You’ve started a business, made some purchases, logged sales, and now comes the task of recording it all. We wouldn’t blame you if you shudder at the thought of tracking all your transactions, but if you outsource bookkeeping responsibilities, you’ll never have to worry about it.
Now, the million-dollar question: who will you hire to do it for you?
You have two main options: hiring local bookkeepers or hiring “virtual” bookkeepers. There’s also a third option—hiring an in-house bookkeeper to do it for you—but in terms of price, it’s a big jump up from DIY bookkeeping.
Let’s take a look at the benefits and drawbacks of outsourcing bookkeeping, so you can ditch the DIY of Quickbooks or spreadsheets and choose someone else to take care of it for you.
Why should I outsource my bookkeeping?
Nobody starts a business because they want to do their own bookkeeping. Outsourced bookkeeping takes back that valuable time to focus on running your operations, identifying new opportunities for growth, or simply getting some rest and relaxation from the stresses of entrepreneurship.
With outsourced bookkeeping, you also get access to the essential reports and financial statements every business owner should know about: balance sheets, income statements, and cash flow statements.
Beyond day-to-day operations, having your bookkeeping taken care of by a professional expedites the tax filing process. You’ll have all the numbers you need to fill out the forms quickly with IRS-compliant reports for your tax return.
Further reading: Financial Statements 101
When should I outsource my bookkeeping?
Typically, there are a few signs that it’s time to leave the DIY behind and bring on a professional.
It may be time to outsource your bookkeeping if:
- DIY bookkeeping is taking up more time than you can afford
- Your books are never up to date
- You’ve missed out on tax write-offs
- You’re struggling to stay on top of your cash flow
- You’re having trouble tracking accounts receivable and payable
- Making your estimated tax payments has become a major hassle
Don’t see your situation reflected above? This list is by no means exhaustive. There are many signs that you need to hire a bookkeeper, and only you will know for sure when it’s time to outsource your bookkeeping.
For most business owners, it’s best to do it sooner rather than later. Even pre-revenue businesses require bookkeeping, and consistent recordkeeping is invaluable as you start to grow your business.
Types of outsourced bookkeeping services
Whether you’re working with someone you know down the street or have someone handling it online in another city, outsourced bookkeeping services come in two main forms: hiring a local bookkeeper or a virtual bookkeeper.
To help you choose which is right for you, we’ve broken down the pros and cons of both.
Hiring a local bookkeeper
A local bookkeeper is a person or bookkeeping team based near your business. This is a great choice if:
- You value meeting your bookkeeper face-to-face
- You rely on physical records to run your business and don’t use online banking or payment systems like Stripe
How local bookkeeping works
Generally, there are two ways to outsource your bookkeeping to a local pro: a freelancer or a firm.
A freelance bookkeeper works with you one-on-one to get your books done. Freelance bookkeepers may be able to work online, in-person at your business, or both. Solo practitioners have varying levels of skill and experience.
Your second option here is to work with a bookkeeping firm. Firms will generally charge more than a freelance bookkeeper. However, they usually offer some “assurances” that solo bookkeepers can’t. For instance, their bookkeepers may be professionally certified. And, in the event that someone handling your books has to take a leave of absence, another bookkeeper can take over, so you don’t have to worry about service gaps.
A freelance bookkeeper or a firm will operate outside of your business—they’re not an employee. Try to find one that offers you secure, immediate access to your financial reporting in an accounting software you feel comfortable in.
Another important feature: security. Make sure you can trust the person you hire to handle your business’s financial information, from bank and credit card information to invoices and important documents. And never give a bookkeeper control of your treasury functions: when it comes to handling investments, signing checks, or making online payments or wire transfers, you should be the sole signing authority.
“Virtual bookkeeping” may sound a bit dated—like a Windows 95 application—but this (admittedly awkward) term refers to a popular, paper-free method of handling your books.
Virtual bookkeeping just means someone else doing your books for you, online.
