As a CPA and wealth strategist, I'm often asked by new business owners and investors about the best way to handle their bookkeeping. Should they do it themselves or hire a bookkeeper to handle it for them?
This is a more difficult question than you might think. On the one hand, many of you have heard me say that the most expensive words in the English language are, “Do It Yourself.” And bookkeeping is not exactly a difficult task. There are lots of bookkeepers out there who charge anywhere from $15 to $40 per hour. I'm sure you could find them on e-lance or other outsource networks.
The difficulty comes from the communication of information from you to the bookkeeper. It's one thing if the bookkeeper is “in-house,” that is, they pay your bills and handle a lot of your transactions. In this case, they will have most of the information they need from the source documents and they should have a pretty good understanding of your investing and/or business situation, i.e., what the bills are for (so where to classify the payments). Of course, if you take this option, you will want to have good internal controls in place so the bookkeeper cannot misappropriate (i.e., embezzle) your money.
However, if they are not in-house, but are instead just recording the information after the fact, it gets a little more difficult. I have been wondering for years why this is so challenging for a bookkeeper. We had so much difficulty finding a bookkeeper that could do a good job for clients, that a few years ago, we created our own bookkeeping company. Even with our own company, though, we could not always get the bookkeepers to produce accurate information. We ended up disbanding our bookkeeping service. It wasn't profitable for us and our bookkeepers were not doing a good enough job for our clients.
I finally came to a conclusion that the reason accurate bookkeeping is so difficult is that it is a matter of communication between you and the bookkeeper. You know what the bills are for, but this may not be evident just from the documents you provide. So the bookkeeper asks you questions about what every bill is for and where it should be categorized in your books. Then you start wondering why you are paying them if you have to tell them how to do their job.
The reality is that bookkeepers tend to have difficulty making judgment calls about where to classify a payment. And clients tend to get upset when payments are misclassified. This can be a no-win situation for both parties.
My conclusion is that for most investors, it's probably easier and less time consuming to do your own bookkeeping. You can pay your bills on line; most of them you can even have the bank pay automatically. Then, you can set up Quickbooks to automatically classify recurring payments to the right account. I spend about 30 minutes a week paying bills and doing my bookkeeping. And I have three companies. So I really take about 10 minutes per company per week.
Of course, I have been doing accounting for many years and I understand it very well. And, I have set up the accounting properly. The good news is that you, too, can learn how to do this and it doesn't take much time.
Whether you do your own bookkeeping or hire someone, be sure to learn the basics so you can know that you have accurate records. You need these records to be accurate so you can get good information from them for your investing and business needs, as well as for the IRS and the bank.
Please let me know your bookkeeping experiences and whether you have had more success doing it yourself or outsourcing it. I would be very interested.