There are many bookkeeping and accounting software solutions available in the market that have made the process of bookkeeping much simpler and much faster than ever before. With user friendly interfaces and dashboards that provide a visual of how the business is doing at any given time, it is relatively easy to manage, and best of all, free (or almost free).
While I am for cutting waste and saving money, one of the issues I have found is that, in many cases, business owners who do their own accounting and bookkeeping do not really know what they are doing. Sure, it is easy to create an invoice, or record a payment, or issue a cheque,… but, without a true understanding of how all these transactions and activities fall into place for an accurate set of books, you can be putting your business at a greater risk of errors and unnecessary costs, especially if the tax authorities start coming after you.
Common problems with DIY bookkeeping
Limited accounting knowledge – This can result in incorrect booking of entries, for example: getting the debits and credits wrong; incorrect handling of fixed assets in the books; incorrect handling of restricted business expenses such as meals & entertainment…etc
Limited tax knowledge – Perhaps this is one where the biggest risk lies as any mistakes may result in consequences that may cost the business heavily. Examples in this include: incorrect setup of taxes in the bookkeeping and accounting software program resulting in wrong tax calculations; incorrect application of tax rules, especially what is taxable vs not taxable vs exempt; place of supply rules (if you sell or provide a service do customers in other provinces); responsibilities for GST/HST; payroll taxes; income tax instalment requirements, missed credits…etc…and much more.
Time – Keeping your books in order requires time. Most business owners simply do not have the capacity to spend a significant time in keeping up with the bookkeeping. This is especially if they have to continually look up how to do this or do that to help in booking entries.
Additional Costs – While it may initially look like you are saving money by doing your own bookkeeping, the costs can quickly become higher if there are many errors that make it difficult to rely on the accuracy of the whole set of books, and you now need a professional to review and correct. This can have a negative impact on decision making since you cannot rely on the financial information when you need it to support your business decisions. As busy business owners, lack of time can get you behind on your bookkeeping. As a result, you may end up having to hire someone to get the books caught up to date, but the additional work and time can increase the costs.
Hiring a bookkeeper or accountant to handle the day to day bookkeeping and compliance requirements is not as expensive as many business owners tend to think. Most bookkeeping and accounting professionals offer fixed rates which provides some predictability on costs and makes it easier for the business owner to manage costs. For some businesses, the volume of work is very little, such that it may only require to have a professional update every couple of months, even saving your business more money. In any case, regardless of how much or how little transactions your business has, it is important to have a professional review or handle the process, to make sure it is correct, and compliant with all tax authority requirements.