When Should I Hire a Bookkeeper?

Today I’m talking about how to know when it’s the right time to outsource your bookkeeping. Should you do it yourself? Should you bring on a bookkeeper? How do you know when it’s the right time? These are all important questions to ask in your business. I recently talked about what it actually looks like to work with a bookkeeper, from filling out the inquiry form, to the onboarding process, to the month-to-month of having your books outsourced, and what the benefits are to you as a creative business owner. I also talked about what it looks like to work with a bookkeeping team (currently I have a team of 4 other bookkeepers and an assistant for me!) If you didn’t see that post, it’ll set the stage for today’s conversation about really when to hire a bookkeeper. Should you be DIYing it? We’ll talk about different ways to do your bookkeeping if you do DIY it and also questions you can ask yourself if you're thinking about outsourcing.  

Is Bookkeeping Really That Important?

So to start this off, obviously bookkeeping is vital to your business. You have to do it. We are in tax time and we have to have our numbers to file our taxes, right? We have to be able to get all of our accurate information to either be able to go on TurboTax, or have an accountant file it for you. I highly, highly, highly recommend having a tax accountant file your taxes for you if you own your own business. So there's that caveat. But aside from taxes, why else do you need to either do your own books or have a bookkeeper do it?

Accurate bookkeeping shows you the heartbeat of your businesses: what is working and what isn’t. We need to know this to continue to grow our business, bring on more team members (if that's what we want), increase our profit, go on the trips we want to, buy that house we want to, there's so many things. It ties back to understanding your numbers. Understanding your books. Bookkeeping involves the recording on a regular basis of a company's financial transactions. So think about all of those times that clients pay you. If you're a photographer, you get paid a deposit and then you get paid whenever that wedding comes up. Or if you're a brand and web designer, same type of thing. You probably get a deposit and you probably get  paid the other remainder later or however you have your payment structured.

So think of all of that income and then think of all of your expenses. All of those subscriptions, all of the times you outsource to a copywriter or social media manager, and then also having in-house team members. All of those expenses are recorded one by one. Literally every single line that comes up on your credit card statement and your bank statement. Those get categorized and organized in a way that you understand your finances. That understanding is the key that unlocks the treasure, all that information, and that's bookkeeping. So we have to do it. 

The percentage of businesses that fail in the first year is 20%. By the end of the second year, it's 30%, and by the end of the fifth year, half of those businesses fail. And you know what the biggest factor is with all of those? They do not understand their finances. They don't understand what is going on. They don't have a clear picture of what is happening, what is coming in, and what is going out, and what changes need to be made in order to grow their business. You need to understand your numbers.

So now what? Do you DIY it? Outsource? Use a spreadsheet or software? Let’s go through the different methods so you can decide what best fits your business right now.

DIY Your Bookkeeping

Obviously we know that you need to do it. You need to do it on a monthly basis at the very minimum. You can DIY it and that's where I recommend a lot of people start. If you're just starting out your business, you're in the first couple months of your business, it's a side hustle, etc. One of my favorite ways to DIY your books is with a spreadsheet. I have a spreadsheet that is customized and made just for you guys as creative entrepreneurs, but there's so many other spreadsheets out there. You can even make your own if you're really good inside of Excel or Google Sheets. DIY is a great option if you're freelancing and you're okay with the learning curve, taking the time that it needs to take to go in and enter your transactions.

I'll walk you through my spreadsheet just because that's the one I know and that's the one I'm in a lot, making updates and changing things around. So you'll have an area where you record your income, just very simple line by line. You have an area where you record your expenses line by line. If you have a screen that's big enough, you can have the spreadsheet open on one side, have your bank account open on the other side, and go in there every week or every month and just go in and enter in every couple transactions. If you have a spreadsheet that works the way it’s supposed to work, what will happen is it's gonna show you your profit split out by category, your income categories, and then expenses split out by expense category.

And then it’ll show you your profit at the end of the month. In my spreadsheet, I have a sheet or a tab for every single month.  There's also visual reports and pie charts and bar graphs that make it a little bit easier to understand. And then all of those months get put into one tab, and it shows you month by month, side by side what your income was split out by category. What your expenses were, split out by category. What your profit was. And then it also shows you a yearly chart and graph to be able to see exactly what it means. The nice thing with a spreadsheet (for mine at least) is that it’s a one-time purchase. You don't have a month-to-month subscription. So a lot of times people are just starting out and they're like, “I cannot add on another once a month subscription.” So you buy it once you get it for life, along with the yearly updates I make to it. It is relatively easy to use, there's walkthrough videos, and you just enter in your income, enter in your expenses. That's all you have to do.

