As a newly established startup or small business, handling all your operations and responsibilities yourself is sometimes a necessity rather than a choice. From networking, negotiating with vendors, marketing, and even accounting, you have to handle every single aspect of your business with utmost care. However, no matter how careful you are, multitasking has side effects.
There are more cons than pros of Do-It-Yourself (DIY) accounting, from erroneous calculations to faulty revenue and business expense recognition, to missed tax deductions, to delayed and missed transaction reporting. And these are the mistakes you may not realize now, but they will snowball into something bigger if the Canada Revenue Agency (CRA) finds out before you. Looking at the list of cons, DIY accounting is likely costing you more than outsourcing.
What Makes DIY Accounting So Attractive?
- Limited Workload: When you first begin your business, the volume of transactions and accounting work is not so heavy. Thus, handling and maintaining accounts is easy for you.
- DIY Mentality: You’ve worked hard and set up your business all by yourself, without any help from anyone. So why can’t you handle the accounts yourself, too? In fact, doing so will give you hands-on experience of managing your own business accounts, keeping an eye on your expenses, and making sure every penny entering or leaving the business is properly accounted for. This attitude is quite common in family businesses, where different family members handle various departments, keeping all important and sensitive tasks within their own purview.
- Cost: One of the biggest motivators for DIY accounting is the cost savings. Hiring a professional accountant can be expensive, especially for startups or small businesses that are yet to strengthen their financial foundation. DIY accounting saves this major expense, which can also then be used elsewhere to boost business.
- Lack of Understanding: While cost worries and limited transaction volumes are common reasons for DIY accounting, it is also true that small business owners do not fully grasp the importance and complexity of accounting. There is a misconception that accounting is recording transactions to file income tax returns. This lack of understanding of accounting scope leads to owners doing DIY accounting.
Why Shouldn’t You Do DIY Accounting?
It is important to understand both pros and cons before taking up a task. While the above points may seem like a watertight defence for DIY accounting, there is another side to the coin as well. Let’s debunk each of the above assumptions one at a time.
Limited Workload: Accounting Is Not What You Do in Free Time
In the initial stages, transaction volume might be low and business slow, giving you some free time. However, accounting is not something you pursue as a hobby in your free time. Also, as your business picks up, the number of transactions also increases, and before you know it, you are left with piles of data waiting to be recorded in your books of accounts. Any lapses in bookkeeping and accounting can lead to financial disasters, not only through misreporting of revenue and profits, but also through tax and legal compliance issues.
Even if you are good at accounting, as a business owner, your time and ideas are more valuable in other areas. Leaving the task of accounting to a dedicated professional accountant not only keeps errors, delays, and potential financial mismanagement at bay but also frees up your schedule to pay attention to brainstorming for better growth.
DIY Mentality: Accounting Needs Professional Knowledge
Business accounting is different and more complex than personal accounting. Thus, if you are not well-versed and experienced in business accounting, there is a scope for a lot of things to go wrong, beginning with incorrect records, ledgers that don’t tally, missed invoices, and erroneous categorization of expenses. A single overlooked financial entry can snowball into a significant loss in the future. What’s worse, failing to address these slips in time can lead to problems with the Canada Revenue Agency (CRA), including penalties or even legal action.
Apart from these external problems, wrong DIY accounting can weaken your business’s financial health from within. All these missed entries and incorrect calculations can give you a false picture of your finances and mislead you into making the wrong decisions. Moreover, you might also miss out on good opportunities or potential tax deductions because of this incorrect financial report.
Engaging a professional accountant with knowledge and experience of business accounting drastically reduces, if not eliminates, such errors and inaccuracies. The accountant can provide a clear picture of your business’s finances, revenue, growth prospects, investments, and operations, and highlight areas for cost-cutting and tax-saving.
Accounting Fee Cost: Professional Accountant Add More Value to Business
Firstly, your accounting needs and their complexities will grow as the business grows. Without proper knowledge and experience, navigating these complexities is time-consuming, stressful, and hazardous to your financial health. Secondly, your business is your baby, and you may get emotional about it. Overlooking or neglecting certain unhappy accounting numbers in the hope that things will get better over time is not practical. Accounting has to be unbiased, unemotional, and data-driven.
An accountant can manage your books of accounts and give you valuable insights into how your business is faring with data-backed reports. Based on these reports, you can refine your business strategy, chalk out a realistic budget, plan your investments or business purchases carefully, and make informed business decisions.
Accountants bring a lot more to the table. They can manage your cash flow, ensuring day-to-day operations are not disrupted from cash shortage. They study current market trends, consumer preferences, and inventory to generate forecasts and prepare you for future opportunities or challenges. If you really think about it, hiring an accountant is a smart investment rather than an unnecessary cost.
Lack of Understanding: Accountants Do a Lot More than Prepare Financial Statements
Accounting is not just about recording transactions, but reading between the numbers, interpreting what they say about your business’s financial health, and identifying fraud. A professional accountant goes even further – they also offer superior technological support that helps automate routine accounting tasks and secure all sensitive financial data of your business. Furthermore, they provide valuable tax assistance and advice, conduct internal audits to identify financial loopholes, and ensure your business remains compliant.
A good accountant can be not just a pillar but a catalyst in helping your business flourish.
Contact Glenn Graydon Wright LLP in Oakville For Your Accounting Needs
Having a professional handle your business accounting has more advantages than are superficially visible. Time-saving, risk-reducing, tax-saving, data securing, and so much more! To learn more about how Glenn Graydon Wright LLP can provide you with the best accounting and bookkeeping services, contact us today at 905-845-6633, or connect with us online.