I have yet to meet a small business owner or entrepreneur who was excited to start their business exclusively so they could figure out how to do the accounting for it. We start businesses because of the problems we are going to solve for our customers. But we still need to keep track of the money-side of the business, the accounting of what’s happening in our business.
If you are generating less than $100,000 of revenue per year, it may make sense to keep track of your accounting yourself. Since you are involved in every day-to-day detail of your business, you may not even need to buy an accounting system and learn how to use it. But you shouldn’t try to do your taxes, so you’ll likely need to outsource this to a CPA each year by giving him or her copies of your bank and credit card statements with some detail about what each of the transactions was for.
This option makes a lot of sense for most start-up and small businesses, and outsourcing the accounting functions can be very affordable. Businesses that are generating $100,000 to $500,000 of revenue per year can hire an outsourced bookkeeper to update the books once or twice per month and provide basic financial statements and other critical reports. By giving read-only access to your bank and credit-card accounts to your bookkeeper, they can quickly and efficiently keep you compliant and get you the basic information you need. Some outsourced bookkeepers will even have their own accounting software (meaning you don’t have to buy it) and they will give you access to it through the internet.
Once your business exceeds $500,000 in revenue per year, it will likely make sense for some of the accounting functions to be done in-house. But those tasks should be the simplest and lowest cost items, meaning one of your employees could easily be trained to handle them. You will keep your outsourced bookkeeper in place to oversee this person’s work and perform some of their main duties, but you’re not paying the higher-cost bookkeeper to do it all.
Once your company exceeds $1,000,000 in annual revenue, you will be getting to a point where you may want to bring the bookkeeping function in-house with a full-time employee. Even in this scenario, it can still make sense to outsource some Controller and Chief Financial Officer (CFO) functions to keep your business on track.
Certainly the accounting needs of each business will be different, and that is typically determined by the business’ size, complexity, and trajectory. Taking those things into account, the right mix of Do-it-Yourself, Outsourcing, and In-sourcing can be put together to create the lowest cost but highest return scenario for your business.
Ken Kaufman is the author of Impact Your Business: An allegory of an entrepreneur’s journey to
clarity, cash, profit, family, and success http://cfowise.com/impact-your-business. Ken, an award-winning CFO, has over a decade of experience helping small business owners and entrepreneurs attain the clarity they need to maximize their financial success. His has credited with creating the Six Scoreboards Every Business Needs. In addition to serving as an outsourced CFO to eleven entrepreneurial ventures, Ken writes regularly for American Express OPEN Forum and teaches New Venture Finance at a local university.