The idea of being your own boss and doing what you love is very appealing and many people aspire to be self-made successes. But at a certain point, more success comes with more responsibility. There’s a lot of stuff to keep track of, especially financially. Is it a good idea to manage your own books?
Tradesmen who have small businesses with few employees generally find it easier and more cost-effective to do their own bookkeeping. If there are many employees, money gets more complicated. You’ll probably want to look into hiring a bookkeeper to keep your business organized.
Even if you want to do your own bookkeeping, it can be risky. Sometimes outsourcing is the better idea. Here’s what you need to know about keeping your own books:
What Is Bookkeeping?
Every business, big or small, needs to keep financial records. Not only is this crucial to making good financial decisions, but it’s also required by law. The a term “bookkeeping” means to record all purchases, sales, receipts, services, and bills that go in or out of your business’s bank account, as well as accounting for a number of additional transactions, that may not have passed through the account that are relevant to the finances of the business.
Bookkeeping not only records what goes in and out, but it analyzes the effect that has on your net worth as a tradie. Keeping a close eye on your finances will tell you how much money you have, where you spend the most, where you earn the most, and other info that can be crucial to keeping your business operational.
Bookkeeper vs. Accountant
While we’ll use the terms interchangeably here, bookkeepers and accountants are not necessarily the same thing. Bookkeepers tend to handle the coding of the day to day business transactions and a lot of the time includes payroll preparation. Accountants generally look after higher level reporting and financial affairs of the business. Both are skilled. Accountants and accounting firms in public practice are often licensed to prepare income tax returns and interact with the ATO on behalf of businesses.
Bookkeepers who are registered BAS agents have fewer capabilities to interact with the ATO than registered tax agents. Registered BAS agents tend to deal with the ATO on matters involving GST, employee super and BAS lodgements. Bookkeeping is best viewed as a specialised area of accounting, just as income tax or management reporting are also viewed as a specialised areas of accounting.
Traditionally a bookkeeper kept track of the basic financial transactions of a small business, and an accountant would build upon that information and provide analysis, advice, and even predict possible future outcomes of financial decisions. Over the years the lines have become blurred as to where bookkeeping ends and accounting starts as the bookkeeping industry evolves and becomes increasingly professional.
It is not uncommon for accountants to move from performing a wide range of accounting services to specialising in bookkeeping, as bookkeeping is the area of accounting they prefer. Shane Holbeck from Accountix is a good example of this. Shane has previously been a partner in a business advice and tax services accounting practice, but now specialises in bookkeeping.
What Do You Need to Know for DIY Bookkeeping?
As a tradesman, numbers are probably not your passion, nor your strength. That doesn’t mean you can’t do your own books, but it does mean you’ll need to be diligent and habitual about your accounting. Keeping track of your money is what will keep your dream business afloat.
There are plenty of accounting software options out there. We recommend you pick one that meets your businesses requirements and user friendly for you. Over the last couple of years we often find this to be Xero however MYOB, Quicken and Reckon also have very good offerings.
Doing so will make keeping your books so much easier. All you have to do is input transactions accurately and the software will organize the information. This is a crucial step to DIY bookkeeping. If you try to manually keep track of your transactions, you are liable to make mistakes and then you’ll be working off of incorrect financial information.
The important word in the previous paragraph is inputting transactions “accurately”, as this often requires a certain level of bookkeeping or accounting knowledge to ensure the accuracy of data being input into the system. Like the saying goes: garbage in, garbage out.
Invoicing is the process of billing your customers. For tradies charging an hourly rate for a job, this will be sending the customer an invoice with the number of hours you worked, and the agreed amount you’re supposed to be paid per hour. If you do not send an invoice, you may not get paid. One of the biggest mistakes we see is tradies make is forgetting to invoice their clients.
The best way to prevent this from happening among the hustle and bustle of making appointments and keeping clients happy, is to create some kind of invoicing system. There are plenty of other websites and programs that are designed to do this for you!
Even if you have experience with keeping your own books, you might need some help working out kinks in a program. Everyone could also use some advice on how to earn more than they spend. In these situations, it is very helpful to have an on-call bookkeeper available.
These freelance bookkeepers commonly charge by the hour for work performed or may offer a suite of services for a fixed monthly charge. Getting your issues resolved with the assistance of a professional could save your business. Sometimes it’s worth the money.
Another common mistake made by tradies who do their own bookkeeping is to pay too much in taxes. Keep a record of every expense you make that is strictly for your business and discuss these with your tax accountant. You may be able to claim these when your tax return is prepared. You should be speaking to your tax accountant on what expenses you can claim and what you can’t. Even the smallest expenses may be able to be claimed. Below are a couple of expenses types you should be discussing:
- Transportation (gas, bus fare, train tickets, motor vehicle expenses etc)
- Stamps (or packages, envelopes, and shipping fees)
- Utilities (can depend on where you’re working from)
- Rent (might be able to claim a portion of your rent or mortgage as a business expense)
You should also keep in mind that a good chunk of the money you make will go back to the government. Keep a budget for taxes. Put aside enough each month so that when June 30 arrives, you are prepared to pay taxes both for your business and for your personal earnings.
