Being an accountant, people ask me all the time:
My answer is always the same:
It depends on your needs.
Yes, it’s vague, and not very helpful on the surface.
But it does accomplish one important goal.
It forces them to think about where they are and what they actually need.
Not what they want, mind you, but their actual business needs.
Let’s face it, if we went by wants in business, we’d all outsource everything and sit back and watch others make us rich!
Sadly, that’s not the case for most small business owners.
When it comes to their books and finances, there are clear guides, though, which can signify the need to move onto a more advanced way of keeping your company’s books.
Disclaimer: This isn’t a review, comparison or how-to guide of any sort. I’m using the platform Xero as an example to keep things simple and hilight the things that can be done with more advanced bookkeeping systems.
So, without further delay these are the signs that it’s time to ditch the old ways and upgrade your bookkeeping tools.
Increased Number Of Transactions
When you’re first starting out, it’s quite easy to keep your books on a graph pad or a simple spreadsheet.
It’s mostly just a few regularly occurring expenses, if that, which need to be recorded.
Sometimes you might do a little work and have a deposit here or there as well.
But, it’s safe to say that when you first start your business, it’s relatively easy to manually track everything.
As you grow and start to pick up regular clients, and start spending more in a non-regular fashion, it becomes more difficult to keep up with things by hand.
And if you start slipping, the time it takes to get your books caught up after a couple of months of neglect can be significant!
Enter online bookkeping platforms like Xero which connect to your bank and credit card accounts directly and may even automatically import the transactions (PayPal too!).
Now, all you have to do is link everything one time then it’s permanently linked.
From there, once the transactions are imported, you simply need to categorize them and BOOM! you’re done.
No more bouncing back-and-forth between spreadsheet cells.
No more erasing math errors on paper.
No more having to go line-by-line from your bank or credit card statement to record the transactions.
Everything is done in the fraction of the time!
Need To Issue 1099-MISC
This is a topic that really causes some confusion.
If you’d like you can go read my article on when you shouldn’t send out 1099s.
It’s been very helpful for a few people so far who have used it to get clear on when a 1099-MISC is and isn’t required.
But in terms of this topic, a program such as Xero is so much more powerful and easy to use than any other form of bookkeeping.
You see, at the end of the year, you need to go through all of your vendors and see not only to whom you paid more than $600, but also make sure that you only paid that amount in cash/check/personal transfer.
But if you do everything manually, odd are you aren’t really tracking who you are paying and how you are paying them…just that you spent $X on a particular expense category.
Well, by using a more advanced system, you can track all that stuff so much more easily.
Each time you make a payment, you select the vendor you paid.
That gets recorded under the vendor’s info in the system.
Then, all you have to do is run a report for payments made to vendors, limit it to those that are in excess of $600 and there’s the hard part taken care of for you!
From there, all you have to do is see if you paid them directly with cash or if you sent them money through a merchant account of some kind to determine your responsibility for reporting the payments to the IRS or not.
It certainly takes up a lot less time than having to search through all of your records at the end of the year.
And that’s assuming you even keep records detailed enough to put it all together.
This is something that isn’t done as well on some online bookkeeping programs as it is on others.
But it’s still a heck of a lot easier to do on those than it is to do on a spreadsheet or paper.
Let’s say you have 5 websites that you monetize.
Each site has different expenses and income streams.
So you either have a separate spreadsheet/page of paper for each one, or you do what so many would thing is the “easy way” and make 5 sets of everything like this:
- Advertising Income – Site 1
- Advertising Income – Site 2
- Advertising Income – Site 3
- Advertising Income – Site 4
- Advertising Income – Site 5
- Website Maintenance – Site 1
- Website Maintenance – Site 2
- Website Maintenance – Site 3
- Website Maintenance – Site 4
- Website Maintenance – Site 5
That’s just 2 different accounts and it takes up almost the whole screen…imaging what the list will look like accounting for all of your income and expense categories.
When you use an online program, you have much more flexibility.
In some instances you can set things up to track each site’s transactions separately as a separate class or segment.
That way, you don’t have a chart of account or a P&L statement that is hundreds of lines long, spanning multiple pages in length.
Instead, what happens is everything goes to a single tracking category (ie: advertising income, website maintenance, hosting expense, etc.) but also sub-tracked for the individual business segments.
That enables you to run reports specifically for each property as well as for your company as a whole with a few clicks.
Sure, a spreadsheet can eventually be configured to do something similar, but first you’d have to figure it all out.
Well, actually, first you’d have to spend the time breaking everything down to enter into the spreadsheet.
Of course, the first heading I mentioned was the ease with which transactions are imported into these types of programs.
There you go folks!
3 specific and clear signs that will let you know when it’s time to ditch the old-school methods of bookkeeping and move into the modern age.
Of course there will be other signs as well, such as your profit making it too sensible not to hire someone to do the work for you.
For now, these are the more obvious, less money-driven reasons to do so.
Are you still using pencil & paper or simplistic spreadsheets? Or have you already moved on to a more advanced method of keeping your books in order? Let me know what your reasoning was in either case in the comments below!