When we first started our company, Test Prep Insight, things were simple. We had (very) few customers, just a handful of vendors, and the same general, recurring expenses. For purposes of accounting, this made my life a breeze. Like any other new founder, I ran out and signed up for accounting software (QuickBooks, in our case) and diligently updated the books every week.
During our first year of business, this took up minimal time, and the accounting software did the heavy lifting. With the same recurring expenses and limited revenue, the software effortlessly automated our financials—I simply had to match a handful of transactions to the right category.
But as time passed and our business grew, the quick, easy accounting updates became less so. This was primarily the result of a major increase in monthly transactions and complex accounting issues arising: mostly questions associated with refunds, discounts, and affiliate commissions. In short, as our business grew, our accounting became more complex. During the first year of business, I probably spent 30 minutes per week updating our books. By the end of the second year, I was spending more like 30 minutes per day.
Early in our third year of business, we hit an inflection point, and business really took off. Our top-line revenue jumped by 76% in four months, and we added two new product categories, making things even more complicated. As our operations became more robust, so did our accounting. I was spending close to an hour per day cleaning up accounting entries, matching expenses, and recategorizing revenue.
With the demands of a growing company and a number of employees all looking to me for answers, I realized my time would be better spent elsewhere. That's why, at 8 p.m. on a Tuesday night, as I was scratching my head trying to figure out how to categorize some new expense, I decided enough was enough.
The limits of accounting software
What exactly was so difficult and annoying about our accounting that I had to ditch these tasks? It mostly comes down to two things:
1. It's a time suck
Just because your accounting is automated, that doesn't mean you can put it in cruise control and not review your financials. You have to double-check your books constantly to ensure everything is accurate, or you may be getting a visit from the IRS. And to be clear: you will find mistakes. Things will be miscategorized. It's inevitable—and it eats up the clock.
2. You're not a bookkeeper
I know this may come as a surprise to you, but you're not a bookkeeper.
My specialty is test prep, not finance (I used to be a CPA, and this is still the case for me). If you own a bicycle shop, you know bikes. If you run an eCommerce site that sells wetsuits, you know wetsuits. It's this lack of technical expertise that causes inefficiencies when the books get complicated. I did my best to learn basic accounting principles on the fly and master the software, but it definitely wasn't ideal.
Yes, I know my business better than anyone, but that's not the be-all-end-all. I routinely had questions about what month to assign a deferred revenue item to, how to categorize a random one-off expense, or how to evaluate a certain report—and my intimate knowledge of my business couldn't answer those questions.
Despite the hyperbolic title of this article, I didn't completely kick our accounting software to the curb. You really can't. The benefits of automation are too great to toss out. Imagine trying to do your books manually in Excel, or worse, in an old-school paper ledger. My stomach quivered just thinking about that.
There's no arguing that accounting software provides tons of benefits. Once connected to your company credit cards and bank accounts—and even your PayPal account—accounting apps can automatically pull in revenue and expense items. It then seamlessly categorizes these transactions based on rules you've created. And from there, you can pull any financial report you want in real time, from a simple P&L for the month, down to custom reports on changes in segment growth by customer.
On top of all that, it's highly affordable.
So no, I didn't ditch our accounting software completely. Instead, I outsourced my accounting software tasks to a bookkeeper, who has a much deeper knowledge of accounting and knows how to get the most out of the software.
The benefits of hiring a bookkeeper
Having a real, live human do your bookkeeping addresses most of the concerns I mentioned. For starters, outsourcing your accounting gives you back almost all of the time you'd spend each week dedicated to updating your books. I say "almost" because your bookkeeper will still have questions for you from time to time. But in my experience, I've gone from spending about 5-6 hours per week on my books to about 20 minutes of phone calls.
This time savings is now expended elsewhere: focusing on my core operations, employee relations, and marketing efforts—and growing my business.
And that's not to mention the amount of frustration that outsourcing our accounting has saved me. When I would get hung up on some technical issue with the software or get totally confused on how to categorize a new transaction, I used to daydream about smashing my laptop, Office Space style. Now I punt all of those brain-melting issues over to my bookkeeper, who can deal with the headaches while I carry on in relative blissful ignorance.
Some other major perks of having a bookkeeper:
I now have an accounting expert at my disposal to answer all of my questions about financial reports. Now that I have more time to actually focus on growing my business, I naturally need data. But data in a vacuum is useless. Being able to parse through the numbers and make insightful interpretations with actionable takeaways is the key. And bookkeepers may not all have their CPA license, but they know their stuff. So I often turn to my bookkeeper for quick questions on how to interpret certain reports, tapping into her deep knowledge of the subject.
My bookkeeper does the financials for a half-dozen other companies, which means I get expert insights on how other companies solve for issues or trim costs.
It's just downright more efficient. What used to take me five or six hours per week takes my bookkeeper three hours. So outsourcing your accounting needs won't be a one-for-one trade-off in terms of time—there's usually some efficiency lift.
With all of those benefits in mind, if there's one big downside to using a bookkeeper to manage your financials, it's cost. There's just no way around it. My bookkeeper charges $45 per hour, which I've actually found to be on the high-end of bookkeeping fees, but is reasonable nonetheless given her expertise. At an average of three hours per week, I spend roughly $500 per month (plus the cost of the underlying accounting software). But remember: you're not comparing that $500 to $0—depending on how you value your time, it's possible it's a net gain.
One other possible downside for some small businesses is the need for real-time reporting. Depending on how you outsource your accounting, you may not be able to access reports or pull data in real time. This assumes, of course, that you hand over full control to your bookkeeper. If you outsource your bookkeeping like I do, by retaining administrative access to your accounting system, you can generally pull reports yourself at any time. And I can always just shoot my accountant an email if I need a custom report that's harder to generate.
Verdict: To outsource or not?
So does it make sense for you to ditch your weekly accounting software tasks and outsource that work to a bookkeeper? It's all going to depend on just how much time your accounting takes, whether you could put those hours you save to better use, and of course, whether you can afford it. Think of it like a sliding scale, with all sorts of factors affecting the decision.
If you stick with accounting software, be sure to automate it. Here are some easy ways to connect your accounting software to the other apps you use most.
At the end of the day, though, if you're a growing small business, and you already feel like you're stretched thin—and a few hundred dollars per month won't break the bank—I suggest outsourcing your bookkeeping. You'll be glad to have the hours back to focus on your core business. I know I am.