huumans

'Modern' accounting and bookkeeping vs 'Traditional' accounting and bookkeeping - which is best for your small business?

At huumans we sometimes talk about 'Modern' (or 'Smart') bookkeeping - but what is 'Modern' bookkeeping? Can it help your small business?

If you've never thought about how bookkeeping can directly impact your business day-to-day you're not alone. Choosing an accountant or bookkeeper for your business should be like choosing a trusted business partner - someone who should be aligned with your business plan, your vision for success - and be able to support you whenever or however you need help.

Shockingly, in North America, nearly 50% of small businesses who use bookkeeping or accounting services have a negative experience - or worse - see a negative impact on their business.

As running a small business becomes more complicated and markets become more unstable, it's becoming more important than ever that small business owners find the right partner to support them in their business needs and goals.

Let's break down the differences between 'Traditional' accounting and bookkeeping and 'Modern' accounting and bookkeeping.

What is 'Traditional' bookkeeping?
Most small business currently uses a 'Traditional' bookkeeper, and usually they find that bookkeeper through family and friends, or by doing a quick web search for 'bookkeepers near me'. Traditional bookkeepers and bookkeeping / accounting firms are good for keeping your accounts in order and submitting (or preparing) your taxes for the tax authorities. Their aim is typically to have your accounts in what is known as 'good standing' and to maximize your deductions for tax (leaving you more money in your pocket) before your tax deadline.

Typically with 'Traditional' bookkeeping you can expect:

your books and accounts to be in 'good standing', typically in time for you to submit your various taxes to federal deadlines
to 'drop off' your receipts to the office at year end or post / email receipts, documents and invoices for later reconciliation
end of year pricing - typically you'll be invoiced for the time spent by the bookkeeper that financial year preparing your accounts, costed by the hour, sometimes with an associated timesheet or invoice. Sometimes this price is predicted as a 'fixed cost', but overtime is usually added for additional services such as time spent providing support and / or dealing with the tax authorities on your behalf
to email any questions you might have around your accounts - however the response time will typically vary and might be related to how much you are paying for the service, and that time spent on support will typically be billed as overtime
your accounts to be reconciled in either a desktop software or a online (cloud) software depending on the bookkeepers experience or preference

It's important when you first engage with a 'Traditional' bookkeeper to check if your accounts will be reconciled in desktop software or online (cloud) software, as this can limit how accessible those accounts might be to you. It's your data after all, and that data can give you insights into how your business is doing. If you are a retail goods business for example, something you'll want to know and keep a close eye on constantly is your COGS (Cost Of Goods Sold) which gives you a clear sense of how profitable your goods are, and how much your base costs have risen. COGS, for many businesses, is one of the number one requested insights during periods of high inflation.

It's also a good idea to check if your chosen 'Traditional' bookkeeper has experience of your business type or industry. Dentistry, Chiropractic and Health / Wellness businesses, for example, have very specific ways of categorizing expenses - as do Construction and Retail businesses which often carry inventory. These minor industry variations can add up to thousands of dollars of missed tax deductions and cause problems when you try to understand your year end numbers or try to plan for the future.

Typically we'd recommend trying to find a 'Traditional' bookkeeper or firm that can prove they understand your business and have the ability to produce useful, regular reports. Reports are key to small business success because they tell you how your business is doing 'now'. Providing reports based on the previous year, historical trends or previous tax submissions is dangerous as it doesn't reflect the current market or the reality of your business and can lead to bad decision making. Bad decision making, along with misunderstanding basic things such as available cash flow and profit margins are some of the biggest reasons that nearly half of small businesses fail in the first four years of operation.

What is 'Modern' bookkeeping?
Many small businesses are transitioning to 'Modern' bookkeeping services after finding the 'Traditional' bookkeeping approach doesn't fit their business needs. With the rise of e-commerce, online and instant payments, digital invoicing and rapidly moving global markets, it's becoming tough to stay ahead and understand where your business sits and work out the best decision to make next. Rates are going up. Gas prices have suddenly dropped. The cost of goods and labour are inflated. Many businesses are starting to realize that they need to know how a wide range of rapidly changing factors will affect their profits and operating costs in the coming weeks and months. Throw on top trying to manage weekly and bi-weekly payroll, source deductions, benefits and paying back federal loans (which many businesses applied for during the Covid19 pandemic) and it's understandable why so many small business owners have ended up dissatisfied, anxious and confused.

'Modern' bookkeeping services offer transparent monthly fixed pricing or 'plans' which are all-inclusive, so you always know the cost up front. They also offer cloud-first bookkeeping services which allow you access to personal business numbers any time you need them, and typically provide insights on this data to help you make better real-time business decisions. Because they offer managed cloud services (and allow you to upload your documents and receipts online or via a mobile app) they're able to offer better support based on your current business health and tend to make that support unlimited and included as part of your monthly fee rather than costed per hour in addition to an annual fee. That support is typically offered by experts who have deep knowledge of your business type or industry, and as they are able to access real time data from your business, are able to give you highly accurate insights.

Typically with 'Modern' bookkeeping you can expect:

your books and accounts to be reconciled often or even weekly
your accounts to be reconciled using cutting-edge cloud software which learns industry trends - allowing for a high degree of accuracy and orientation to your business type or industry
to upload your receipts using an app or website (whichever is your preference) and have access to a shared document portal and financial diary
monthly fixed all-inclusive pricing (with no overtime or hidden fees) that is comparable to 'Traditional' bookkeeping services
unlimited expert support oriented to your business type or industry based on your actual real-time business numbers
same day or next business day support on any topic relevant to your business

Because 'Modern' bookkeeping is billed through monthly 'plans', you can typically cancel your 'plan' at any time, for free, if you're unhappy with the service provided. Monthly billing also allows you to change 'plans' to match your current business requirements, meaning you're not left paying for low value or irrelevant services you don't need or want.

Typically 'Modern' bookkeeping tends to be highly efficient compared to 'Traditional' bookkeeping, which means that the savings and efficiencies get passed on to you directly, the customer, with the added benefit of more accurate support and on-demand access to your real-time business data.

Found this useful? You could get a free weekly insights report delivered to your inbox each week full of relevant insights - if you'd like to receive a copy, you can sign up here.

What is huumans?
A 'Modern', cost-effective bookkeeping service designed specifically for small business owners, huumans provides same or next business day support, guaranteed weekly reconciliation and fixed, transparent monthly pricing. Your business numbers, directly calculated from your constantly reconciled accounts, are presented in a free, easy-to-understand, on-demand, shareable dashboard - and like your billing, it can be managed online whenever you find it convenient. Offering the most cost effective small business managed payroll services in Canada, we also provide specialized discounts for startups and new businesses, along with dedicated solutions for franchises.