have insights to offer that you simply do not have the time to source for yourself.
“This oftentimes leads to small businesses leaving money on the table,” says Detweiler.
When you attempt to understand every bit of financial and accounting information, insights, tax deductions, new government regulations and incentive programs without the proper time to invest into fully understanding these topics, missed savings increase the hidden costs that can add up quickly.
4. Peace of Mind
According to the Small Business Report, 60% of small business owners feel they are not very knowledgeable about accounting and finance.
Further, a survey from SCORE – a mentoring organization for business owners that partners with the U.S. Small Business Administration (SBA) – found that 40% of business owners say bookkeeping and taxes are the worst part of owning a business.
If most business owners do not enjoy bookkeeping – and a majority feel that they are not knowledgeable enough about these topics – why would they spend their valuable time doing it themselves? This can be especially frustrating for companies that do not have sufficient cash flow or work to justify hiring an in-house accounting team.
5. Out-of-date Books
Finally, consider whether you can keep your financials up to date if you are managing your own bookkeeping. For many business owners, revisiting their books only occurs when they have extra time – meaning they are not updated frequently enough to portray an accurate representation of the company’s financial health.
