Hiring someone to help manage your business’s financial records requires a lot of trust.
Your bookkeeper will see your bank accounts, credit cards, payroll, customer information, vendor activity, debt, profitability, and other information that you probably don’t share with many people.
So how do you choose the right person?
Price matters, of course.
But choosing a bookkeeper based only on the lowest monthly fee, or because someone knows how to use QuickBooks, can be a mistake.
You want someone who understands what they are doing, asks questions, communicates with you, protects your information, and understands enough about accounting to recognize when something doesn’t make sense.
Here are some things I believe every business owner should consider.
1. Look for Accounting Knowledge, Not Just Software Knowledge
Knowing how to use QuickBooks is important. But QuickBooks is only a tool.
A bookkeeper also needs to understand the accounting behind the transactions being entered.
For example, does the person understand that: a credit card payment is not an expense?
- A loan payment may need to be divided between principal and interest?
- Sales tax collected from customers generally creates a liability?
- Customer payments need to be properly applied to Accounts Receivable?
- Equipment purchases may need to be recorded as assets rather than expenses?
- Owner transactions need to be distinguished from ordinary business expenses?
- Balance Sheet accounts need to be reviewed?
- A bank feed is not the same thing as a bank reconciliation?
QuickBooks can suggest how to categorize a transaction. That doesn’t mean the suggestion is correct.
Software knowledge tells someone how to enter a transaction. Accounting knowledge helps them understand how it should be recorded.
You want both.
2. Ask About Their Experience
There is no single number of years someone must have worked as a bookkeeper before they can do good work.
But experience matters.
Ask questions such as:
- How long have you worked in bookkeeping or accounting?
- What type of accounting work have you done?
- What types of businesses have you worked with?
- Have you handled books with a similar level of complexity to mine?
- Do you have experience cleaning up books that were not maintained correctly?
Experience often teaches someone what to look for when the numbers don’t make sense.
A bookkeeper who has encountered Accounts Receivable problems, unreconciled accounts, incorrect loan balances, duplicate income, payroll issues, and messy Balance Sheets is more likely to recognize those problems when they see them again.
3. Look for Someone Who Understands Your Type of Business
Not every business needs the same kind of bookkeeping.
A professional service business may have fairly straightforward accounting.
A construction company may need:
- Job costing
- Retainage receivable
- Work in progress reports
- Costs in excess of billings and Billings in excess of costs
- Job profitability reporting
- Labor and material cost tracking
A business with significant Accounts Receivable has different needs from a business where customers pay at the time of service.
A company with employees has different needs from one without payroll.
Ask whether the bookkeeper has experience with businesses like yours.
They don’t necessarily need to know every detail about your industry on day one.
But they should understand, or be willing to learn, how money moves through your business and what financial information you need.
4. Make Sure They Understand Your Tax Entity Type
Your bookkeeper should know both your legal entity and how the business is taxed.
Saying, “We’re an LLC,” isn’t enough.
An LLC may be taxed as a:
- Sole proprietorship
- Partnership
- S corporation
- C corporation
That can affect how certain transactions should be recorded.
For example, an S corporation shareholder who performs services for the corporation generally needs to receive reasonable compensation through payroll.
A partner in a partnership, on the other hand, generally should not be treated as an employee of the partnership and may receive guaranteed payments.
A more-than-2% S corporation shareholder can also have different tax treatment for certain employee benefits, including health insurance.
Your bookkeeper does not need to replace your tax advisor.
But they should understand enough about entity taxation to recognize when it affects the bookkeeping, and when your CPA or tax professional needs to be consulted.
5. Ask How Often They Reconcile Accounts
This is one of the questions I would absolutely ask.
“Will you reconcile every bank and credit card account each month?”
A bank feed is not a reconciliation.
Accepting or matching all of the transactions in QuickBooks does not prove the account is correct.
Reconciliation compares your accounting records with the actual statement and can help identify:
- Missing transactions
- Duplicate transactions
- Incorrect amounts
- Old outstanding checks
- Old deposits
- Bank fees
- Interest
- Transactions posted to the wrong account
- Possible unauthorized activity
Regular reconciliation is one of the foundations of reliable bookkeeping and should be done monthly.
6. Ask Whether They Review the Balance Sheet
This is another question I would ask directly: “Do you review the Balance Sheet every month?”
