Don’t Be Overwhelmed by Being Your Own Bookkeeper

02.13.20 6:09 PM

Keeping Up with the Books

  

As a child, I was taught the importance of being handy and self-sufficient. Whether it was a problem with the truck’s alternator, a peeling coat of paint in the den, or a from-scratch dinner that had to feed six, my parents instructed me that I should not rely on other people for the little things. Doing things myself, they told me, would ensure not just that I could take care of myself in a jam, but that I would be forced to keep an eye on what was going on around me.

So, when I started running a small business, I automatically started keeping my books myself. Now, I didn’t do it without help. I hired a bookkeeper to check my work and get me through the first couple of months when I didn’t really know what I was doing. But for the most part I handled all the bookkeeping myself.

What I thought would be a painful chore turned out to be an invaluable looking glass into the health and well-being of my new firm. Like an auto enthusiast listening to her engine as she drove, I was keeping a close eye on my finances. Normally, nothing looked amiss. From time to time, though, I would see patterns or one-off events that didn’t coincide with what I wanted my company to look like. A large recurring transaction for an unneeded Software-as-a-Service product. Rising payments for office supplies that suggested a need for better virtualization and automation.

The point is that, if cash is king, then keeping your own books is the small business version of keeping an eye on what the monarchy is doing.

Are you sure you can handle bookkeeping by yourself?

The “How”

You may be wondering if you’re even capable of keeping your own books. After all, you may have no background in accounting or any affinity for math. That’s alright. Most people don’t. Rest assured that the mathematics of it all is quite simple (although an exacting eye is required to avoid errors.) And the accounting part is easy to learn. At the end of the day, many people are fully capable of bookkeeping (mostly) on their own.  

Accounting Basics

For those with absolutely no financial education or training, we would strongly suggest an online course. CourseraUdemyedX, and others all offer fantastic online courses on Financial Accounting that will teach you the basics of double-entry bookkeeping.

Keep in mind that you’re not preparing for a career as a Chartered Accountant. It’s alright if some of the more advanced material doesn’t quite click. You’re taking these courses to get a handle on the basics. What are debits and credits? What are the major financial statements I need to understand?

Make sure you use the best Accounting software available.

The Software

Once you’ve got some understanding of basic accounting principles, you can turn your mind to the physical realities of putting pen to paper or, better yet, fingers to keys. It’s our view that you’ll be doing yourself a disservice if you forego all the fantastic options you have at your disposal when it comes to bookkeeping and accounting software.

Electronic bookkeeping is the reason my first foray into this discipline was relatively painless. Although I had to deal with the added difficulty of learning a new piece of software, the time I spent learning the program was more than made up for in the time that software saved me. Automatic reconciliations, auto-populated financial statements, and pre-formatted journals were all a godsend to someone like me who was learning to do this for the first time. 

Of course, there is something to be said for those intrepid few who keep their first set of books manually, with only a pencil and paper at their side. They will surely be forced to learn the intricacies of keeping a set of books and learn them well. But for those of us who are not gluttons for punishment, and are perennially short of time, an electronic solution is likely the best bet.

Which program you choose to use is up to you. I personally prefer QuickBooks Online, a cloud version of Intuit’s popular accounting software, but your mileage may vary. There are plenty of excellent software solutions to choose from. Compare their feature-sets and decide which one is best for you.

If the choices seem overwhelming at first, draft a short list of the features you absolutely must have, the features you’d appreciate but don’t need, and the features you wish to avoid. For example, when I was in the market for software, I was looking for a cloud solution that allowed access to my books for at least three people (me, my accountant, and the aforementioned backup bookkeeper) from any location. I wanted it to be secure, encrypted, and easy-to-use.

I wanted it to be able to handle legal trust accounts (because I was running a law firm). I didn’t want a desktop solution, because I didn’t want to worry about external backups or ensuring my own security. QuickBooks Online happened to fit the bill quite nicely.

The Why

I’ve already alluded to the main reason you should consider keeping your own books. Doing so forces you to keep watch over all your firm’s financial dealings. Not only will individual transactions be brought to your attention, interesting patterns will begin to come to light. Those stubborn areas of inefficiency in your business will become painfully obvious when you’re forced to journalize their rising expenses. That employee with remarkable numbers will not go unnoticed as you tally her sales and commissions.

Too many small business owners work “in” their business, rather than “on” their business. That’s a cliché you’ve probably heard before. For those who are unfamiliar with the expression, it refers to those small business owners who competently fulfill their duties as an employee of the business but fail to take any supervisory or leadership responsibility when it comes to the business itself. Keeping your own books is a straightforward way of ensuring that you have the information you need to make intelligent and forward-thinking decisions about the direction and future of your company.

