As a member of the Institute of Certified Bookkeepers I am often asked why a small business owner needs to use an outside bookkeeping expert, rather than doing the bookkeeping themselves to save money.

This is an easy question to answer because it is a “no-brainer”. 

There are times in your life when only a qualified expert will do.  For example, if you are about to undergo brain surgery, will you be happy if you found out that your surgeon was a plumber who had read a book on brain surgery and thinks he knows enough to do the operation?  Or would you rather know that your surgeon has many years of experience doing exactly the operation planned for you, has trained his team to the peak of professionalism and that they have an outstanding success record?

Although I am not trying to compare bookkeeping and brain surgery, there is a principle here that applies to both scenarios.  There is absolutely no comparison between reading a book or playing with a bookkeeping program for a little while, and the skill and experience of a fully qualified bookkeeper. 

But why is this so important?

Your business records are the most important part of your business.  In these days of changing approaches by HM Revenue & Customs, they are now starting to look at the day to day records of small businesses that are being kept at the moment, as we speak.  The strength or weakness of these day to day records under this review will determine if the review becomes a full and in-depth investigation into your tax affairs.

This is a huge change in approach and is designed to catch out the countless businesses who fudge their way through the year with occasional and erroneous bookkeeping and trust their accountants at the end of the year to “make the accounts look right”.  These businesses are in serious jeopardy unless they make a determined effort to change their ways.

So, back to why you need a qualified bookkeeper, a member of the Institute of Certified Bookkeepers.

My fellow members are trained over a period of years to a high standard and subjected to intense professional examination before they are even eligible for membership.  Even then they are not allowed to open a business until they have satisfied the Institute that they are adequately covered with Professional Indemnity Insurance.  These are the lengths the Institute go to so that business people know a member is a person of character who can be trusted to keep your business records to the highest standards.

Any business who has their records kept by a qualified bookkeeper will know they have nothing to fear when the Tax or VAT man come calling.  They know that their records are being maintained to a high level of accuracy and reliability.

With a qualified bookkeeper there are no suspense items, no unresolved questions, no one sided entries, no “fudging” of the figures, no unbalanced bank/cash accounts, no capital items wrongly allocated to repairs or other expense headings.

When you use a qualified bookkeeper you have a source of knowledge that you can tap at all times for answers to complex questions about accounts, tax, VAT.  They quickly become your rock of knowledge behind your business bookkeeping and financial matters. 

You focus exclusively on your business, safe in the knowledge that your books are in totally safe, completely professional hands.

Why would you not use such a expert when they release you from all that hassle and tedium?  Why would you waste your valuable time trying to learn how to do bookkeeping when all your energy should be channeled into growing your business?

Why would you try and be the plumber doing brain surgery when you are the experienced expert in your own business?

Think about it - then call me!!

~Ray

Let’s Look At The Problem:

Like most people that go into business on their own, your number 1 priority is the product/service that you established their business to sell/provide. In the early stages of business all your energy is taken getting the business up and running and the records, apart from sales bits, will probably take a very back seat for a long time. The fact is that running a business in the early days involves so many hats for you to wear. You have to be the sales director, buyer, production department and quality control. You also have to become a receptionist, office clerk, helpdesk manager, operation manager, filing clerk, photocopy expert, letter writer, envelope stuffer and stamp licker.

It is no surprise to anyone that the day to day bookkeeping gets overlooked!

There is generally very little thought given to the books until a VAT return drops onto the mat, or you take on an employee that needs wages and PAYE calculating, the bank manager rings about the overdraft, or you receive a letter about a proposed VAT inspection! What happens then is a mad dash to catch up with the books, tracking down all those illusive invoices that you know you have had but can’t find, wondering why your bank account is more overdrawn than you thought but don’t know how to put in the rent, car hp, business rates etc., that go directly out the bank which had been forgotten because you didn’t write cheques out, suddenly finding out your best customer now takes nearly 90 days each time to pay instead of the 30 days you agreed.