The downside is that it is manual. There is more room for error in a spreadsheet than if you outsource it or do it with software (I'll touch on software more later). If you're DIYing it, I highly recommend you use a spreadsheet. Another con is that it takes time because if you're doing it all manually, it is going to take time. But again, if you’re just starting out, you have the time, you want to learn how the numbers work, this is a great option for you. 

Quick note: If you do not have a financial or accounting background and you want to DIY it inside of a software like QuickBooks or Xero, please, please, please have someone help set it up and train you. I do not offer that service, but I know multiple other bookkeepers that do that. There's just a lot of things in the background of an accounting software that can cause problems really, really quick. There's been a lot of times where people come to me and they're like, “I've been doing my books in this accounting software,” and we can't even salvage it. It’s not the client’s fault, but some software out there guesses on things or automates things and it can create a complete mess. So Yes, you can DIY using a software as long as you’ve taken accounting 101.

Outsourcing Your Bookkeeping

Okay, so let's talk about outsourcing it. If you’ve been keeping it up on your spreadsheet, great. That's awesome. You might not have time anymore and you want to focus on the creative part of your business, so you decide to outsource. That's the quick and easy way. It's already in the spreadsheet so it makes our job easy to onboard. We can just go pull stuff from that spreadsheet, enter into the software, and we're good to go. But a lot of times it's not that easy and you might not have been keeping up with your books.

You might be a year behind. We're currently doing a three year catch up, which is a lot of stuff. You might not understand your numbers, you might not like using a spreadsheet. You might be unsure what is going on, and feeling really icky and scared, like “Am I actually profiting in my business?” Or you might be going through the whole year blindsided. Not even sure if you're making money or you might be making money and you're really scared of tax season because you don't have your numbers to know what type of tax bill you're gonna be hit with. So there's a lot of things that go into when you should outsource your books. 

A few questions I ask people, have you been keeping up with it? Because if you are not keeping up with your books, you need to outsource it. You need to find a solution to where you are keeping up with it, and that you're looking at those books on a month to month basis. Do you understand what those numbers are telling you? What is going out and what that past history is telling you? Because if you don't, you need to outsource it, specifically to a bookkeeper that's going to help explain what those numbers are telling you. Do you like doing it? If you like doing your bookkeeping, have at it. Good for you! I love doing my bookkeeping. And then obviously, are you in this for the long haul? If you want to be in this business year over year, over year, outsourcing it is going to give you the best insight to know how to be in this for the long haul.

Side tangent: When you’re just starting out and thinking, “Can I afford it, can I not?” and thinking through things like investing in your business, this is why you need to know your numbers. So you can answer questions like can you go to a conference? Can you invest in a mentor? Can you invest in or bring on more team members? Those questions get answered by your books, and if they're not up to date and accurate (key word there is accurate), then you're not gonna know what to do. 

The main Pro to outsourcing your books is that it's done for you. You don't have to do anything. You just get the reports delivered to you every single month and you know they're accurate. You have a bookkeeper in your back pocket. You can ask any questions when you don’t understand something or you wanna talk through a business decision. We are here for you! Also, make sure when you outsource to a bookkeeper that they know your industry and understand what is going on. They have insight that not everyone else sees. I work with creative businesses, so I see what's working, what's not. So if I see your business, something's not working, I can be like, “You know what? This is what I'm seeing in the industry and this is what I think you should do.” You honestly get some business consulting in there as well. I was just on a CFO call the other day with a client and we came up with a whole new offer because of what I was seeing in the industry.

Obviously the downside is that it costs money. But the thing to remember is that it's investing. What is the cost of you not having your books done for you? You're not keeping up with them. You are waiting till the end of the year to know what is happening. You are stressed out and anxious all the time because you don't know what your numbers are telling you. There is a cost to not knowing what is going on in your books.

So there you have it! Hopefully this gives you a better idea of whether you should outsource your bookkeeping or not. And if you fill out an inquiry form, hop on a call with me and you really don't know what direction is best for you, I'll honestly tell you if you should not be outsourcing to a bookkeeper. There's been so many times where people come on and they're like, “This is kind of my situation. What direction should I go with?” And either I'm like, “You can DIY it with our template. You can book a one hour consulting call with me, or you can outsource your books.” And so I help people decide what is the best direction for them and their business? So if that sounds like you, don't hesitate to reach out. I would love to chat with you. If you have any questions, let me know.