Pros of Keeping Your Own Books
There aren’t many pros to doing your own books as each minute you spend doing bookkeeping, is one minute less you could be out generating income for your business or doing activities to build your business. Having said this, a couple of pros could be:
- Financial Awareness: Assuming you understand how the accounting software works, you know where your money is coming from and where it’s going.
- Cost Effective: If you’re the only employee or you have only one or two others, you could save money doing the books yourself because you wouldn’t have to pay an a bookkeeper.
Unfortunately, if you are clueless about the accounting software and/or have several employees, doing your own accounting is most likely neither profitable nor informative for you. In fact, you could end up making mistakes or spending more than you have. Hiring an bookkeeper can save you money and a headache.
Cons of Keeping Your Own Books
Bookkeeping can get complex, especially for larger businesses. For tradies like you, it would probably just be easier to leave the numbers for the bookkeepers and spend your time and energy worrying about taking care of your clients. Below are some reasons for why DIY bookkeeping is not recommended.
- Rookie Mistakes: As a tradie, your expertiese is likely not in bookkeeping. If you’re not an expert, you are more likely to make mistakes, and in accounting, mistakes can be expensive.
- Tax Season: Taxes are stressful for everyone. If you’re doing your own bookkeeping, you run the risk of, “Paying too much tax due to unclaimed work-related expenses,” (source), or your tax accountant needing to make corrections in your books.
- Expert Advice: One of the greatest benefits of hiring a bookkeeper is the expert advice you receive from someone who knows your finances well. When you do your own books, you miss out on insight from an expert.
- Opportunity Cost: By taking time to keep your books, you sacrifice time you could be spending with a client, doing a job, and earning money.
- Efficiency: Keeping the books can take time. The accounting work that takes you two hours will take a professional bookkeeper about a quarter the time.
Even if you do run a small business, there are a lot of reasons not to do your own books. Unless you know what you’re doing, it might be easier, faster, and cheaper to hire someone else to organize your business finances for you.
What An Accountant or Bookkeeper Can Do For You
Why should you hire an accountant or bookkeeper? Accountants and bookkeepers take care of the financial side of your business so you can focus on providing your service and improving your trade. Here’s how a professional accountant and bookkeepr can make your business more successful and your life easier:
One of the most crucial parts of bookkeeping is keeping track of income and expenses. This is how you know how much you are earning and how much you are spending. Your bookkeeper will record any invoices received or sent, and organize these transactions in a way that is easy to understand. Everyone might organize a bit differently, but a system is necessary.
As mentioned above, it’s important to have an invoicing system so you can bill your clients. Outsourcing a bookkeeper will take that task off your to-do list. Bookkeeeprs will manage all cash inflow and outflow. That means they will invoice your clients, and assist you with making sure your suppliers and employees are paid. Managing cash, paying employees, billing clients are all important parts of running a business.
Possibly the greatest benefit of outsourcing is that a professional bookkeeper can not only track data but analyze it and offer expert advice. An accountant or bookkeeper can use trends in your business transactions to predict if your business is going under and tell you what you need to do to prevent that from happening.
On top of giving great advice, your accountant or bookkeeper will write up reports for you, usually on a monthly and yearly basis. These reports will present your financial data in a clear, concise format that will help you make smart financial decisions in the coming months.
Laws are changing all the time, especially where taxes are concerned. It’s a lot to keep track of for a tradie who is more interested in working with their hands. A tax accountant will keep track of tax laws and a bookkeeper will will look after GST law.
How Much Do Bookkeepers Cost?
In some cases, it may be cheaper to do your own bookkeeping, but those cases are rare. Bookkeepers offer so many advantages, that the pros outweigh the cons almost every time. If you don’t hire a bookkeeper, you have to do all the work yourself, and you don’t get the benefit of professional analysis.
Think about it like this:
If you charge your clients $150 an hour and you work 40 hours a week, you’re making $6,000 every week. But if you’re spending two of those hours doing your books, you’re actually only making $5,700 a week. If you delegate those two hours to a bookkeeper, you’ll be able to spend that time with clients. If your bookkeeper charges you $150 a week, you’ll still be making $5,850 on a weekly basis.
In short, depending on how much the bookkeeper charges, you could actually be making more money by hiring an bookkeeper than you would by doing your own books, especially if they can provide you with expert insight on financial decisions. Cost is all about figuring out if the amount you would make by working the extra hours beats the amount you would spend on a bookkeeper.
To give you a better idea of what a bookkeeper would charge, Australian bookkeepers cost an average of $60 to $80 per hour. This is only an estimate, however. To get an exact quote, you should call a bookkeeping agency or firm and ask them about your specific situation. They will be able to tell you what your needs will cost you.
Should You Do Your Own Bookkeeping?
Keeping your own books might sound easy enough. It might sound cheaper than paying someone else to do it. Both can be true, assuming you are really familiar with accounting software, create a foolproof invoicing system, and know who to call with financial questions or emergencies.
Hiring a bookkeeper is nearly always better than bookkeeping yourself because a bookkeeper can prevent mistakes, make reconciling go smoother, take care of all incoming and outgoing funds, provide expert advice, get the job done faster than you can, and maybe even save you money.
If you’re a tradie wondering how to keep on top of your books, it is probably a good idea to look into what you can save by hiring a bookkeeper. They can take away the stress associated with business finances, and give you the space to focus on the most important part of your business: helping your clients by doing what you love.