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Bookkeeping considerations for small businesses

Bookkeeping services are essential for any business and an important part of the transition in both mentality and execution as a small business goes on a growth trajectory.

As companies look to integrate into the digital economy, one of the lowest hanging fruits in terms of focus areas is accounting and bookkeeping, since everyone has to fulfill those functions in some form or fashion.

The good news is that the market is chock full of options, offering various levels of service at different price points. There are, however, certain do’s and don’ts, as we discuss in this article.

By 2019, surveys from industry publications, as well as the US Small Business Association, concluded that over half of small business owners were likely to outsource at least one of their key processes. With the impact of COVID and the decrease in face-to-face interactions, this number could potentially skyrocket.

As part of the findings, small business owners were asked to list the processes they were most likely to outsource. Not surprisingly at all, accounting was #1.

There are a few areas companies can concentrate on as they decide what’s right for them—which means not just the owner’s technological savvy but the culture of the company overall, where to push the envelope and where to back off and utilize a solution that will work best for their specific circumstances.

The critical areas to consider include:

– The nature of your needs

Where are the gaps?
What business sector are you in? Certain solutions are designed for specific types of businesses (e.g., product sales vs. services).
What is the scale of the business?
What type of internal reports do you generate?
What kinds of reports are needed for statutory and tax filings?
How much customization is required?

– Build vs. Buy decision: the market trend has been to keep accounting in-house (after buying software that helps with the process) while bookkeeping is outsourced

Accounting software: we outline 5 options (plus Quicken, which may be used but is not appropriate for a growing business)

Bookkeeping software: we outline 5 options (covering areas like payroll processing, invoice generation, and tax filings)

Strategic Finance: where you can find a software tool that allows you to perform basic and advanced business planning (e.g., run what-if scenarios, pricing, segmentation, etc.)

While the specific choices may be determined by your particular needs, industry, and level of technological sophistication, not to mention the gaps that currently exist between your business goals and what would be acceptable based on industry standards, we strongly recommend thinking through these issues carefully.

Catch up to the world. Unravel is here to give you the right start with this overview article.

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Bookkeeping considerations for small businesses

Bookkeeping considerations for small businesses

As a small business manager, you always need accounting and bookkeeping. You may often choose to take on the first part in-house and outsource the bookkeeping, along with other finance functions, to a third party.

In this article, we outline certain accounting software that has developed a reputation in the market, along with examples of some third-party bookkeepers that could dovetail into the in-house accounting system you currently use.

We are not advocating any specific solution but describing the landscape in terms of what’s out there. Your needs could be met with one of the solutions mentioned here, or you could undertake an in-depth study of your unique situation before you decide on something else that is suited to your needs.

1. Choice Criteria – An Important First Step

If you are already using a legacy system, you must evaluate whether it continues to meet your needs – currently and through a future growth phase – or if you need to modify or switch. In the process, carefully consider your business characteristics and needs, including the following:

  • Your current size and future projections (gaps in current needs and scalability)
  • What type of business are you (services, product, retail, etc.)?
  • What types of reports do you need generated, whether regularly or at the end of business or accounting periods? Examples could be payroll, tax, etc.
  • What type of customization capability do you need for your reports?
  • Which of your reports need to integrate with outside portals (e.g., tax reporting)?
  • How expensive is the change going to be? Do you prefer pricing in tiers or otherwise? 

The above considerations should feed into a Cost-Benefit Analysis that helps your choice.

Additionally, do you outsource your bookkeeping or do it yourself?

2. Build vs. Buy – There’s a Clear Trend in the Market

By 2019, projections made by the publication Industry Accountants projected that 52% of small business owners would outsource at least some of their key processes to a third party, up from      one-third the year before. The study results were echoed by the US Small Business Administration (SBA), who proceeded to identify the Top 10 processes that small business owners can and do outsource.

Guess what the #1 outsourceable function was, according to the US SBA? It was Accounting!

In our experience, a majority of small business owners start by utilizing home-grown systems or simple software to separate personal expenses from business ones. Otherwise, tax reporting becomes a nightmare, among other things. So, we will assume that you either use a legacy system or are prepared to move beyond simple Excel sheets or ledgers and therefore are ready to invest in an accounting software package. 

We also find the majority of small business owners outsource their bookkeeping needs (at a certain level) to a third party, so we assume that will be the case for you as well. We will discuss certain online bookkeeping services that have made life much easier. However, you need to choose the right fit. This not only involves the factors mentioned under section 1 above, you also need to choose a service which interfaces seamlessly with your accounting system.

3. Some Accounting Software for Small Businesses

As discussed above, we assume that you have moved beyond capturing data in Excel or some other relatively less sophisticated means.

The following software are rated well within the industry:

Intuit’s QuickBooks Online is often cited as the best and most scalable all-around software for small business owners. QuickBooks is cloud based and has a mobile app that integrates with most common third-party applications. 

Be aware that you may have to purchase upgrades to accommodate more users. The only occasional glitches may be syncing issues with banks and credit cards.

QuickBooks Online allows users to opt for more features, including inventory management, time tracking, and budgeting.

