The Pros and Cons of DIY Bookkeeping for Startups

Whether you collaborate with a bookkeeper or manage your business’s financial records and transactions yourself, there are several pros and cons to consider. This article will explore the main points of each option.

Unless you have the time, expertise, and resources to manage your books yourself, it’s always best to hire professional help.

1. Accuracy

A startup’s financial health is a critical factor in their success. Using DIY bookkeeping is an option for those who understand how to do it, and have the time to commit to keeping accurate records. However, it is important to note that a poorly maintained set of books can lead to serious consequences. This includes a lack of transparency, compliance issues, and costly errors.

Many startup owners believe that they can get by without hiring a professional bookkeeper or accountant for their business. While this is often true for smaller companies, startups need to be aware of the risks involved in ignoring bookkeeping. As a result, it is highly recommended that startup owners seek out monthly accounting help for their business from an experienced CPA or bookkeeper.

Besides ensuring compliance, proper bookkeeping can help a startup plan for future growth and prepare to make funding rounds or sell their company. A startup’s financial statements are the basis for their tax return, and startups need to keep a close eye on their accounts so that they don’t miss any deductions. In addition, a startup’s financial statements will be used by investors for due diligence during the funding process.

Another key element of a startup’s financial recordkeeping is payroll. In order to track labor costs, a startup needs to maintain accurate payroll records on a regular basis. This includes preparing employee paychecks, overseeing payroll taxes, and filing payroll forms, such as W-2s and 1099s. A mismanaged payroll system can create significant problems for a startup, so it is crucial that this process be handled by a qualified bookkeeper or accountant.

Lastly, it is essential that a startup keeps its business bank, credit card, and vendor/supplier statements in order to track their monthly expenses. Incomplete or inaccurate accounting records can be a disaster for a startup, as it can hide a host of costly mistakes and lead to cash flow problems. Moreover, mixing personal and business bank accounts or credit cards can expose startup owners to liability issues. Having a clear line between personal and business finances will ensure that startup records are accurate, and can be reviewed in the event of a legal dispute.

2. Time

While the allure of saving money on professional fees is a tempting proposition for startups, DIY bookkeeping comes with its own set of challenges. While accounting apps like QuickBooks and Xero have simplified the task by providing user-friendly interfaces, it still takes time to learn how to use them and even more time to keep up with financial regulations and best practices.

In addition, the DIY approach requires that you sift through every inflow and outflow of your business, which gives you a greater level of intimacy with your financials. This provides insight into your finances that you simply can’t get from a report, but it can also be incredibly taxing on your mental and physical health.

If you’re new to the process, it can take a while to set up categories and a chart of accounts that match the way your business operates. You’ll also have to spend time regularly reconciling expenses, which involves comparing the information in your books to the numbers in your bank account. And, of course, you’ll have to comb through every receipt and bank statement in search of any errors or discrepancies.

Errors in your books can have serious consequences, including legal implications if you don’t comply with tax laws or accounting standards, and bad financial data that can lead to poor decisions for your business. It’s not uncommon for owners attempting to do their own bookkeeping to make mistakes, and these errors can take significant time to correct.

Time is the most valuable asset for a startup, and doing your own bookkeeping can take away hours that you could be spending on important tasks like growing your business, connecting with customers, or developing your products/services. It’s also possible that you’ll need to present your financial numbers to shareholders or investors, and doing so without a bookkeeper’s experience can be a risky endeavor.

3. Taxes

Using accounting software such as QuickBooks or Xero can provide small business owners with a wealth of information regarding their company’s finances and financial statements. However, these tools do not come without a learning curve. Accounting is complex and ever-changing, meaning that it can be difficult to stay up to date while also juggling other aspects of your startup.

For example, if you are doing your own bookkeeping, you will need to review every single financial transaction in detail to ensure that everything is accurate. This can be a time-consuming process that takes you away from other tasks such as marketing or pursuing new funding. However, it is important to remember that accurate record-keeping is the key to ensuring that your taxes are filed correctly and that you have access to accurate financial data in the event of an audit.

In addition, if you are doing your own bookkeeping, it can be easy to miss out on tax deductions and other valuable opportunities for savings. Miscategorizing expenses or failing to file tax paperwork on time can cost your startup money in the long run. This is why it is important to work with an experienced CFO and bookkeeper to avoid costly mistakes.

Finally, if you are doing your own bookkeeping, your records may not be ready for tax season. This can be a significant issue for startups that are relying on outside investors or loans to grow their businesses. Your accountant will need access to complete and accurate financial reports to prepare your taxes. This means that you will need to spend additional time and money re-adjusting your books and getting them in shape before filing.

Hiring a full-service finance firm such as The Bottom Line Denver Bookkeeping can take the burden of bookkeeping, accounting, taxes, and CFO responsibilities off your startup’s shoulders. We can ensure that your business’s finances are always accurate and up to date, and that your taxes are filed correctly and on time. Our experts can even set up your business with proper accounting processes to help you prepare for future growth.

4. Costs

Despite the appeal of DIY bookkeeping, many small business owners find that the process can drain valuable time. For starters, collecting and uploading financial transactions into bookkeeping software can take hours, and rectifying mistakes – especially when prompted by IRS feedback – can be an even longer process. This time could be better spent on other tasks that directly support your business’s growth, such as managing marketing or expanding operations.

In addition, DIY bookkeeping requires that you keep meticulous records of receipts and transactions, which can quickly add up and be difficult to keep track of. In many cases, this leads to a lack of accurate data that can be detrimental to your company’s finances. For example, a small business owner may be unaware that an expense is taxable, or they might not understand how to properly record income on invoices. As a result, inaccurate books can impact the accuracy of tax filings and lead to costly penalties.

Additionally, the DIY method often involves using accounting software that can be complex and require a steep learning curve. This is particularly true if you use an online accounting solution, which may have extra features that you don’t need or don’t know how to use. Lastly, there are no guarantees that the software you’re using is compatible with other business programs or apps, making it harder to share data and reports.

Ultimately, the decision to handle your own books or hire a professional comes down to how much you value your time and the level of expertise needed to manage your business’s finances. However, if you’re looking to save time and minimize the risk of expensive mistakes, hiring a qualified bookkeeper can be a great choice for your startup.