Should I keep doing my own bookkeeping or hire someone to do it, and how do I know when my business has outgrown doing it myself?

What does the whole bookkeeping job include?

Most owners judge the job by the part they see, which is entering transactions. AccountingTools' bookkeeper job description sets out the wider job; use it as a checklist:

• Capture. You post transactions from source documents such as customer invoices and cash receipts.
• Customers and suppliers. You invoice customers, follow up overdue accounts, and track and process payments to vendors.
• Reconciliation. You compare your records with bank statements to find discrepancies, which helps detect errors, unauthorized transactions or fraud.
• Close. At the end of each reporting period you reconcile the bank statement, reconcile balance sheet accounts to their supporting detail and, if you use a periodic inventory system, reconcile inventory records to on-hand balances, then correct what you find with adjusting entries.
• Payroll. If you run payroll yourself, you calculate wages, deductions and tax withholdings, deposit the taxes withheld and pay the employer's share, prepare payroll reports and file the necessary payroll tax forms. The IRS page on independent contractors and employees says an employer generally must make those deposits and pay that share.
• Reporting. You produce the profit and loss statement, balance sheet and cash flow statement.
• Compliance. You make sure sales taxes, payroll taxes and other obligations are recorded and reported correctly, and prepare the records your accountant or tax preparer needs.

AccountingTools' entry on reconciliation lists the Close reconciliations as part of closing each reporting period, with adjusting entries as their outcome.

List which of these you did in the last three months. The ones you skipped still belong to the job.

What are you trading on each side?

Four criteria decide it, and none points only one way:

AccountingTools defines opportunity cost as the profit lost when one alternative is selected over another, measured against the best option given up, and says it does not necessarily involve money: it can also refer to alternative uses of time. So your hours cost what their best other use is worth. Setting help's fee against zero for your own time, errors and lateness makes doing it yourself look free; handing over is not automatically better either.

How do you measure what your own time on the books costs?

Measure it before you compare it with anything:

1. Log every bookkeeping session for a full month that includes a month-end, counting evenings, weekends and minutes on your phone.
2. Include the hidden work: hunting for receipts, fixing mistakes and answering your tax preparer's questions.
3. Add a monthly share of work that comes round less often than monthly: divide the hours of each quarterly task by three and of each once-a-year task by twelve.
4. Value each hour. For hours you could spend on paid work, use what it would add to profit: your charge less any direct cost. For hours you could not bill, such as evenings and weekends, set a figure for what they are worth to you rather than zero, shown separately.
5. Add what errors and lateness have actually cost you, such as penalties, interest, late fees and corrections your tax preparer billed for.

For example, a consultant logs 13 hours in a month: 7 of entry, 4 of reconciling and closing, and 2 as the monthly share of 24 year-end hours. She could bill 10 of them at $80 with no direct costs, so they cost 10 × 80 = $800. The other 3 are evening hours she values at $25 each, or 3 × 25 = $75, shown separately. Her bookkeeping costs $875 a month before error costs. Set that, less the value of the review hours she would keep, against what help would cost.

Which signals in your books and calendar show you have outgrown it?

Run these checks against your books and calendar, not against how busy you feel:

AccountingTools' reconciliation entry says delayed detection can let recording mistakes or fraud continue before they are investigated and corrected, which is why the first row weighs most. Being able to keep going is not evidence the arrangement works; the rows are.

Is the problem your time or the judgment the work needs?

The signals split two ways. If you can do the work correctly but lack the hours, the constraint is capacity, which automated capture or routine help can meet. If you have the hours but lack the judgment the work now needs, the constraint is competence: more time or software will not fix it, and that component needs someone trained.

Which parts of the job carry consequences an untrained owner can miss?

The exposure differs by component:

• Worker classification. The IRS page on independent contractors and employees says it is critical that business owners correctly determine whether the people providing services are employees or independent contractors, and that if you classify an employee as an independent contractor with no reasonable basis, you may be held liable for employment taxes for that worker.
• Payroll taxes. The IRS page on outsourcing payroll duties says the employer may be held personally liable for certain unpaid federal taxes.
• Inventory and accounting method. IRS Publication 583 says that if an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales, while certain small business taxpayers can use the cash method and account for inventoriable items as materials and supplies that are not incidental. Whether you are one of those taxpayers is not a matter of preference, and the publication refers you to Pub. 538 for more information. It adds that you choose your method when you file your first income tax return and must use the same method to figure your taxable income and to keep your books, so a wrong choice runs through both.
• Mixed money. IRS Publication 583 says you should keep your business account separate from your personal checking account. Business costs mixed into personal spending are harder to pick out and support later.
• Reconciliations that look finished. AccountingTools' reconciliation entry warns that a reconciliation cannot reliably identify problems when both sets of records contain the same error or when supporting documentation is incomplete, and that a difference may come from fraudulent manipulation of the records, so forcing a difference to agree hides its cause.

What arrangements sit between doing it all and handing it all over?