It's probably time to hire an accountant.

What Not to Do

While we fully recommend you take charge of your company and keep your own books, there is a smart way to do that and a not-so-smart way. Let’s begin with the latter.

Support

Whatever you do, don’t dive into the world of bookkeeping with no help or backup plan. Your books are the autobiography of your company. If you make too many mistakes (and you will make mistakes) it will be a nightmare for someone to try and go back to the beginning and fix everything. In the meantime, you’ll be flying blind, without any accurate financial information.

Instead, ease your way into bookkeeping gradually. While you can immediately take responsibility for your books, have a bookkeeper on hand who can check your work. At first, these checks should come frequently:;every couple of days or so if possible. As time passes, the frequency of these checks can become greatly reduced. You’ll be amazed at how quickly you become expert at all things accounting with daily practice.

Trust and Sensitive Accounts

Some lines of business involve the handling of sensitive sorts of accounts. Law firms, for example, must handle client trust accounts, about which each state bar association has reams of rules and regulations. If you happen to be in an industry that contains special rules about the handling and maintenance of specific kinds of accounts, give careful thought to keeping your own books.

You may still wish to handle your own accounts but know that one small slip-up could lead to major consequences. The advice I gave in the previous section about maintaining professional support in the form of a bookkeeper to check your work goes double for people in sensitive industries. When mistakes are unacceptable, it is unacceptable not to have a second person on the lookout for mistakes.

You should carry this attitude with you whenever you are dealing with your finances. For example, even companies that don’t deal with trust accounts or sensitive information must make choices that have significant legal effects. “Is this person an employee or an independent contractor?” “How much income tax should I withhold from this paycheck?”

The answers to questions like these shouldn’t be given without any input from legal or accounting professionals. Just because you can do your own books, doesn’t mean you don’t need an accountant and/or a lawyer.

Do it today. Don't procrastinate.

Procrastination

“I’ve had a long day. I’ll do my entries tomorrow.”

“This week’s been tough. I’ll handle the journals on the weekend.”

Sentences like these may be easy to speak, but their consequences are anything but easy to untangle. Keeping your books is like doing the dishes. If you do a little bit every day, the task is easy manageable. If you procrastinate, you’ll soon find yourself in over your head.

Self-bookkeeping requires constant attention. Now, this doesn’t mean you need to spend all day, every day with your head in the books. It just means that you’ll likely have to record entries and manage your accounts every couple of days. For some detail-oriented people, this is no problem. The minutiae of accounting serve to relax these people. Others, who find the task monotonous, may need to find some extrinsic motivation to maintain the job.

What to Do

So now that you know what not to do, where do you go to ascertain what to do? Luckily, you probably already know the things you should be doing. As I mentioned above, learn everything you can about the basics of accounting and double-entry bookkeeping. You want to be reasonably proficient in it, to the point that you can have an intelligent conversation with your backup bookkeeper and accountant. You also want to be able to understand why you’re doing the things that you’re doing and making the entries that you’re making. A thorough understanding of the theory behind double-entry bookkeeping will prevent many silly mistakes.

You want to be careful, professional, and cautious with your books. Treat them with the care that they deserve. These are the documents that record the health of your company. Pay close attention to them, keep them up-to-date, and accurate. Have a professional double-check your work from time to time. When you’re trying to figure out if you’re spending enough attention and time on your books, ask yourself this question: Can I, using my books, explain where my business has been, is right now, and will likely be in one year?

Wrapping Up and Key Takeaways

Hopefully our article has served to provide you with some background knowledge about bookkeeping that you might not have had before. We hope that the thought of keeping your own books is not as overwhelming as you may have found it when you started reading. Before you go, review some of these key takeaways on what we’ve just discussed:

  • The main reason to keep your own books is that it’s the best way to keep an eye on the financial health and well being of your business.

  • Basic accounting knowledge is a must. If you already possess it, great. If you don’t, there’s dozens of excellent online courses that can teach you the fundamentals in no time at all.

  • Commit yourself to buying one of the leading software suites for accounting and bookkeeping. While journaling in pencil and paper is a heroic and praiseworthy task, electronic bookkeeping is faster, easier, and more flexible than the old-school method.

  • Especially at the beginning, keep a professional on retainer to check your work. You’re bound to make mistakes and, when you do, you want to be quickly corrected so they don’t happen again.

  • Pay careful attention to trust accounts, or similarly sensitive transaction categories. 

Stay up to date on your books. If you let things fall by the wayside, you’ll find it difficult to pick up and get going again. The best way to avoid this is to just keep plugging away every week. Make keeping your books a habit.