At this point, generally one of two things happen:

Firstly, and most usual, is that the business owner makes an executive decision to fudge over the gaps and things known to be missing whilst firmly promising to dedicate more time to straighten things out next quarter when things are quieter. Except that this never happens and the errors and mistakes just compound each other and become too big to even think about tackling – just let the accountant sort it out at the year end! What the business owner doesn’t know is that accountants love clients like this and can justify fees up to £150/hour for many hours to bring things into line.

Secondly, the business owner resolves to put this right and takes steps to keep the books up to date, either by employing a bookkeeper directly at a cost of at least £15,000 per year, or by outsourcing the amount of work needed to be off-loaded to an outside organization at a considerably reduced cost than that dedicated bookkeeper.

What Do You Mean By Outsourcing?

The way outsourcing works is very simple. An overloaded business gives an agreed amount of work to a specialist company. It could be at one end of the spectrum, as little as running the payroll each week, or at the other end of the spectrum, completely passing all the book work completely over leaving the business merely producing sales invoices – nothing else. All the collection of cash, payment of bills etc., is handled by the outsourced company on behalf of the business, with none of the business customers or suppliers being aware of anything. Changes in location are explained away as “we have moved our accounts department to this new address.”

There are many stages in between the above extremes. Most businesses are content to deliver all paperwork, cheque books, paying in books etc. each month and leave the outsource provider dealing with all the official recording, reconciling, on-line filing, PAYE calculations, VAT returns. What a weight off the mind of the business owner!!

No deadlines missed, no VAT surcharges, no premature Tax or VAT inspections due to continual late filing or suspect entries on their official forms.

You are then left with exactly the amount of bookkeeping you are comfortable with and you can fully relax knowing all their books are being looked after by professional people, confident that all requirements are being met.

How Does This Add £’000s To My Profits – It All Sounds Like A Big Cost To Me?

The simple truth is that you are the only person who really adds to business profits by the things you do. A member of staff, no matter how dedicated, cannot match the earning potential of you, the entrepreneur. They don’t have the passion, the authority, the vision or the determination. Why? Because they are being paid regardless of the extra profits they bring in so what is the incentive. If they could generate the same level of profitability as you, they would be running their own businesses, not wasting their time on a salary.

Imagine for a moment….. no more bookkeeping in your work cycle.

How many hours do you now spend each week, or month – after resolving not to let things slip back into the terrible mess you got into in the early days of the business? Is it 1 hour/week - 5 hours/week or maybe more because things never seem to balance out and you pour over them for hours to get them right?

If you were released from this weekly nightmare, what would you do?

There are many possibilities of course, but one of them is to devote more time to the one activity that brings in more money to the business – Marketing.

Any business that has been running for a while knows that continued marketing is essential.  Without it there would be no customers at all!

Marketing needs to be done regularly to ensure the business has a constant stream of new and developing customers.

Any business owner that chooses to invest the time freed up from bookkeeping into marketing can easily multiply the profits of the business without limit.

That is a far better use of your time and far outweighs any costs involved in the outsourcing process.

Then….

You could then take this one step further….

If you already employ a person in house to keep your records and books, imagine how much more profitable that employee could be if they were released from the books to learn the art of marketing. At least, learn enough to help you strive to continually grow your business and your personal wealth.

Different Levels Of Outsourcing For Your Bookkeeping:

As we discussed earlier, outsourcing can mean different things to different businesses. Generally, there are 2 main levels:-

1. You take your prime records round to the outsourcing company at regular intervals, weekly, monthly or unusually, quarterly. These papers would include sales invoices, paying in book, cheque book, purchase invoices, petty cash vouchers etc. In fact all your bits of paper for the week/month/quarter. At this level you will not really see your records unless you ask but will get regular reports. This is the normal way entrepreneurs use this type of service.

2. You hand over everything to the outsourcing company and re-direct all future letters, supplier and bank statements to your new “accounts office”. It is likely you will retain the issuing of the sales invoices but you will probably find, in a good quality outsource partner anyway, that you log into their server (where your records are kept) and issue the sales invoices from there directly. The outsource company then collects your money from customers and banks it for you, pays your bills and wages by BACS and monitors your bank account tightly. You should be able to log into your records at any time, day or night, to check on things, print off reports, monitor cash flow etc.

