Pros And Cons Of Doing The Bookkeeping Or Outsourcing To A Bookkeeping Service
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very small business is required to keep bookkeeping records to produce at the
end of the financial year a set of accounts to show the sales income, business
expenses and the net profit for tax purposes. Medium and larger businesses
employ accounts clerks, bookkeepers and accountants to maintain the financial
records and produce regular accounting information.
Small businesses and in particular self employed business have a choice in
how the financial accounts are prepared and produced. A small business may
employ the services of a bookkeeper to produce the accounts while another
similar business may keep a manual record of financial transactions while a
third option is to use a bookkeeping software system.
Small business has a choice as to how it produces its financial records. Some
simply do nothing but the best option is to make a finite decision regarding the
path to take. Financial accounts, financial control over the business activities
and the knowledge of how well or badly the business is performing is crucial to
success in the business environment.
The underlying necessity is that if the small business does not take a
decision on its financial accounting then at the very least it must accumulate
documents of prime significance such as sales invoices, purchase invoices and
possibly bank records during the financial year and assemble these into some
sort of order after the end of the financial year for tax purposes. Failing to
keep financial records often results in a succession of administrative burdens
and often also leads to financial penalties if taxation deadlines are not met.
If the small business owner chooses not to go down the route of using
bookkeeping software or outsourcing the financial function to a bookkeeper or
accountant then manual financial records must be kept. Producing an income and
expenditure account for the business using the prime financial documents of
business is not rocket science and most businessmen capable of running and
managing a business have the skills required to producing the bookkeeping
The major disadvantage of a small business keeping manual records is that
documents get lost which may result in profits and taxes being over declared,
fines and penalties through inaccuracies and often when accounting is produced
in this way it is done at the end of the financial year purely for tax purposes
rather than as an essential tool of the business and that reduces financial
control within the business during the financial year to a minimum and often
If a manual bookkeeping system is adopted then disciplined recording of the
financial information on a regular basis should be enforced and regarded as an
essential function and not an administrative burden. An understanding of the
detailed accounting records and the effect on the business allows effective
management decisions to be taken earlier than if someone else performs the
Other alternatives include utilising bookkeeping software which is
effectively often a manual system in itself but within definite parameters to
produce the essential information. A bookkeeper might be employed whether a
manual system is used or bookkeeping software adopted.
Using bookkeeping software has many advantages. First of all any small
business that has purchased bookkeeping software is more likely to keep regular
up to date accounts than one that has not. And secondly the bookkeeping software
is likely to provide a fixed set of disciplines and produce the type of records
a small business requires for both the preparation of regular financial
statements and the end of year tax returns.
Another major advantage of bookkeeping software is that records tend to be
less likely to be lost or mislaid; the packages can be backed up as required but
essential financial performance can be improved by greater financial control.
All businesses work towards producing a satisfactory bottom line and only by
producing regular financial statements can the business obtain the earliest
information to achieve that satisfactory performance.
Bookkeeping software comes in many different formats from simple spreadsheets
to more complex data based accounting software. For a small business the
bookkeeping software of choice is often a simple system requiring limited
accounting knowledge but must also be a package that produces the desired end
The worst bookkeeping software is a complex program requiring prior
accounting knowledge that the small business either does not fully understand,
cannot be bothered or does not have the time to learn and having tried the
system then abandons it. Better to avoid the wasted time and effort by choosing
the appropriate accounting package at the outset.
Bookkeeping software in effect automates the manual keeping of financial
records. To get the most benefit from a bookkeeping software package each small
business should prepare regular financial records to enhance and improve
financial control, take financial decisions and achieve the desired bottom line
Bookkeeping can be outsourced to an accountant or bookkeeper and there
advantages in doing so. A quality outsourced finance function does produce
accurate timely financial records. If the small business has a volume of
paperwork that becomes a burden to process and keep on top of then a bookkeeper
may be the best solution.
Employing a bookkeeper becomes essential when the paperwork burden reaches a
stage when it distracts the small business owner from getting on with the main
task of operating the business. Outsourcing bookkeeping costs money but may be
an appropriate action if the time released can be better spent gaining
additional business and improvong profits.
Useful in many circumstances but using a bookkeeper does remove the small
business from the detailed accounting records which is a disadvantage in
understanding the financial position. A small business manager who prepares the
financial accounts tends to see every transaction several times both when the
transaction is made, the paperwork received and also when entered in the
This second view of the accounts can be important, errors in management
judgement can be noted, mistakes and bad practises become more apparent. Missed
documents are much more likely to be noticed if the small business owner
produces his own bookkeeping records than if the task is carried out by a third
party such as an accountant or bookkeeper. Nobody knows the business as well as
the small business owner knows his own business.
The conclusion and decision each small business should take is doing
something. A manual bookkeeping system may suffice but the business may be
better served using bookkeeping software to increase financial control and
performance. If the administrative burden of maintaining the paperwork detracts
the small business from its main operations then an accountant or outsourced
bookkeeping services is a logical solution.
About the Author
Terry Cartwright a qualified accountant at DIY Accounting designing UK
Accounting software for business at
http://www.diyaccounting.co.uk/ on excel spreadsheets and self employed
single entry bookkeeping software
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Article Published/Sorted/Amended on Scopulus 2008-01-14 00:33:12 in Business Articles