Should you do your own bookkeeping? With some many user friendly accounting packages on the market these days, is it worth paying someone else to do it for you?
The government’s recent Making Tax Digital changes mean that eventually, almost every business (whether sole trader or limited company) will have to start submitting their data digitally. For most businesses it will mean using some sort of accounting package.
In the past most accounting packages were designed for accountants to use or someone with some kind of financial background. The big change over the last few years that the newer packages, and particularly the cloud accounting packages are designed with business owners in mind rather than the accountants. This means that the packages are much more user-friendly and accessible. Features like direct bank feeds make the process even easier.
So if it’s so easy, why not do your own books? Why pay someone else? I’m going to talk through the main pros and cons of doing your own bookkeeping.
We’ll do things a bit backwards and start with the disadvantages.
1. Learning curve
Depending on how tech-savy you are, there might be some learning involved with the accounting package that you are using. Although the latest packages are designed to be super user friendly but there is still going to be a certain amount of “learning how to do things”. There is also some learning on the bookkeeping side, finding out how to record and allocate the different transactions that you have for your particular business. All of this will take both time and mental energy.
Many of the accounting packages cost money. There are some basic free ones, but may find that those with features that are really useful to your business do have a cost involved
We’re back to time again. It will take time to do your own bookkeeping. Time is money, as they say, so for many people this is one of those tasks that gets done in the evenings at home rather than during the working day. But working in the evening has an impact on your personal time and your personal life! You need to be sure you can find the time to get the task done.
So why would you bother, well let’s move onto the pro’s, the benefits you can gain by doing your own bookkeeping.
It’s back to money. Doing your own books can reduce the cost of your accounting fees. Even taking into account what you might have to pay for a package, doing the work yourself can work out a lot cheaper. But, this does come with a proviso, it’s only going to be cheaper if you are putting things in more or less the right place. As an accountant I can sometimes spend more time unpicking than it would have taken me to input all the data myself.
2. Closer to your business
Entering your bookkeeping data makes you look again at your business transactions and what’s going on. You might start to see patterns emerging that weren’t apparent before. You’ll get a better feel for where the money is going, and where it’s coming from. You might start to see sales opportunities or ways to reduce costs.
3. Real time
If you can be disciplined about doing your books on a weekly or monthly basis then you’ll be able to start getting at some information that will be of real use to your business. Most accounting packages will produce at least basic reports such as P&L, creditors and debtors. You can use this information to help you estimate what to put aside for tax, see who owes you money, see what bills are coming due and manage your cash flow.
We’ve been through the main pro’s and con’s (or should that be con’s and pro’s) so what’s the verdict? Is it worth doing your own books?
Like many things in business, deciding whether to do your own bookkeeping is probably going to come down to the time versus money balance. Are the financial savings and other benefits going to be worth the time cost? And only you can decide that.
If you do decide to take the plunge and do your own books, here are my three top tips to help you get started.
Top Tips for doing your own bookkeeping
1. Pick the right package
Accounting packages come in all shapes, sizes and prices. If you have an accountant they can talk you through some options and help you choose something that suits you personally and your business needs. There’s no point in paying a fortune for bells and whistles you don’t need, but at the same time paying for a particular feature could save you time and money in the long run.
2. If in doubt, ask.
No one is born with the innate knowledge of what to put in cost of sales. If you have an accountant they really won’t mind you asking questions about where to put things. It saves them time in the end! If you are using a cloud system it makes it even easier for them to collaborate directly with you.
3. Be consistent.
It doesn’t matter if something is in the wrong place as long as always in the same wrong place. Very easy for your accountant to correct if this is the case. What is really time consuming is when something is in 3 or 4 different wrong places.
So I hope that’s helped you with your decision. Speaking personally, if you are interested and have the time, I think doing your own books, at least for a while, can really benefit you as a business owner. That way when you get grilled about your business financials on The Apprentice or Dragons Den, you’ll be able to answer all the questions!