This is a much more unusual method and works out much more expensive than option 1 above. This is because the software involved at the Outsourcing company will be specially written to ensure you would be able to log into your books on their servers and maintain strict security over your own books, and those of other people logging into their books at the same time.

What Are The Main Advantages Of Outsourcing?

To re-iterate the main advantages; Those of dedicating that freed up time on growing the business, knowing your records are right up to date and you can be happy that all questions from your Bank Manager, VAT Office, Inland Revenue etc., can be immediately and fully answered.

However, there are other advantages as well. You don’t have to keep up any expensive annual renewal and support contracts for well known suppliers of bookkeeping software such as Sage, TAS, Quick Books and Mind-Your-Own-Business.

You don’t have to keep upgrading your computers each year of so just to make sure the new version of that bookkeeping software doesn’t run out of steam as it grows and becomes ever more resource hungry.

You don’t have to buy extra licences for that software as your business grows so that new employees can issue sales invoices.

You can retain complete confidentiality of your business results from employees much more easily if the books are not on site to be looked into.  You also get the benefit of having experts, including fully qualified Accountants and various grades of accounting staff, available to discuss matters with you throughout the year for no extra costs. Imagine the saving in a Financial Directors’ salary of £100,000+ per annum alone, but still having access to one….

What Should I Look For In An Outsourcing Company?

I can think of many questions that you should ask but the minimum would be:-

1. How secure is my data on your system?

2. What experience do the staff allocated to me have?

3. Can I speak to other businesses you look after to re-assure me?

4. What access will I have to my books and records?

5. Will you deal with my VAT visits and PAYE inspections?

6. What bookkeeping package will you use on my books?

7. Will you set everything up for me including the opening balances to ensure continuity – or will I have to have 2 sets of books in one year for my accountant to deal with?

8. Can you look after my accounts, corporation tax returns and self assessment returns as a complete package?

9. What procedures are in place to avoid catastrophic data loss in the event of fire, floods or other disaster?

10. What happens if I change my mind after a period of using the service?

Any good outsourcing service will easily answer these and many other questions and concerns you may have prior to embarking on this road – but I think the most reassuring is speaking to other clients who use the service. How does it work for them, how long have they used the service, what issues have arisen and how were they dealt with.

This Sounds Too Good To Be True – What Do I Do Next?

I often say to clients that if something sounds too good to be true – then it probably is.  However, in this case, outsourcing the bookkeeping work is a win-win situation.  You win because you acquire an expert team at your disposal, no longer is there a fear of mistakes, gaps, guesses, missed deadlines, un-filed employee forms, vat surcharges etc., and the outsource company win because they are dedicated to your business and involved completely in it and as you grow, they will grow.

You will be astonished with the ease the whole thing works once set up and you will come to wonder why you didn’t do it a long time ago.

~Ray

A new client recently told me of the problems he had trying to find a good bookkeeper and I thought it was a topic that may be worth sharing with you here.

When you get to the point in a new business venture that keeping the books yourself becomes an intolerable extra burden on already stretched time resources, how do you source, test, trial and finally secure someone to do the bookkeeping for you?

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There are many possible answers to this question, from ignorance of bookkeeping to focusing on the business growth.  However, this article will focus on the size of business - as a rule of thumb.

Most of our bookkeeping clients seem to fall into a certain size bracket.  There may be many reasons for using us but we mainly act for businesses turning over up to £700,000 per annum.

I could analyse this all day but it seems when a business reaches this sort of size, the bookkeeping starts to be done “in house” by an employee.

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The decision to let go of your business bookkeeping is not one that people take lightly, after all, you are letting a stranger into the inner sanctum of your business and private life, and your finances.

So how do you know that they are trustworthy, responsible, discrete, accurate, professional and competent?

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This post has arisen due to a comment I received about bookkeeping in the Tax Investigation webcast, which you will find earlier on the blog.

In that webcast I mentioned that having an independent bookkeeper for any/all businesses has many advantages, not least the fact that the Tax Office approve wholeheartedly with the idea. 

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