The Profit and Loss Statement gets most of the attention from business owners, but many bookkeeping problems hide on the Balance Sheet.
A good bookkeeper should pay attention to accounts such as:
- Cash
- Accounts Receivable
- Accounts Payable
- Credit cards
- Loans
- Payroll liabilities
- Sales tax liabilities
- Undeposited Funds
- Fixed assets
- Owner or shareholder equity accounts
If the bookkeeper is only categorizing bank feed transactions and printing a Profit and Loss Statement, important problems may go unnoticed.
Every Balance Sheet account should have a reason for the balance that is there and should agree with a source document such as a loan statement, a bank statement, a fixed asset listing.
7. Look for Someone Who Asks Questions
You might think the best bookkeeper is one who rarely bothers you.
I would argue the opposite. If something doesn’t make sense, I want a bookkeeper to ask.
For example:
“What was this $8,500 payment for?”
“Was this vehicle purchased or financed?”
“Is this customer balance still collectible?”
“Was this expense business or personal?”
“Is this deposit customer income, a loan, or money contributed by the owner?”
Those questions are not a sign that your bookkeeper doesn’t know what they are doing.
They are a sign that your bookkeeper doesn’t want to guess.
Be cautious about someone who always seems to know how to categorize every transaction without ever asking you anything.
Sometimes there simply isn’t enough information on a bank feed to know the answer.
A good bookkeeper has questions and is not afraid to ask them.
8. Ask What Their Monthly Process Includes
“Monthly bookkeeping” can mean very different things depending on who is providing the service.
Ask exactly what will be done. In fact, the bookkeeper should give you an “engagement letter” or agreement that spells out what they will be responsible for doing and what you or your office will be responsible for doing.
Will the bookkeeper:
- Categorize transactions?
- Reconcile bank accounts?
- Reconcile credit cards?
- Review Accounts Receivable?
- Review Accounts Payable?
- Review Undeposited Funds?
- Review loans?
- Review payroll accounts?
- Review the Balance Sheet?
- Prepare financial statements?
- Review the financial statements for unusual activity?
- Communicate questions to you?
- Close or lock completed accounting periods?
You should understand how much their services will cost and what you are paying for before the engagement begins.
9. Ask What They Will NOT Be Doing
This is just as important.
Don’t assume “bookkeeping” automatically includes:
- Paying bills
- Sending customer invoices
- Collecting Accounts Receivable
- Running payroll
- Filing payroll tax returns
- Filing sales tax returns
- Preparing 1099s
- Preparing income tax returns
- Cash flow forecasting
- Budgeting
- Tax planning
Some bookkeepers provide these services. Others don’t. There is nothing wrong with either approach.
The important thing is for responsibilities to be clearly defined.
10. Ask How They Handle Cleanup Work
If your books are already behind or contain errors, ask how the bookkeeper approaches cleanup.
Do they simply make journal entries to force balances to agree?
Or do they investigate what caused the problem?
Sometimes a journal entry is exactly the right solution.
But sometimes the underlying transactions need to be corrected.
For example, a journal entry may make the total Accounts Receivable balance correct while leaving incorrect customer invoices and payments in the detailed records.
Likewise, a journal entry can adjust a loan balance without correcting loan payments that were recorded incorrectly throughout the year.
Ask how the bookkeeper determines what needs to be fixed and how they will explain the cleanup to you.
11. Ask How They Protect Your Financial Information
Your bookkeeper WILL have access to extremely sensitive information. Ask how that information is protected.
Questions might include:
- How do you store financial documents?
- How do you exchange sensitive documents with clients?
- Do you use secure passwords and multi-factor authentication?
- Who else can access my information?
- Will you need bank access?
- If so, what level of access do you need?
- How do you handle access when our relationship ends?
Whenever possible, use accountant, delegated, or read-only access rather than sharing your personal usernames and passwords.
Convenience should not come at the expense of security.
12. Ask About Internal Controls and Separation of Duties
A good bookkeeper should understand the importance of internal controls.
Separation of duties is one of the most effective ways to reduce the risk of errors and fraud.
Ideally, one person should not control every part of a financial process.
