Bookkeeping and Taxes: When Is It Time to Stop DIY?

When first starting a business, it’s not uncommon to take a DIY approach to back-office responsibilities like bookkeeping and tax prep. This can work fine for a certain time, but there comes a point when lack of dedicated support can lead to serious problems. You might still not be ready to hire a full-time internal bookkeeper or accountant, but here are three red flags that can let you know it’s time to outsource the work. 

Red Flag #1: You’re Missing Important Deadlines

Small business taxes can quickly become complicated. You don’t want to wait to get help until you get a letter from the IRS or a state tax authority, which is what can happen if you’re falling behind on your business’s tax obligations

As your business grows — and especially if it expands into multiple states — you may be required to file reports and pay various taxes throughout the year. You could even have to file tax returns during years when your business doesn’t have any revenue. 

Important tax deadlines occur on Jan. 31, March 15, and April 15 each year, but those are just a subset of the annual federal filing requirements. There may also be monthly or quarterly deadlines you need to meet, and each state the business operates in may have its own filing requirements and deadlines. Some cities, such as New York and San Francisco, also levy their own taxes, with their own filing and payment deadlines. 

It’s a lot to keep track of, and missing a filing deadline can lead to a penalty. Underpayments can also result in additional penalties and interest — but your books have to be in order before you know how much you’re supposed to pay in the first place. 

Ideally, you close your books (by recording, reconciling, and approving transactions) each month. At a minimum, you need to close your books at the end of each year, before you file your business’s annual tax returns. 

If you’ve been missing deadlines or accidentally made underpayments because your books weren’t in order, it may be time to hire a bookkeeping service. The longer you wait, the more mistakes can happen, and the more work it will take to clean up your books. 

Red Flag #2: You’re Noticing the Impact on Your Time

A second red flag can be more difficult for some small business owners to recognize. Inevitably, you’ll be wearing many hats as a founder or business owner, and for many business owners those hats include “bookkeeper” and “tax preparer.” However, if you’re spending enough time there that’s getting in the way of other things, taking bookkeeping off your to-do list could be a good idea. 

Bookkeeping is complex, and doing it well requires a lot of expertise and attention. Could you learn to do proper bookkeeping and file small business tax returns? Absolutely. There are plenty of courses available and software that can help. However, is it a good use of your time? Not necessarily. 

As a founder or business owner, you have a unique understanding of your business’s status and prospects. That means there’s actually a big opportunity cost when you spend time on work that could be easily outsourced. If the time you spend sending invoices, tracking expenses, trying to reconcile transactions, and preparing tax filings could be better spent building your business, then it may be time to stop doing your books yourself. 

Red Flag #3: You’re Not Confident Everything Is Accurate

If your books aren’t in good shape, you’ll start to feel the impact across different aspects of your business. Tax mistakes (and their consequences) can be a pain to deal with, but those aren’t the only issue. Without an accurate understanding of your business’s financial situation, you’ll have a hard time making important strategic decisions. 

Businesses can create great products, offer amazing services, and have a steadily growing customer base — but still fail due to a cash crunch, if they aren’t carefully watching their finances. Without up-to-date books, you can’t accurately forecast your runway or figure out how much you can afford to invest in the business. It also won’t be easy to raise money, either from investors or from a bank, if your financial statements aren’t in order.    

A dedicated bookkeeping service can help ensure your books are accurate and closed on time each month, ensuring you have regular access to accurate financial data. You can then make decisions based on business reality, rather than approximations. (As an added bonus, filing your tax returns may be much easier as well.)

When managing your business’s books starts taking up too much of your day, or when your books and tax filings start getting out of hand, it’s time to stop the DIY approach. Outsourcing can help you avoid mistakes, save time, and ensure you can make decisions based on solid financial fundamentals. 

If you’re at the point where DIY isn’t working, Pilot can help. Learn more about our bookkeeping and tax services, or get in touch to set up a 1:1 chat with an expert.

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