I sometimes get asked by business owners why they need a bookkeeper. Why can’t they do their own accounts to save money rather than outsourcing? The quick answer is because it generally doesn’t save you money in the long run. Tax and BAS compliance can be detailed, complex and confusing. These requirements are also often updated regularly, and unless you’re working in the industry, you can’t be expected to keep on top of it. Both accountants and bookkeepers are required to be qualified, experienced and keep their skills and compliance knowledge continually up to date.
The reason it’s not ‘cheaper’ to do your own accounts can be looked at two ways. Firstly, you will probably spend more time doing your accounts than a professional will, and your time is better spent doing chargeable work within your business or growing your client base. And secondly, unless you’re experienced it’s likely you will miss deductible claims or make mistakes with the figures you are preparing. This can have a far greater impact than you realise as your tax agent or accountant will need to spend time (at a much higher hourly rate than a bookkeeper) correcting your accounts. The ATO may also discover errors and audit you, or require you to resubmit tax returns. To demonstrate why it makes more sense to hire a bookkeeper here is a typical example, or case study, of what many small businesses do in a mistaken attempt to save money:
A small business owner, let’s call her Claire, starts a new business in her specialised field. Claire knows her professional industry very well and is very good at what she does. To save money she decides to prepare her own accounts while she builds her business. Her first year is quite good, income is growing steadily and she continues to prepare her own accounts.
The second year is fantastic, income and client numbers grow, and when Claire has her accountant prepare her tax return she finds that she’s actually done so well that she has a massive tax bill. She hasn’t been preparing her cash flow for this kind of liability and needs to put her own money into the business to keep it going. Also, while compiling her accounts she has made a few errors that she didn’t realise. Claire has paid a couple of suppliers twice for their services. They didn’t realise and didn’t say anything. She also hasn’t had time to stay on top of her clients invoicing and payments, and a few clients from a year ago never paid their invoices. Claire has also missed claiming some deductible expenses.
Part way through her third year she realises that she’s not keeping up with her accounts at all and decides to employ a bookkeeper to help with monthly reconciliations and reporting. This is when it’s discovered that she’s been over-paying her BAS every quarter for over two years by not claiming GST paid on the expenses she had not been recording. She has also overpaid her income tax for two years, by not claiming expenses that reduce her assessable income. She needs a bookkeeper to redo two and a half years of her accounts to prepare accurate figures and resubmit ten BASs. She also needs her accountant to resubmit two years of tax returns so she can claim back the tax that she has overpaid to the ATO.
As a result of doing her own accounts for two and a half years, Claire hasn’t claimed what she’s entitled to or had accurate financial information to base her business decisions on. Her cash-flow has been poor, and she hasn’t been able to understand why. Claire has also been paying additional interest on credit cards and loans to keep the business funded. She is now relieved she has professional help, but is exhausted from the ordeal of the last few years. This is just when she should be enjoying the rewards of making it this far in business. So, the answer to why you should hire a bookkeeper is simple: they will save you money, time and stress in the long run. If you would like to chat to us about how a bookkeeper can help your business, click here.