For example, the same person should not necessarily be able to:
- Create a vendor
- Enter a bill
- Approve the bill
- Make the payment
- Record the payment
- Reconcile the bank account
Small businesses may not have enough employees to separate every responsibility. That’s understandable. But a knowledgeable bookkeeper should be able to help identify practical checks and balances.
An employee might enter bills while the owner approves payments.
Someone inside the company might handle daily transactions while an outside bookkeeper independently reconciles the bank accounts.
The bookkeeper may supply the owner with both a copy of the bank statement and a copy of the bank reconciliation report and ask the owner to review bank activity and financial statements every month.
Internal controls are not about distrusting your employees.
They are about protecting the business, and the people who work in it.
13. Find Out How They Communicate
Think about the kind of relationship you want.
Do you want someone who simply sends reports once a month?
Or do you want someone who will tell you: “Something doesn’t look right here.”
“Accounts Receivable has increased significantly.”
“This loan balance doesn’t agree with the statement.”
“Your gross profit changed considerably this month.”
“I need more information before I know how to record this.”
Neither you nor your bookkeeper should dread communicating with the other.
Just as your bookkeeper should ask you questions, you should feel comfortable asking questions of your bookkeeper. And your bookkeeper should be able to explain accounting concepts in language you understand.
14. Ask What Financial Reports You Will Receive
At minimum, many businesses should receive a:
- Profit and Loss Statement
- Balance Sheet
Depending on your business, you may also need:
- Statement of Cash Flows
- Accounts Receivable Aging
- Accounts Payable Aging
- Job profitability reports
- Work-in-progress reports
- Department or location reports
- Budget-to-actual reports
But receiving reports isn’t enough.
Ask whether your bookkeeper or someone else in their business reviews them before sending them to you.
There is a difference between clicking “Run Report” and reviewing whether the report makes sense.
15. Find Someone Who Will Work With Your Tax Professional
Your bookkeeper and tax professional should not operate in separate worlds.
At year-end, your tax professional may need:
- Financial statements
- General ledger reports
- Loan information
- Fixed asset purchases
- Payroll information
- Accounts Receivable and Accounts Payable reports
- Other supporting schedules
Your tax professional may also provide adjusting journal entries that need to be recorded in the books.
A good bookkeeper should be willing to communicate and coordinate with your CPA or tax preparer when appropriate.
Your bookkeeper does not need to know every answer.
They do need to recognize when a question should be asked.
16. Don’t Choose Based on Price Alone
Cost matters. Every business has a budget.
But bookkeeping services are difficult to compare based solely on price because two people offering “monthly bookkeeping” may be providing very different services.
One may primarily categorize bank feed transactions.
Another may reconcile every account, review the Balance Sheet, investigate unusual activity, review financial statements, communicate with your tax professional, and provide monthly reporting.
Those aren’t necessarily comparable services.
Instead of asking only: “How much does it cost?”
also ask:
“What am I getting for that price?”
The cheapest option can become expensive if inaccurate books eventually require cleanup work, or if you spend a year making decisions based on financial information that wasn’t reliable.
17. Pay Attention to How They Respond When They Don’t Know Something
No bookkeeper knows everything. No CPA knows everything either.
Tax laws change. Software changes. Businesses encounter unusual situations. There will occasionally be questions that require research or another professional’s expertise.
One of the qualities I value most in any professional is being willing to say: “I’m not sure. Let me find out.”
That is much better than guessing.
Look for someone who knows the limits of their expertise and is willing to research, ask questions, or coordinate with another professional when necessary.
I’ve been a CPA since 2003 and I learn something every day. I would much rather tell a client that I don’t know but will do the research necessary to find out, than to give them an answer I am uncertain about.
18. Make Sure You Feel Comfortable With the Person
Qualifications matter. Experience matters. Accounting knowledge matters. But so does the working relationship.
Your bookkeeper is going to ask you questions about your business and finances.
Occasionally, those conversations may involve mistakes, cash flow problems, debt, personal transactions, or decisions you wish you had handled differently. You need someone you can talk to.
That doesn’t mean your bookkeeper should always tell you what you want to hear. In fact, you don’t want a bookkeeper who will always tell you what you want to hear.
Sometimes a good professional needs to tell you:
“This isn’t being handled correctly.”
“This account needs to be cleaned up.”
“I don’t think these financial statements are reliable yet.”
