Hiring a bookkeeper sounds so grown up, responsible and professional. I have an unconventional take on hiring out help with basic financial tracking for small business owners. Most business owners can’t wait to hand off this responsibility since most don’t feel that managing the money is in their “zone of genius.” However, I suggest you slow your roll or you risk losing out on critical intel on your own business. In this video, I recommend the right time for hiring bookkeeping and the landmines to look out for.

TRANSCRIPT:

Millennials are trying to feel like grown ups. We are “behind” on getting married, buying a house and having kids. Some of us are in our early 40’s just now barely starting to feel like an actual grown adult. But one way I’ve seen Millennial small business owners get to feel like an adult is by hiring someone to help with their money, specifically by getting someone like a bookkeeper or accountant to keep their finances straight.

It seems so grown up and responsible to say that you’ve hired that out, but is it a good idea? Is it worth the expense? I’m going to go against popular opinion and say that it’s neither a good idea nor worth the expense for most small business owners to hire someone to keep track of their money. I’ll explain why and tell you what I recommend instead.

Let’s first start by talking about what a money professional is doing throughout the year. They are largely tracking income and expenses. That’s it.

And then when it’s time to do your taxes, your accountant or enrolled agent plugs those numbers into your tax return. For this monthly service, I see accountants charging hundreds of dollars per month for small and solo business owners, and it’s too much for what they’re bringing in. First, most accountants are not actually going to do this work. You are paying hundreds of dollars thinking that an accountant is doing this but really they’re probably passing this task off to an underling to do for them and pocketing the difference. Yes, that’s capitalism, but still, you’re spending money needlessly.

But no matter who does it, whether it’s an actual CPA or a bookkeeper, they don’t know your expenses the way that you do. They can make educated guesses about what categories your purchases belong to but they don’t actually know. They either need to go with their gut or call you and ask. If they’re calling you to ask, you might as well be doing it yourself.

So each month, they calculate how much money comes in, goes out, and where it all went. Do they put that in a monthly P&L? Which stands for a profit and loss? Maybe. But do you actually look at it? That’s probably a no. That P&L is lucky if you glance at it. Let’s be real. Most people are intimidated by financial documents and don’t take the time to get past their discomfort long enough to look them over and understand the numbers.

If you did look at the numbers – which should tell you accurately how much you spent in each expense category – you would know what your money was being spent on and where you’re overspending, or perhaps where you’re underspending, and where you’re on track. The point is, that P&L is worthless to you because you do not study it. You don’t understand what it’s communicating to you.

The best way to understand it is to create it yourself, especially when you’re starting out in business. Eventually, when you’re so comfortable looking at P&L’s, that the numbers actually mean something to you, it can be a good idea for someone else to create them for you. But I recommend that all small business owners create it themselves for their first three years in business.

The other thing is that you can do it yourself manually or do it with an app for much cheaper than what you’re being charged. Some people incorrectly believe that this is a cost of doing business. It’s not. This is not a skill that is outside your abilities that you need to hire it out. Even if numbers or math are not your thing, you can and very much should do this.

I know there’s this whole thing about staying in your zone of genius, but this is one of those tasks that should not be hired out while you’re just starting out or are a one person show. I promise you that this tracking is not complicated. Sure there are exceptions and some unusually complex businesses out there, but for 99% of business owners, this is not too hard for you. It’s really a simple process that you can learn quickly.

And here’s perhaps one of the biggest reasons not to hand off the task of tracking. If you don’t understand a P&L, you can think that someone, namely the bookkeeper or accountant who created it for you, can just explain it to you. And yes, technically they could, but are they going to explain it in the way that you need to hear it? Probably not. And here’s why.

How do you feel when someone tells you that you’re spending too much on something? Most people get defensive and take on an attitude of “how dare you tell me what to do with money that I earned.” “Who are you to tell me that I’m spending my money wrong?” And so these professionals, who want to keep you as a client, will back off and not say anything or keep their explanations really light, so as to not upset you.

This right here is why there are so many celebrities we’ve heard of, with so much money and teams of people on their payrolls to manage their money, who end up broke, bankrupt or in other serious financial troubles. Because they don’t want to hear what they’re being told – that they’re spending too much or making bad decisions with their money. And the celebrity pushes back and says something like this is my money and I can do what I want with it.

So eventually the accountant stops sounding the alarms and just lets their client spend themselves into the ground. We all find out about it when there’s a lawsuit, with each side blaming the other for the loss of the celebrities millions. Now this isn’t to say that there aren’t managers and advisors who screw up and do a bad job of managing the money, but what I am saying is that many times, it’s the celebrity or person whose money is being handled, makes it difficult or impossible for the manager or accountant to do their job well because of wild spending.

So you may or may not have millions to manage but the point is the same. We are averse to feeling judged by others about how we spend our money. We basically need to judge for ourselves. We need to figure out a budget that says how we want to spend our money – on ourselves and on our business – and then track our spending monthly to see if we are spending in alignment with that budget. To see where we are overspending. So we can understand the money coming in, the money going out, and where it’s all going. And we can take the feedback that the numbers are giving us and adjust our spending moving forward.

So I recommend that small business owners get comfortable doing the tracking themselves for a few years and until you have the money to burn on someone else to do the tracking (which means that you’re not in debt), and only after you understand what P&L’s are and how to read them.

On top of that, you should only hire it out when you agree to not become defensive when the professional you have hired gives you any kind of feedback that you’re overspending. Until then, please save yourself the money and give yourself the invaluable insight that you get from tracking your own income and expenses.

Are you a small business owner? Do you track yourself or hire it out? I’d love to know if this video changed your perspective on things. Let me know in the comments and I’ll catch you in the next one.