The software that I think is the leading bookkeeping software available says right at the top of their website "No need to be an accounting expert". They have "easy to read reports and dashboards" and they deliver "accounting insights to help you make smarter business decision". Can you really pay $25-$70 a month, cut out the bookkeeper or CPA, and be your own bookkeeper?
I would strongly discourage this approach. The software is fantastic. The software is necessary. You're going to use a bookkeeping software that does all the things promised in the first paragraph, or at least it should. So, if the software is so great why can't I be my own bookkeeper?
Do you understand double entry accounting? These user friendly bookkeeping solutions do the real accounting 'behind the scenes'. In my opinion, this is why they are so dangerous. You enter a transaction, choose an option from a drop down list, press save, assume everything is correct, and go about your business. For every expense you enter a cash account has to be credited (yes, that's correct) and another account has to be debited, typically an expense account. You only enter the transaction once, but in double entry accounting, there is always two entries. Do you know that the second one is and if the software made it correctly? Your chart of accounts is made up of assets, liabilities, equity, revenue, and expense accounts. Set just one up incorrectly, and your profit and loss statement as well as your balance sheet will be incorrect, leading to bad bad decisions and incorrect tax returns. Choose the wrong option in the drop down and the same will be true. The software is necessary and excellent at what it does, but it has to be set up and used correctly with a proper understanding of accounting to produce usable data.
Can you translate financial statements into business decisions? Let's assume we've made it past #1, which many, many small business owners do not. Trust me, I've seen (and fixed) their books. Now you have accurate reports, but how well do you understand what they're saying about your business? Do you have liquidity issues? Is your gross margin too low? Why isn't your profit as high as you think it should be based on the amount of business you're doing? Why does your tax return show that you made money, but there's no cash left in the bank? Looking over financial statements and translating that information into actionable business decisions are two completely different things. And this assumes you're actually looking at the financial statements. So many small business owners keep these records only because they have to in order to do the tax return. They don't realize they tell the story of your business. Is it succeeding or failing? What do I need to do to make it more successful? It's not just about finances, it's about your business and the decisions you make every day that move you forward.
Do you really have the time? Is it really saving you money? The only reason (maybe there's another one) that people do the books themselves, or have an unqualified friend or family member do them, is to save money. But "time is money". If you weren't doing the books yourself what could you be doing to get more business or to improve your business? Would you be able to generate more than enough money to cover the cost of the professional you've hired? Looking back at #2, if you hire not just a bookkeeper for data entry, but someone who can help you translate the information into key business decisions, or tax savings, wouldn't the professional more than pay for themselves? I understand. It sometimes appears as though cutting cost is the best route to a profitable, successful business. It isn't. Sure, sometimes expenses need to be cut. Sometimes overspending is a problem. But you cannot cut expenses to produce success. You're simply masking another problem. You have to have a good business idea, excellent people, and good processes. Any expense that provides insight or a benefit that improves the business is one that should be spent, not cut.
In my opinion, it's best not to cut corners when it comes to your financial records. Instead, find a professional who is worth the fee you're paying them and consult with them as often as possible. -Brad
Read more about me. I enjoy helping individuals with their taxes, businesses (including nonprofits and churches) with tax or accounting and other finance related questions, and I also enjoy helping people resolve tax debt, liens, levies, or other tax help you may need. I live in Lake Nona in Orlando, Florida, but I serve clients all across the country. Schedule an appointment if you need assistance and take a look at the resource page.
*The blog posts (as well as the YouTube channel) are my personal opinions and thoughts about a wide range of topics. They are not meant to apply to individuals specifically and should never be relied on as tax or investment advice. You should contact a professional for specific advice before taking action.