“We need to ask your tax preparer about this.”
Look for someone who can have those conversations professionally and respectfully.
Questions to Ask a Potential Bookkeeper
When interviewing someone, consider asking:
- What is your bookkeeping and accounting experience?
- What types of businesses do you typically work with?
- Have you worked with businesses in my industry?
- What does your monthly bookkeeping process include?
- Do you reconcile every bank and credit card account?
- Do you review the Balance Sheet each month?
- How do you handle transactions when you aren’t sure what they are?
- How do you handle cleanup and catch-up bookkeeping?
- Do you understand the accounting differences between tax entity types?
- What financial reports will I receive?
- How often will we communicate?
- How do you protect my financial information?
- What level of access will you need to my accounts?
- How do you recommend separating financial duties in a small business?
- Will you communicate with my CPA or tax preparer?
- What services are included in your fee?
- What services are not included?
- What happens if I need something outside the normal scope of work?
You don’t necessarily need to ask every question.
But the answers should give you a much better understanding of the person you are considering hiring.
Watch for Red Flags
I would be cautious if a potential bookkeeper:
- Doesn’t believe regular reconciliations are necessary.
- Focuses entirely on the Profit and Loss Statement and ignores the Balance Sheet.
- Cannot explain the difference between a bank feed and a bank reconciliation.
- Doesn’t ask about your business or tax entity type.
- Automatically categorizes transactions without asking questions.
- Wants your personal banking password when another form of access is available.
- Can’t clearly explain what their service includes.
- Is unwilling to communicate with your tax professional.
- Makes promises about tax treatment outside their area of expertise.
- Doesn’t have a process for protecting confidential information.
- Can’t explain how they handle mistakes or corrections.
No single question tells you everything.
Look at the entire picture.
Credentials Are Helpful—But They Aren’t the Whole Story
Certifications can be valuable. QuickBooks certifications demonstrate knowledge of the software. Accounting degrees and professional credentials demonstrate additional education and training.
Experience provides something different: exposure to real businesses and real accounting problems.
When choosing a bookkeeper, consider the combination of: Education + Credentials + Experience + Accounting Knowledge + Industry Knowledge + Communication
The right balance will depend on the complexity of your business.
Remember: You’re Hiring Someone to Help Protect the Financial Side of Your Business
Bookkeeping can look like an administrative task. It isn’t.
The information in your accounting system may eventually be used to:
- Prepare your tax return
- Apply for financing
- Obtain bonding
- Make purchasing decisions
- Evaluate employees or departments
- Determine whether jobs are profitable
- Plan for cash needs
- Make decisions about growth
- Eventually value or sell the business
That makes accurate bookkeeping important. You aren’t simply hiring someone to put transactions into QuickBooks. You’re hiring someone to help maintain the financial records of your business.
Choose accordingly.
And If Your Books Are Already a Mess…
Please don’t let that keep you from interviewing bookkeepers. You don’t need to clean up QuickBooks before you show it to someone. You don’t need to apologize because you haven’t reconciled the bank account in eight months. And you don’t need to understand everything that went wrong.
A good bookkeeper should be interested in solving the problem, not judging you for having one.
Tell them the truth: “I’m behind, and I need help.”
That’s enough to start the conversation.
Looking for the Right Bookkeeping Partner?
At Melton Bookkeeping & Accounting Services, I believe good bookkeeping requires more than knowing how to operate QuickBooks.
It requires understanding accounting, reviewing the Balance Sheet, reconciling accounts, asking questions, recognizing when something doesn’t make sense, understanding how your tax entity affects the books, and knowing when your CPA or tax professional needs to be involved.
As a licensed CPA and QuickBooks Online ProAdvisor, I bring an accounting perspective to the bookkeeping process while working with your tax preparer and other professional advisors as part of your financial team. With more than 20 years of experience with business tax preparation, I understand what your CPA or tax preparer needs. I speak their language.
I work with established small businesses that want accurate, organized, tax-ready financial records and someone who will take the time to understand their business.
Not sure what the job includes? Here is what a bookkeeper actually does.
If you’re looking for professional small business bookkeeping and accounting services, call Melton Bookkeeping & Accounting Services at 417-630-0057.
Let’s talk about your business, where your books are today, and what kind of bookkeeping support you need.
