Why Doing Your Own Bookkeeping is a False Economy

The dictionary definition of a false economy is:

An action that saves money at the beginning but, over a longer period of time, results in more money being wasted than being saved.

So, why is doing your own bookkeeping and, thus, saving money by not paying someone else to do it for you a false economy?

Cost of Poor Cash Flow Management

It’s easy to get behind on your bookkeeping when you’re doing your own.  This also means you’re behind on your cash flow though and, as we all know, Cash is King.

Getting behind on your bookkeeping can mean the difference between being able to chase the customers that owe you money, and not being able to chase anyone because you’re not sure who owes you and who’s paid.

It can also mean the difference between paying your suppliers on time and not, because you didn’t have their invoice recorded so you didn’t realise you needed to pay them.

All of that leads to cash flow problems overall; poor inflow of cash from customers, finding yourself short on cash you need to pay because you weren’t aware of a bill, or one caught you by surprise.

Cash flow can literally make or break a business, so not being on top of it can be hugely costly.

Higher Tax and VAT Payments

We have a couple of articles already which detail how your bookkeeping can mean you’re potentially paying too much tax or VAT (find them here – Tax / VAT).

The crux of it is that if your accounts contain inaccuracies, or if you’re not 100% on the rules so aren’t claiming everything you can, or everything in the right way, this can cost you more in the long run.

Sacrificing Your Own Earning Time

As much as the bookkeeping needs to be done so you have the financial information you need to manage your business, unfortunately it is a non-earning activity.  Meaning, while you’re bookkeeping, you’re not out there selling and earning money for your business.

This leads back to Cost Benefit Analysis; if it costs you more in time to keep your accounts up to date than it would cost to outsource it, then cost doesn’t outweigh the benefit – so you should outsource it.

• Your time costs £50 an hour
• It takes you 10 hours a month to keep on top of your books
• A total of £500 a month of your time
• You can outsource it to a professional, who is likely to be more accurate, for £250 a month
• Then you’re saving £250 a month!  £3,000 a year!

Cost of Making Decisions

Your accounts are your financial information – it’s the information you’ll use to make decisions in your business.  Having accurate and up to date information is key to making the best decisions.

If you can’t trust your accounting information, because you’re not confident in how you’ve prepared it, then you can’t use it for decision making.  This could mean the difference between making the decision that makes your business or breaks it.

Similarly, if you’re taking time to prepare additional information outside of your accounting system, because you can’t use your accounting system, or don’t trust the information in it, then you’re eating up valuable time and wasting valuable money in both time and on your accounting system.

Higher Annual Accounts Fees

For legal reasons all businesses need to pull together their financial information on an annual basis so the compliance side of accounting can be done.  This is the financial accounting side of things; accounts and tax returns.

Typically, this is the work that is outsourced to an accounting professional, because there are rules and regulations that need to be adhered to when pulling this information together.

However, your annual accounts and tax returns are drawn up based on the information you provide your accountant.  So, if your information is messy and/or inaccurate because you’ve been rushing the bookkeeping or you’ve found your own ways of working that aren’t quite congruent with accounting practices, then the likelihood is you’ll end up paying higher fees.

It will take time for your accountant to pick through your accounts, and they’re likely going to charge you for the additional work required.

So, there you have it folks, 5 reasons why doing your own bookkeeping is a false economy.

We provide outsourced bookkeeping services, to help you save money and have the information you need, when you need it.  Get in touch if you’d like to know more about how we can help you save money contact