The value of a bookkeeper

The Value of the Bookkeeping Role

book·keep·ing

/ˈbo͝okˌkēpiNG/

noun

The activity or occupation of keeping records of the financial affairs of a business.

Businesses are always looking to lower their expenses, as they should! It is an important fiscal strategy. However, many businesses go cheap on the bookkeeper, and here is why that is a road to disaster!

Bookkeepers are often viewed as just financial clerks that can be sacrificed for expense-cutting or even replaced altogether by an accounting software/app. However, the value of an experienced human bookkeeper can be immeasurable, and is a critical member to keep on your core financial team.

Human bookkeeper vs the accounting software/app

Accounting software is valuable but has its limitations. The old saying “garbage in garbage out” rings true for ANY tech products out there, and the accounting software/app is no different. Accounting software is only good as the “programming” and setup it receives. Also, when receiving information from online banking sources, accounting software/apps tend to do their own thing behind the scenes from time to time: transpose numbers and dates, duplicate transactions, apply the wrong classifications on transactions or no classifications, descriptions that make no sense, etc.

I have experienced when an accounting software/app makes major changes to the look and function of the software to “improve” the front-end use of the software but sometimes makes the back-end functionality harder to work with, making it harder to organize the transactions. The choice of accounting software/app can become costly for the business owner, in the long run, so choose carefully. Be careful to not become tech blind and over-rely on your accounting software/app- often things go on behind the scenes that need more scrutiny from experienced human eyes.

This is where the experienced human bookkeeper who knows what to look for comes in. The experienced human bookkeeper wrangles all that information to make sure that it makes sense follows accounting/tax rules, matches the bank statements, matches what the intended transaction is supposed to look like, ensures proper classifications, tax coding, separation personal from business, and so much more. Accounting software/apps can only go so far in this regard because it does not have the human intuition to make the transactions always line up like it is supposed to.

Organization

See the bookkeeping definition above. Organization is crucial for any business to survive and thrive. An experienced bookkeeper knows how to get you there. Being as organized as possible at all times helps alleviate many frustrations at critical times: month-end, quarterly, year-end, times of financial distress, when information is needed quickly, and especially at tax time.

A business needs to be able to produce financial information when needed from interested parties: customers, employees, investors, creditors, internal management, the IRS, state tax authorities, etc. Not having the information when needed can cause penalties and fees to incur, cause cash flow to stop, cause damage to the business relationship with these people, and even terminate the relationship.

Tax Preparation/Legal Requirement

Most U.S. businesses need to file a Federal and State tax return every year, which can be a very frustrating and high-pressure time. An experienced human bookkeeper can prepare for tax season all year round if the business owner(s) and the bookkeeper have a good relationship. The bookkeeper needs to be fed with a consistent stream of information and it is the business owner(s) responsibility to provide the bookkeeper with the necessary information on time, the information is complete, and needed questions are answered.

The bookkeeper can obtain and organize the expense receipts, transaction classifications, asset listings/depreciation, and profit/loss statements all year round. This makes the tax season process run smoother and with less headache during an already stressful time. An experienced human bookkeeper knows the conversations that need to occur with the Accountant/Tax Preparer, tax authorities, banks, etc., and helps in the transition from all-year-round to tax time, quarterly time, and any needed time.

Also, depending on the business structure, the law requires that the business owner keep good business financial records that are separate from personal financial records. An experienced human bookkeeper is crucial for this purpose (accounting software/app doesn’t know the difference between the two).

Budgeting

Any good, thriving business needs a budget. To compose a budget, one needs to know all past income and expenses. Then the business owner can project income and expenses into the future. The bookkeeping role is organizing the business income and expenses, and even other financial/business data, which helps paint a financial picture of the business.

A budget acts like a map for the business, which helps the business owner(s) drive the business in the desired direction. The business owner(s) can plan for future income and expenses. The tighter and up-to-date the budget is, the better the business owner(s) can quickly adjust if any changes to income and expenses, and even weather financial storms. Also, the business owner(s) can make business decisions, goal-setting, and compose a business strategy.

Look at the bookkeeping role as the information wrangler that feeds the navigation system for the financial steering of the ship. Cutting the human element of the bookkeeping role can be detrimental.

Reporting

When the business financial information is as organized as possible, then all of this financial reporting can be produced from the financial management system, accounting software, app, excel, etc. Now the business owner(s) can have fun with their reporting needs!

There are financial statements like the balance sheet, the profit/loss (income statement), cash flow reports, accounts receivable and accounts payable reports, etc. These reports are used to provide tools to analyze business performance. The business owner(s) are now armed with more information to help make better business decisions. Financial statements help with:

· Obtaining financing from investors and creditors

· Staying on top of customers’ payments and vendor/creditors’ bill payment schedules

· Tax planning

· Showing snapshots of the business over time and tracking business performance

· Tracking profit and growth to better focus on business strategy

Improved Cash Flow

See the bookkeeping definition above. The tighter organization of the financial data, the tighter control a business owner(s) has over the money flowing in and the money flowing out of the business. Being consistent with a routine of recording income, expenses, receipts, asset purchases, and receivables, will allow the business owner(s) to be on top of their cash. The business owner(s) needs to be on top of the customer invoices being paid timely- the sooner, the better. Paying the business vendor/creditor bill payments need to also be timely, to avoid any late fees and even save money with available early payment incentives.

How does the bookkeeping role help improve cash flow?

Because bookkeeping provides information regarding your outstanding invoices: customer/vendor name, amount, date issued, and due date – which can be used to implement better cash flow policies.

An example can be to decrease the amount of time allowed for customers to pay or provide an easy payment plan to the customer to increase the likelihood of payment (and increased trust/goodwill between the business and the customer). On the other hand, the payment of vendor invoices can be slightly delayed by waiting until a day or two before the due date. Doing so increases the average amount of cash on hand at any given time.

Here are some general duties of a bookkeeper:

· Making/checking entries for financial transactions, ensuring consistent classification.

· Preparing Income/Loss statements to file tax returns.

· Performing bank reconciliations.

· Preparing trial balances (if needed).

· Preparing financial reports as needed.

· Issuing invoices for money that is owed to the organization - (depends on your invoicing process setup and if the business has the bookkeeper perform this role). Prepares accounts receivables (money owed to the business) and the accounts payables (money the business owes to its creditors/bill payments) reports - (depends on your A/R and A/P process setup and if the business has the bookkeeper perform this role).

· Performing other duties as needed.

I feel an obligation to stress this point again: an experienced human bookkeeper can keep the records of the financial affairs of a business all year round if the business owner(s) and the bookkeeper have a good relationship. The bookkeeper needs to be fed with a consistent stream of information and it is the business owner(s) responsibility to provide the bookkeeper with the necessary information on time, the information is complete, and needed questions are answered.

The activity or occupation of keeping records of the financial affairs of a business is a very time-consuming and important role in any business. Tax laws, accounting rules, and the needs of interested business parties can be very confusing and involved. Contact me to help with your business bookkeeping needs, which will free your time and hands to focus on driving your business.