Four arrangements sit on that range, each with its own signals:

What help costs, whether to hire an employee or an outside firm, how to vet a provider, which credential you need, and whether bookkeeping can be automated are separate questions.

Which business events force the decision?

These events add obligations or complexity however you feel, so decide before they arrive:

Employees and contractors deserve a decision of their own. Employees bring payroll, with its own deposit requirements and filing deadlines, which, the IRS page on outsourcing payroll duties says, third-party payroll service providers can help meet; contractors bring the classification determination that the IRS page on independent contractors and employees calls critical, and the forms and associated taxes that follow it. Deciding under deadline pressure produces a rushed arrangement and a handover in the worst conditions.

What stays your responsibility after you hand it over?

Handing over the work does not hand over the responsibility. IRS Publication 583 says everyone in business must keep records. IRS Topic no. 254 says a paid preparer is primarily responsible for the overall substantive accuracy of your return, yet you are ultimately accountable for the accuracy of every item reported on it. The IRS page on outsourcing payroll duties says the employer is ultimately responsible for the deposit and payment of federal tax liabilities, even if it forwards the amounts to a third party to make the deposits, and that if the third party fails to make the payments, the IRS may assess penalties and interest on the employer's account. The same page notes prosecutions of individuals and companies that, posing as payroll service providers, stole funds intended for employment taxes.

AccountingTools' entry on separation of duties says no one person should be responsible for the acquisition of assets, their custody and the related record keeping; where that separation is impractical, it lists independent supervisory reviews and restricted system access among the compensating controls, and adds that such controls provide additional oversight but may not fully replace effective segregation of duties. In a small business, you are the independent reviewer and the helper's access is restricted, which is why the helper never holds money as well as the records; where a payroll provider does both, the payroll checks below matter most. Keep these checks yourself:

• Your own look at the bank. Each month, open every bank and card statement through your own login, not a copy someone sends you. Check that the helper's reconciliation starts from the statement's ending balance, that it contains no adjusting or balancing entry nobody has explained to you, and that every outstanding check or deposit in transit it lists is one you recognize and clears on the next statement; read the payees and amounts for anything you do not recognize, including payments to the helper or to unknown accounts, and trace a few payments into the books to check that each sits under the payee and category you expect.
• The monthly reports. Read each month's profit and loss statement and balance sheet, and question anything, including an adjusting entry, that does not match what you know happened.
• Payroll tax deposits. If a payroll provider makes your federal tax deposits, the IRS page on outsourcing payroll duties advises making sure it uses EFTPS, and registering for your own EFTPS PIN and using it to verify the payments periodically. It says a red flag should go up the first time a provider misses a payment or makes a late payment, and that an employer who believes a bill or notice stems from a problem with its provider should contact the IRS as soon as possible. The page describes EFTPS as a way to verify federal tax payments and says providers may also deposit employment taxes with state authorities, so the EFTPS check alone does not confirm any state payroll-tax deposits a provider makes for you.
• Your address with the IRS. The same page strongly suggests not changing your address of record to the provider's, as that may significantly limit your ability to be informed of tax matters involving the business.
• The judgment calls. Keep the decisions only you can make, such as who works for you on what terms and what is business rather than personal.

How do you hand over in stages you can take back?

Treat the change as a trial with an exit rather than a single handover:

1. Write a short note of how your books work (chart of accounts, recurring transactions, contacts) and keep your own copy, so the work can come back without depending on the helper.
2. Set up access first. The accounting file and every bank, card and tax account stay in the business's name, with you as administrator. In the accounting file the helper gets their own user that can record and adjust entries but cannot add users or pay anyone; at every bank, card and tax account their own login, never your password, can only view and download, and they get no checks or cards. Where an account offers no separate login that cannot move money, give the helper no login there and send them the statements yourself. Apart from any payroll a provider runs for you, payments stay with you.
3. Clear any backlog first, so the ongoing help starts from current books.
4. Hand over one bounded piece, such as the monthly reconciliation and close, for a fixed trial of a few months.
5. Fix the review date and its tests before the trial starts: month-ends reconciled, reports on time, questions answered, and nothing unexplained in your own bank checks.
6. At the review point, widen the scope, keep it as it is, or take the work back. If you take it back, remove every login the helper holds that day. Taking payroll back from a provider takes more than removing logins: before you end the arrangement, confirm with the provider which deposits and filings it will still make and when its access to the business's account ends. Then use your own EFTPS PIN, which the IRS page on outsourcing payroll duties advises using to verify payments, to check that the final federal deposits were made.

What changes if you work alone at low volume, or your books are already behind?

A one-person business with few transactions a month, no employees and no inventory may be right to keep its own books; handing them over is not the default at that scale. Watch two things instead: whether the books are reconciled through each month-end, and whether business and personal money stay apart.

If the books are behind or were never kept properly, you face two decisions. Clear the backlog first, as a catch-up project with a defined end, whoever does it. Start with the periods an upcoming return or payroll deposit depends on, and meet each due date as it comes rather than waiting for the catch-up to finish. Then choose the ongoing arrangement from the signals; the catch-up's answer need not be the steady state's.