In case you operate a small business in the U.S, you know that bookkeeping is a lot more than simply capturing numbers, it is dealing with your whole financial system under control. A 2023 SCORE report found that nearly 60% of small businesses are not confident to manage their books. This is exactly why many outsource and use a bookkeeping partner. But How to Evaluate the Performance of Your Bookkeeping Partner?
Regardless of whether you are dealing with a sole bookkeeper, a company, or even a program with human aid, we will teach you the way to measure their performance so your business remains on course. And if things become way too complicated, you might have to hire an accountant or consult a personal accountant.
Why You Should Review Your Bookkeepers Performance
Face it, your bookkeeper is the keeper of your business's financial health. They track your earnings, expenses, payroll and make your financial reports. A great bookkeeper keeps you in compliance with the IRS, handles cash flow and plans for the long term. However , in case they are not doing their job correctly, you might be in big trouble, with missed tax due dates, overpaid expenses or poor business decisions based on incorrect numbers.This explains why it is crucial to check on how they are doing frequently.
Steps to Evaluate the Performance of Your Bookkeeping Partner
Below are 8 steps for evaluating the pPerformance of your bookkeeping partner:
Step 1 : Timeliness and Accuracy of Review
The biggest indicator of a great bookkeeping partner is on time and error free data.
Ask yourself:
- Are your books updated weekly or monthly?
- Do you get financial reports when promised?
- Did you ever notice mistakes on payroll, invoices or bank reconciliations?
Spotting late entries or tiny errors frequently is a red flag. Mistakes in your books might delay filing taxes or trigger IRS audits.
A good bookkeeper should also flag unusual activity, like an abrupt increase in spending or a vendor charging more than normal.
Step 2 : Check Communications & Responsiveness
Your bookkeeping partner shouldn't speak to you daily but should return your phone call if you have a query or demand.
Signs of strong communication:
- They answer emails within 24 hours.
- They explain things in terms you understand (no accounting jargon).
- They notify you before any changes or deadlines come about.
If you are continuously chasing them down or maybe their explanations always make you more confused, it might be time to reconsider the relationship.
Sometimes business owners believe they need an accountant because they are confused, but the actual issue is a bookkeeper who is not keeping you updated.
Step 3 : Assess the Financial Reports
The bookkeepers should provide you key reports each month. They include:
- Profit & Loss Statement.
- Balance Sheet.
- Cash Flow Report.
These reports help you see:
- How much profit you make (or not).
- The amount of debt you owe.
- Whether you are spending more than you make.
A good bookkeeper sends these reports and ought to walk you through them in case needed.
If you keep getting spreadsheets without any explanation or worse, no reports whatsoever, your bookkeeper isn't helping you make smart financial choices.
Unsure how to read those reports? You do not always need an accountant constantly, however having an individual accountant guide you through them quarterly provides you with peace of mind.
Step 4 : Assess Software and Tools Used
Does your bookkeeping partner use modern tools like QuickBooks Online, Xero or FreshBooks? Or are they still buried in spreadsheets?
cloud based bookkeeping software provides:
- You receive real time access to your numbers.
- Automatic bank feeds & transaction imports.
- Backups of your financial information.
If your bookkeeper is on outdated tools, this could slack your workflow and also increase the risk of manual mistakes. You want somebody who knows best practices.
Plus, updated software makes it simpler for a personal accountant to come in if you require even more comprehensive financial planning or tax technique assistance.
Step 5 : Measure Cost compared to Value
How much are you paying your bookkeeper and what have you been receiving back?
Consider:
- Are they saving you time each week?
- Do they help you avoid costly errors (like late tax penalties)?
- Do they set you at ease?
In case you pay a premium rate but still spend hours cleaning errors or doing double work, the value may not be there. In comparison, if they're cheap but always miss deadlines, that is also no win.
Keep in mind, saving money isn't the goal. Keeping your books accurate means your time and effort is spent growing your business, not fixing mistakes.
Step 6 : Ask About Compliance Support
Your bookkeeper ought to help you comply with:
- IRS regulations.
- State & local taxes.
- 1099 filing for contractors.
- Sales tax filings (in case applicable).
A good bookkeeper will remind you of deadlines, gather the right papers, and even submit forms. If they appear uncertain about compliance tasks or leave everything to you that might cause big headaches.
That is a warning sign in the event you actually got an IRS notice and your bookkeeper did not understand how to handle it. That is also when you may actually need an accountant to come in and fix things.
Step 7 : Monitor Business Insights
Some bookkeepers simply enter numbers but excellent ones provide insights. They might say:
"Your vendor costs are up 20%, do you want to explore alternatives?"
"You get behind with regards to invoices, why not automate reminders?"
If a bookkeeper describes "why" the numbers are there, you can make better choices.
That is where they move from numbers cruncher to partner of your company. And in case your business is expanding quickly, your bookkeeper might pair with a personal accountant.
Step 8 : Get a Second Opinion
At times you ask yourself whether your bookkeeper is underperforming or maybe your expectations are too much. Get a second opinion in such cases.
You can:
- Ask another business owner what they encountered.
- Hire an accountant for a one-off financial review.
- Request a bookkeeping inspection by a 3rd party.
This doesn't imply you're firing anybody. It indicates you're working on due diligence. You wouldn't keep a marketing agency that can not grow your audience, exactly why could you keep a bookkeeper that can't keep your numbers clean?
When to Hire an Accountant?
Your bookkeeper might be excellent, but at times you need an accountant for the following reasons :
- Tax season is coming and you need to be ready.
- You are applying for a loan or even searching for investors.
- You need long term financial planning and budgeting assistance.
- Your business structure is changing (like from individual to LLC).
A personal accountant can offer strategies and insights beyond the daily transaction.
Keep in mind, it is not one or the other, you can have an accountant and a bookkeeper working on your financial support system.
Also read: 5 Signs Your Business Needs Professional Bookkeeping Support
Conclusion
Your business finances are built around bookkeeping. However, having somebody perform the job is not enough, they have to get it done well.Over 70% of small businesses who outsource their bookkeeping services in 2023 stated that financial confidence and business efficiency increased. That can be you as well, if you regularly evaluate the performance of your bookkeeping partner.
Ensure they're accurate, communicative, timely, proactive and compliant. If you spot gaps, speak to them or change providers. Hire an accountant if you want much more inside scoop or support. Good books ultimately make good decisions. And good decisions grow companies.
