Skip to content

Bookkeeping: How it's killing your business

There's plenty of reasons why you thought it would be great to start a business. Maybe you want to build an empire and retire in two to ten years. Maybe you're anti-establishment and "The Man" was keeping you down. Or maybe your lifestyle is so on-again-off-again that a 9 to 5 is literally impossible.

Whatever the reason, there's one common thread that connects all business owners: You're chasing something. A dream. A calling. A passion. That's what makes you so good at it. So why would you subject yourself to something as generally unpopular as bookkeeping and accounting?

Accounting is how you measure the financial status of your business. It's integral to being a business owner. You need it to survive.

But it's killing your business. And here's why.

1. It's stealing your resources (not just your money)

You're a titan of industry. You have a great product, you've spent the time figuring out your website, your location, your marketing campaign. You KNOW that you can get people in the door and spending money.

Accounting is easy. Money in, money out. Taxes at some point. Right?

Wrong. So wrong. And the truth is, you know it's wrong.

According to Accounting Today , 40% of small business owners say the bookkeeping is the WORST part of owning a business, with a potential 80+ hours a year spent just dealing with finances.

The real kicker here isn't how high the numbers are. It's how low they can get. When you look at the data, a good percentage of small businesses don't "do their books". THIS MAKES YOU A PRIME IRS AUDIT TARGET. Personally, I'm all for paying the government exactly what they're owed and not a cent more, but there is NOTHING about audits and late filing fees that I find attractive.

The books HAVE to get done. This means your time. Family dinner. Date night. Lunch breaks.

And, god forbid, you begin to fall behind, or make some less-than-100% confident assumptions. That's even more of your time. Time spent researching, asking questions, and staring at the ceiling at 4 AM questioning why you ever thought being a business owner was the way to go.

Do too much of this and you'll be left asking yourself professional accounting questions like - how is my COGS reflected in my ROI? Is this stuff for my office an asset or an expense?

And still no answers.

2. It's not telling you what it needs.

It's true, I can write with a bit of drama, but THIS right here is arguably the #1 reason bookkeeping is the defining element of your business: Entrepreneur cites a study stating that 82% of small businesses fail due to cash flow problems. This is critical for so many reasons, and most of the time people think of cash flow like we talked about earlier: Money in, Money out. NOT TRUE. There are so many variables involved in the actual dollars and cents involved in your business bank account

This is why accountants while often say things like "oh, I'm good with numbers, not good at math." We can use a calculator all day, but accounting is classifying transactions and understanding financial statements at it's core. To the average joe, financial statements might as well be in Greek. To accountants though, they boil down to two things:

2.a. Is this business plan sustainable?

Have you ever overdrawn your checking account because you forgot about a bill you paid? Ever maxed out a credit card or had it declined at the register?

Better yet, have you ever cut yourself a check from your business, only to give that money right back to your business so that the doors can stay open? Have you actually paid yourself out of your business at all?

The point here is obvious - starting a business is very hard, and making that business into something that will pay you back for your efforts is a special challenge. But it doesn't have to be. Through an educated combination of budgeting and understanding your cash flow and income statement, your business will always tell you whether or not you can get paid. This is that magic word: profit, and once you hit consistent profits is when part two kicks in:

2.b. Can this business grow (and still be sustainable)?

Easily one of the top fears of business owners starting for the second, third, or tenth time: can I grow safely?

You hear it all the time: "They went too big too fast," "They got busy and weren't prepared and lost all that business for good," or "They went out of business during their off season."

This also comes down to one good point: you're going to need money if you want to grow.

There's a nice divide in the entrepreneur community about the "best" way to finance and grow your business. Some gurus advocate an "absolutely no loans = cash is king" approach. Some vouch for the "use other people's money" approach. While I wish I had the capital to never take out a loan, that math just doesn't always work out that way. Unless you're very blessed, at some point you're going to need to go to a bank and get a loan.

The good news is: community bankers LOVE you. They wake up in the morning wanting to help their community grow. They want to do business with you.

Here's the rub: you could be making a million dollars a week, but if you're financial statements are wrong there isn't a banker that will touch you, much less give you a good deal.

So here we are: Your banker didn't think your joke about your "coverage ratio" was funny. You're not even sure what exactly they were talking about anyway. Back to the late nights at 4 AM wondering why you thought this would work.

This is why it's critical to have a bookkeeping solution that is up to par with your needs, which brings us to my last point.

3. It's taking too much work (not just time)

We've established that bookkeeping can easily take up 80 hours of your time, more than likely it's time you would rather be spending doing something else. But hey, you're not alone. You've got a family member or friend who is excited for your business too, and they're willing to do the bookkeeping stuff so that you can get back to the business. That's awesome!

Except - money has a bad habit of making personal relationships weird. Sometimes it's great, but sometimes it's the worst. That good friend sticks around and works for free or basically nothing, and now they're the one up at 4 AM. Meanwhile, you're not entirely sure they know what they're doing, so you're still not sleeping either. And then they make a mistake. It happens, right? except that mistake ends up costing you your customers and TONS of money.

Let's face it - A lot can go wrong when you make your friends and family work for free.

Accounting is how you measure the financial status of your business. It’s integral to being a business owner. You NEED it to survive.

So you start looking at accountants. You need someone available during business hours so that you can ask and answer questions. You think about hiring someone. And then you realize:

  • You pay them a salary; entry level accounting starts at around $35,000 per year, and this may not be entirely "entry-level" work
  • you manage their payroll for taxes, AND pay taxes for them on top of their salary
  • you pay for their office equipment, subscriptions to software, and other work expenses
  • you feel lukewarm at best on the quality that's being delivered by a salaried employee

Okay, so go get a CPA to solve these problems for you. Right?

Hey, getting warmer!

CPA's can have the answers. They put the work in every year to stay on top of the tax code. Quickbooks has a great article on using CPA's for special accounting work. But most of the time, CPAs look to do your books once a year, and calculate your taxes with some quick math. Being involved in your books takes WORK. Which means maybe once a year your books will be in order. And you are going to PAY for that higher education kind of work. Especially if you're also asking them to get in the trenches with you.

How to save your business

You pay a flat, tax-deductible rate for a monthly, no-contract service. In return, you get quality results ASAP in today’s most efficient, current software.

So AT LAST we arrive at the savior of small businesses everywhere: outsourcing. Entrepreneur can only say good things about this. In fact, they list outsourcing bookkeeping as one of the first big things to do. You pay a flat, tax-deductible rate for a monthly, no-contract service. In return, you get quality results ASAP in today's most efficient, current software. If you require additional interfacing, maybe with your CPA or Payroll Provider, your bookkeeper has all the information to facilitate those conversations (with your permission of course).

Suddenly you have a professional at your disposal that is already saving you time, money, and sanity. You can email your questions instead of losing sleep over them and expect a great answer. You have a partner in your business whose number one goal is to see you do well financially.

And when you have someone you can REALLY trust looking out for your finances, you can get back to being passionate about your business.

If this is something you're interested in, I recommend taking action NOW. Every day you wait is another day of complications getting ignored and being forgotten, and more of your money down the drain. I'm offering a FREE one-on-one consultation to help get this process started.