This is QuickBooks light – a perfect tool for self-employed taxpayers who file a Schedule C. The format syncs with TurboTax. Be aware that this software has limited use beyond a certain level and functionality, though. It does not readily sync with many outside bookkeeping systems.

Originally from New Zealand, Xero is now used by 2 million users worldwide, especially in New Zealand, Australia, and England. It is rapidly gaining popularity in the US market.

Xero works for micro business owners who prefer simple tools. It allows them to collect online payments through key partnerships, such as the ones with: 

Xero also offers payroll integration through Gusto (https://gusto.com/). 

Xero is cloud based and has a mobile app. It can integrate with third-party bookkeepers. However, scalability, reporting, and inventory management systems are not attractive features. 

This specialized software system features an optimized invoicing system, critical for services-based small businesses. FreshBooks helps perform basic bookkeeping. However, it does not allow for inventory management, payroll processing, etc.

Cloud based, FreshBooks has a mobile app which can integrate with third-party platforms.

Wave’s basic features are sufficient for small businesses (such as service-based ones) focused primarily on invoicing but interested in performing bookkeeping in-house. Wave can be used for tax submissions. However, it does not allow for inventory management and has limited functionality in terms of connecting to third-party platforms. Some other functions, such as payroll, are only available in certain US states and only available for a fee.

Quicken is a popular system for personal use. It can also be used for small businesses, but it has very limited functionality and reporting capabilities. It is cheaper than QuickBooks and can perform basic tasks for business accounting, but we do not recommend that it be used by small businesses that have reached some scale and intend to grow.

4. Strategic Finance

What about extending your finance function beyond simple bookkeeping, payroll processing, invoicing, etc.? You could try a strategic finance software linked to your accounting systems to provide you with strategic insights on how to set goals, track success, and grow your business.

For example, check out https://www.fathomhq.com. Such business intelligence tools may not be for everyone, but a nimble small business can certainly benefit from them     .

Now on to potential options for outsourced bookkeeping services.

5. Best Bookkeeping Services for Small Businesses

When choosing the best bookkeeping services, it is important to consider how they integrate with your existing accounting software. It is also important to consider the levels of service and  the prices at each level.

The following software are rated well by most industry publications:

The best combination of services and value, Bookkeeper.com integrates with QuickBooks. The starting plan covers all bookkeeping needs. It then offers scale-up plans for payroll, taxes, and accounting. Bookkeeper offers both cash- and accrual-based accounting.

The Small Business Plan is suited to businesses with fewer      than 100 transactions a month. It features limited online support along with key financial documentation and bank reconciliation. Small Business Plus provides unlimited support, CFO and advisory services, and bill pay. 

Bookkeeper360 offers cash-based accounting plans on a weekly or monthly basis. An accrual-based plan can be had for higher subscription amounts. Either way, small business owners will get a dedicated virtual accountant sending reports on a monthly basis.

A la carte options exist to cover payroll and HR services. For example, Bookkeeper360 works with ADP and Gusto to help with time tracking, PTO benefits, and Workers’ Compensation. It also helps make direct deposits.

The platform syncs with both QuickBooks and Xero. Their mix and matching price options let small business owners choose a solution that fits them.

Merritt Bookkeeping provides customized solutions if you want affordable, no-frills bookkeeping. Their main plus is to take the most time intensive tasks, such as account reconciliation, journal entries and balancing the books, off your hands.

On the other hand, Merritt will not provide payroll management services, help with invoices, or file taxes for their clients. But if you can take Merritt’s output and file your own taxes, you will save substantial fees and time. 

InDinero’s business model offers different plans based on needs of various types of clients. Its basic (Essential) plan is ideal for startups who do cash-based accounting, while Executive Plans can support large enterprises with CFO services. In between is the Premium Plan, which allows for accrual-based accounting.

Every plan comes with a direct employee reimbursement system, payroll assistance, and some inventory management. A dedicated account manager is also provided to each client.

Bench is a little bit different from other outsourced bookkeeping services. In fact, it assumes that you already have an external CPA firm to take care of your final documentation or tax filings. Bench’s fee scale is based on the volume of business you conduct.

Bench will assign you a dedicated bookkeeper that can work with your outside CPA to get things done. They will also prepare your taxes if needed. 

However, Bench does not sync with QuickBooks; they use a proprietary software.

There are annual plans which are cheaper and cover five levels of service: Starter, Micro, Venture, Boutique, and Corporate. Bench also offers monthly plans that are $30-$80 more expensive per month based on your choices.

One interesting service that Bench offers is the Catch Up Bookkeeping Plan, where they will go through disorganized papers in arrears to get them in shape for statutory filings.

The Final Word

In a digital world, small businesses are the wave of the future. As you move forward, don’t be intimidated by too many choices. A few extra steps taken while you set up your accounting and bookkeeping can make all the difference for decades of future growth. 

The lists above provide some guidance. We recommend that you use the information here as a starting point. Supplement what you learn through your own research if it makes you comfortable. But as you develop questions or concerns, come talk to Unravel. We will help you determine the systems that will fulfill your needs and your budget.