In response to my earlier post, John writes:
That works for single owner /employee businesses, but I’ve found it gets harder as you scale up. (either more owners or more employees).
Aren’t payroll checks their own nightmare?
It does get harder as you scale up. This is “Sam’s business advice – tiny business edition”: when your business is not big enough to be called a “small” business.
Take me as a specific example: I have between three and five transactions a month — invoices to clients, one payroll check, one payroll tax payment. Add in a few trips to Staples and I’m still barely breaking 100 journal entries in a typical year. This is not rocket science. I can do my bookkeeping in five minutes a month. I spend as much time waiting for Simply Accounting to load as I do using it.
But maybe you have 15 employees. Maybe you have 100 different categories of inventory, with 5-10 different items in each category. Maybe you’re billing the federal government (in which case, God help you, because I can’t.)
You should still do your own books. You should hire a bookkeeper or a payroll specialist to enter the journal entries for the complicated bit, but you (as an owner) should still be involved in the bookkeeping. As a rule of thumb I’d try to limit it to no more than 5% of your working time. Anything above that, I’d consider hiring a part-time employee.
So then let me ask you: do you spend 2 hours a week on your books? Is there even two hours a week (ten hours a month) of work to be done there?
And if you think 5% is excessive, then how much time do you think a typical “real” business CEO spends thinking about accounting and business development and cash flow, all of which are founded on up-to-date, accurate books?