When I first started freelancing, I did all of my financial record-keeping myself. Although I wasn’t making a ton of money, I had a system for tracking invoices, expenses, and payments myself—I kept manila folders for each, and I would spend hours reviewing each on a monthly and quarterly basis. I convinced myself that this was the most efficient way of doing things, because I didn’t want to spend money on a financial professional, and I was confident in my abilities.
What I didn’t count on, however, was how much time it took to track my own finances, and how difficult (and boring) it was to spend time making sure that I was preparing my taxes accurately. Eventually, I hired a Bookkeeper and a Certified Public Accountant (CPA), and despite that adding to my expenses, I learned through experience that I am better off financially when I work with money experts to handle my business accounts.
The Case for Hiring an Accountant or Bookkeeper
It took me some time to mentally adjust to the idea of hiring a financial professional. My business was in its infancy, I didn’t have a lot of money coming in, and I was proud of myself for how organized I had become. But over time, a few things occurred to me:
- I found myself spending inordinate amounts of time dealing with my financial records. I needed to be spending more time on growing my business—marketing myself, finding new clients, developing my portfolio—and I was losing precious hours each week keeping track of my money.
- I hated working on financial tasks, like many creative professionals do. The more time I spent staring at spreadsheets and calculating totals, the more I found myself missing the creative work I had set out to do in the first place.
- I couldn’t shake the feeling that my limited understanding of tax laws—and yearly updates to those laws—was holding me back. Was I counting all of the right expenses? Was I ignoring new laws that could potentially land me in legal trouble?
The more I reflected, the more I came to the conclusion that I needed to find a professional—and once I did, the only question I had left was, “Why didn’t I do this sooner?”
Bookkeeping vs. Accounting
Before you start scouring the Internet for someone to help you with your business’s finances, it’s important to understand the differences between bookkeepers and accountants.
Bookkeepers collect and compile all of your business’s financial data, making sure the right transactions are recorded and sorted. They add a lot of value by knowing what data is most important, and taking the arduous tasks of handling each and every transaction. In short, if your tax returns are a meal you’re preparing, a bookkeeper will be the one to tell you what ingredients you’ll need.
Accountants, on the other hand, are able to analyze your business’s financial health and provide financial advice and guidance for you; they’re often referred to as GAAP-ers, because they follow “Generally Accepted Accounting Principles.” Returning to our cooking analogy: An accountant can examine your raw ingredients and provide you with the best recipe for a meal. (In this case, the meal you’re cooking is going to be a mix of financial statements, audit reviews, and completed tax forms, which doesn’t sound terribly tasty, but you get the idea.)
Bookkeepers and accountants often work together, and it’s not uncommon to see skilled bookkeepers eventually grow into accountants. Certifications for both roles exist, but are particularly important to think about when it comes to accountants: A Certified Public Accountant (CPA) can file your taxes for you and represent you in the event of an IRS tax audit; a non-certified accountant cannot do either of these things.
Most important of all, CPAs are required to stay up-to-date with current tax laws, which means they’re equipped with the knowledge to help you save every dollar possible.
As you’ve probably guessed, a CPA will cost you more than a bookkeeper, and both will cost you more than doing it yourself. But remember that as a business owner, you need to manage your time and your risk—and investing in a financial professional, in my experience, is a crucial step towards freeing up my time to work with clients and minimizing the risks and effort required to stay financially healthy.
Making the Right Choice
In the end, every business is different, and only you can determine when it’s right to hire a bookkeeper or a CPA for yourself. As with all of my posts in this series, I’m sharing what worked for me, but that doesn’t mean the same decisions will work for you. As you’re considering your own financial plans, spend some time reflecting on your own personal preferences: Do you enjoy managing your own finances? At what point in your current revenue stream will you have enough money to hire a financial professional? How confident are you when it comes to preparing your taxes yourself?
What have your financial experiences been like so far in your own freelancing journey? I’m eager to hear from readers about the techniques and strategies you use to keep your businesses financially healthy—I invite you to join the conversation in my Facebook Group, or on Twitter with the hashtag #eLearningBiz!