Many homeowners begin a do-it-yourself project with the best of intentions: saving money. Too often, when we tally up the final results of our project we are left with something like this:
- Materials = $500
- Time = 20 hours X what your time is worth
- Cost to hire an expert to repair your work = $1,700
- Price of the expert to do the project right the first time: $1,000
While you thought you’d be saving money by doing it yourself, you actually cost yourself time and money. By the time you realize that you may be thinking “I should have just hired the expert and saved time and money.”
And you would be right.
Do-It-Yourself accounting for your business may lead to the same messy outcome as a Do-It-Yourself home project
Doing accounting for your business can end up the same way, or worse, than a DIY home project. Small business owners wear multiple hats: sales and marketing, business development, account management, and accounting. By the time you spend your days doing the first three, the last thing you want to do is the accounting. Yet you do it because, of course, “Who else would do this?”
Business owners who become their own accountants often believe all they have to do is set up accounting software, fill in a bunch of fields, hook up the bank account and, voila! The business owner now has access to financial statements and reports that show how much they are making or what their liabilities may be come tax time. The most popular small business accounting software, Quickbooks, promotes making life easier to prospects who want to do it all themselves.
In my experience, this mindset can get business owners into bigger trouble than they bargain for.
- Spending too much time on bookkeeping system when they should be engaged in more valuable activities, such selling or hiring people.
- Recording transactions and performing other accounting tasks, often incorrectly, increasing frustration.
- Setting up accounting systems up incorrectly
This can lead to some unwelcome results:
- Miscategorizing expenses as assets. This could lead to an unexpectedly large accounting or tax bill (probably both) at the end of the year. It also distorts how much the income the business has and then not having enough cash to pay the tax bill.
- Failure to reconcile bank and credit card accounts to bank statements. If this is not done monthly then there is no way to assure that the cash transactions in your accounting software match what is in your bank.
As you can see, DIY accounting is much like a DIY home project. Wouldn’t you rather spend time with family or relaxing in front of a TV rather than figuring out which socket wrench you need? Similarly, wouldn’t you rather spend your valuable time generating business rather than trying to do your own accounting that could hurt you?
I would suggest you learn from those DIY home projects and hire a good accountant and/or bookkeeper from the beginning to save yourself both time and money. By hiring a professional, your cash disbursements and income will be properly categorized so you get a clearer income statement. It will make preparing your annual tax return easier, which will save your from a surprise accounting and/or tax bill at the end of the year! And you won’t have to say to yourself “I should have hired an expert from the very beginning!”
In future posts I am going to share specific examples on how to avoid these problems in greater detail. In the meantime, I strongly suggest you hire a competent bookkeeper or accountant to set your business finances up correctly, or make corrections to your current accounting before your DIY project becomes a liability.