This is the first of what will be several posts on starting a new business. A bookkeeper is important, but you need to know when to hire a bookkeeper.
There are a lot of things to do and pay for before you start a business. One thing you may want to factor in with your planning is your bookkeeping.
For non-bookkeeping businesses, minding your books has got to be the most momentum-killing, least engaging thing to do with your time, but if you start getting customers, you can expect to spend 10 hours a month or more on your bookkeeping. That’s why it’s usually one of the first things smart business owners start to outsource.
Am I saying you should sign an engagement letter with a bookkeeper before you earn your first dollar?
Actually, no.
The Start-up/Planning Phase
Just like how the first thing a person should do with their personal finances is get some income, cover expenses, and build a couple months of cash reserves, your business is no different. At the beginning you have a cash flow problem, so your first concern will be to make more sales. 80% or more of your time and creative energy should be spent on forming what Michael Masterson of Ready Fire Aim calls your Optimum Selling Strategy (OSS). Your OSS is the answer to ALL four of these questions:
- Where are you going to find your customers?
- What product will you sell first to those customers?
- How much will you charge for it?
- How will you convince your customers to buy it?
You are trying to find the most efficient way to get new, profitable customers. Whether you get there through careful planning, trial and error plus iteration, or some combo of the two, the important thing is to get there.
That being said, there are some questions you can ask a bookkeeper that can help you in the set-up phase:
- What kind of business structure should I have? (sole proprietorship, C-corp, etc) (CPAs can answer best, but a bookkeeper is better than nothing)
- What accounting software should I use?
- What expense tracking apps do you recommend?
- How do I connect my bank accounts to the accounting software? Which accounts do I connect?
- What kind of receipts should I look to save for tax deductions, and how should I keep track of them?
- How do I categorize an expense?
- How do I track invoices?
- How do I track the bills I pay?
- How do I read a P&L? What IS a P&L?
A simple consulting call with a bookkeeper will answer a lot of those questions. Many bookkeepers will take initial calls for free, though keep in mind that is usually because they are trying to find out what your needs are so they can work with you on a regular basis; some of them will give you the hard sell and some won’t. If you feel bad that you won’t be a client and you’re taking their time, a negotiated one-time fee of $50-$100 is fine and will save you hours in the long-run.
Open for business
So you’re getting clients now. You have transactions, and it’s starting to take time to do your bookkeeping. You might not even be sure you’re doing it right. Now that you have little time but are starting to bring in the money to cover most of your expenses, now is a good time to bring in the bookkeeper. The bookkeeper will help you better manage your books so you can easily apply for credit, provide reports that your tax filer can use when you pay federal or state income taxes, and help you know the accurate state of your business so you can make better decisions.
Sometime after you start making money, but before you pay income taxes, is when to hire a bookkeeper on a monthly basis. If you’re still cash conscious and know how to pay your own bills and file your own invoices, hire a bookkeeper for categorizing transactions, loan tracking, and reports. Meanwhile, handle accounts payable and receivable yourself. This will free up an extra 5-8 hours per month to focus on getting more sales (remember that?)
When to Hire a Bookkeeper As you Grow
As you approach the upper limit of what is possible for one or two people to manage on your own, you will need to bring on more people. At that point it may make sense for your bookkeeper to start handling invoices, bills, and/or payroll. This will take more time for your bookkeeper to do, so it will cost more. If you find yourself paying your remote, freelance bookkeeper about as much as you’d pay an in-house bookkeeper, especially after including federal unemployment tax, social security, and other concerns, then it starts to make sense to have a bookkeeper in-house as one of your first administrative employees.
To schedule your free bookkeeping strategy session, book a call with me. I can help answer any questions you have, whether you’re in the planning phase or beyond.
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