While having someone else do your bookkeeping saves you time, in that you don’t have to do the bookkeeping entries for which you probably don’t understand anyway. It is vitally important that you clearly set out and agree the criteria for what you expect from the outsourced bookkeeping service to exactly what you want and need. Here are some of the misunderstandings between you and your bookkeeper.
1. You expect monthly accounts, your bookkeeper is only doing enough to prepare your VAT returns
2. You expect your purchases to be anlaysed in detail, your bookkeeper uses only 10 analysis codes
3. You expect a bank reconciliation is done ever month, your bookkeeper does not enter non supplier payments and so can’t do a bank reconciliation
4. You expect accounts every month, your bookkeeper will give the information to your auditor/accountant who will produce a set of accounts at the end of the year
5. You expect foreign currency invoices to have a proper rate of exchange applied to them every month, your bookkeeper does not bother with any currency rates
6. You expect the bookkeeper to tell you about any missing purchase invoices, your bookkeeper expects you to give them every invoice
You don’t see all these issues until you take back your bookkeeping to do in house with your own bookkeeper and you find that;
1. While the VAT has been done not all the purchase invoices have been entered and so all the VAT is not declared or claimed back
2. All your foreign currency transactions are recorded but at an exchange rate of 1 to 1 e.g. 1 euro = 1 pound = 1 dollar, which means all your costs are wrong
3. All the non supplier cheques were not entered e.g. bank interest, loan repayments, wages, this means your accounts are incomplete and your Profit & Loss and Balance Sheet are useless
4. No bank reconciliation has been done and so even those payments that have been entered have in some cases incorrect amounts entered which must be amended
5. The outsourced bookkeeper just allocated the payments to suppliers and the receipts from customers against the oldest transactions on the account rather than the actual invoices that were being paid and so trying to work out what is unpaid is very difficult
The cost in terms of man hours and money can exceed what you originally paid to the outsourced bookkeeping service. As my job is to get businesses to do their own bookkeeping and keep control of what they are doing themselves, it is a nightmare for me when I come across a situation like this but it has to be done.
A large fee from the auditor/accountant in previous years in usually an indication to me that there is a bookkeeping problem. It is not always the fault of the auditor/accountant, but rather the outsourced bookkeeping service that caused the problem. The auditor/accountant usually dumps what the bookkeeper gave them and starts again as it is usually easier and quicker and so a large accountancy fee is billed. The auditor/accountant knows the reason for the high fee but usually can do nothing about it as it is a third party (outsourced bookkeeping service) that is causing the problem. There is no money in it for the auditor/accountant to get involved so they leave it go from year to year as they get their fee and the bookkeeping service may also be referring other clients to them so it is not in their interest to upset the bookkeeping service.
Unfortunately it is the client who pays and usually the client does not even realise what is happening and if they do it is too late and they forget about until next year when they give out about the fee again and then being too busy forget about it again for another year and so it continues until I arrive and sort it out. From then on we get it all back under control, where your business knows who you owe money to, who owes you money and if you are making money or losing and this happens every month, not just at the end of the year.