Virtual bookkeeping combines the best parts of bookkeeping software and traditional bookkeepers. When you hire a virtual bookkeeping service, you get bookkeepers who manage your books and software to monitor your finances. It’s a good option if you:
- Use online banking and are comfortable on the web
- Prefer a flat monthly rate over hourly billing
- Want online access to your financials via a mobile app
- Prefer chatting online or on the phone rather than in-person
Having professionals do your books will save you time and give you peace of mind. And the benefit of working with an online service means that you can store your data securely in the cloud, and access your financial info from anywhere, any time.
How virtual bookkeeping works
Virtual bookkeeping connects you with real bookkeepers via a secure, online account. A top-notch service will download your expenses automatically through online banking and through your merchant processor, so you don’t have to send envelopes of receipts.
Come tax time, an online bookkeeping service may also give you a year-end financial package, which contains all of the financial statements your accountant will need to file for your small business tax return.
For example, when you sign up with Bench, you’re paired with a team of professional bookkeepers who gather your data and turn it into tax-ready financial statements each month. Then, our platform lets you track your finances, download financial statements for your accountant, and message your bookkeeping team.
How Bench can help
Get the support you need with Bench, America’s biggest bookkeeping service provider. We connect with your bank accounts, credit cards, and merchant providers to automatically import transactions and update your financial reporting. If you need to chat about your finances, you can reach out to your personal bookkeeping team by message or schedule a phone call all within the Bench platform. You even get access to our in-house tax professionals, who can advise you on minimizing your tax bill. Learn more.
When your business needs outgrow the solutions we’ve covered, it probably means you need to grow your accounting department and employ an in-house bookkeeper.
It’s up to you to determine whether your business can afford an in-house bookkeeper. Their standard pay, according to Salary.com, ranges from $39,568 and $50,577 per year—before taking into account payroll taxes and employee benefits. That can be a lot if you simply need someone to perform bank reconciliations and forecasting. Full-time, in-house bookkeepers are really for businesses with advanced needs.
If you need in-house support but can’t afford to hire a bookkeeper full-time, consider hiring one part-time, and increasing their hours as needed. Some businesses also bring in a part-time bookkeeper but assign them extra administrative tasks in order to create one full-time position.
Local vs. virtual vs. in-house bookkeeping
In summary, here are the options you have to consider when outsourcing your business bookkeeping.
Great fit if:
- Your business has less than $1 million in revenue and fewer than 5 employees
- You depend on physical records to run your business or want to meet your bookkeeper in person
- You’re prepared to cover bills that may vary month to month (due to hourly billing)
- Local bookkeepers work well with paper-based record-keeping
- Freelancers may be flexible with how they work (visiting your office or communicating online)
Great fit if:
- Your business has less than $1 million in revenue and fewer than 5 employees
- You use online banking
- You would rather pay a flat monthly fee than an hourly bill
- You want instant access to your financials on the go
- Allows you to run a paper-free office
- Instant online communication
- You get human bookkeepers, along with software to monitor your finances
- You get a team who does your books—no service delays if your bookkeeper is sick or away
Great fit if:
- Your business has more than $1 million revenue or more than 30 employees
- Efficient way to do the books for a larger business
- The bookkeeper answers directly to you
I pay for an accountant, can’t they do it for me?
Short answer? Yes. Long answer? Yes, but it can be very costly.
Many accountants offer bookkeeping as part of their accounting services or are willing to get you caught up before tax season. But the catch is that a CPA will generally charge more per hour than a bookkeeper would. They’ll typically charge their hourly rate, which is higher than a bookkeeper’s, because of the hard work in getting accredited.
Hiring a local or online bookkeeper is a more cost-effective solution, and you’ll get year-round support with your finances. This means access to invaluable financial data that can help you stay on top of your cash flow and guide your decision-making. Then you can turn to accounting firms and tax professionals for just tax preparation, reducing your overall costs.
We're an online bookkeeping service powered by real humans. Bench gives you a dedicated bookkeeper supported by a team of knowledgeable small business experts. We’re here to take the guesswork out of running your own business—for good. Your bookkeeping team imports bank statements, categorizes transactions, and prepares financial statements every month. Take advantage of your exclusive partner discount and get started with 30% off for your first three months.
This article was originally published by our friends at Bench.
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.