Running a Business-of-One offers a lot of benefits – and freedom in your work style. As a result, we’re also faced with a lot of business-related responsibilities.
You were just about to focus on your products or services – then you found out you had to file your tax return.
Intense and complex financial management can be challenging for a small business owner. There’s no need for it to be. When you use an online bookkeeping service, you can let them handle the majority of your money management so you can focus on what you enjoy most about your business.
But first… pick a service. The options for online bookkeeping are numerous, including virtual assistants, CPAs, software, and back-office outsourcing. Tasks they can handle and prices you can expect vary widely.
This guide will provide you with everything you need to know about the types and costs of online bookkeeping services available to your Business-of-One.
What are online bookkeeping services?
Online bookkeeping services are any programs, businesses, or service providers that track financial activity in your company. You might also get assistance with taxes and legal matters.
A virtual assistant or Xero software are some examples of online bookkeeping. They are probably all correct. There is a wide range of services available to support a variety of business needs.
Your Business-of-One is going to grow from a simple freelancing or consulting operation into a bonafide business – whatever that means for you. It may be more difficult for you to track down clients for payments, track income, pay contractors or employees, and certainly meet your tax obligations.
In time, your business’s financial needs may outstrip your accounting skills. Alternatively, you’ll realize you’d rather spend your time on other parts of the business, so outsourcing the financial aspects makes sense.
Types of bookkeeping services for small businesses
Online bookkeeping can be found in three main categories: virtual service providers, online software, and outsourced services. The following is what to expect from each.
Virtual bookkeeping services
Businesses-of-one often hires contractors or part-timers who provide remote bookkeeping services. Accountants, bookkeepers, or tax preparers – or all three – may be involved in this role.
For small businesses, there are providers offering a range of bookkeeping services. In addition to these services, you may need some or all of the following:
- Tracking earnings and expenses
- Invoicing and management of accounts receivable for clients or customers
- Management of accounts payable and bill payments
- Administrative tasks related to payroll and benefits
- Filing and planning taxes
- Forming a company and electing taxes
Hire a virtual bookkeeper by searching freelancer networks or posting a job ad on your network.
The best option is to hire a virtual bookkeeper because they can be hired to do certain tasks for your business. Even online, doing bookkeeping this way is usually the most expensive. The wages you pay a contractor or employee, along with applicable taxes, will be the cost of keeping them on your team.
Online accounting software
You may only need an online accounting program for self-employed business owners that allows you to do your own bookkeeping if your finances are extremely simple.
Accounting programs like QuickBooks, FreshBooks, Xero, and Wave can assist small businesses in a variety of ways, including:
- Invoicing
- Online payments
- Payroll
- Expense tracking
- Reconciliation
- Time tracking
- Inventory management
- Estimates and proposals
- Financial reports
Subscriptions to these programs are typically billed monthly or annually, with a few levels of service included. It is possible to sign up based on your business needs and upgrade as you grow.
Although online software is usually the cheapest way to do bookkeeping for your business, that doesn’t necessarily mean it’s the best.
It might not be worth learning and paying for online accounting software if you are a business-of-one. In addition, they won’t provide all the services you need, such as tax forms or help with formation, so you’ll have to pay for additional services.
Outsourced bookkeeping services
Our outsourced bookkeeping services, like the ones we offer at Collective, combine the value of an in-house bookkeeper with the cost-effectiveness of using an automated system.
…but we offer so much more!
You can get access to a suite of accounting services for small businesses by outsourcing your back-office tasks to collective:
- A tax election and a legal formation
- Estimates and returns of quarterly taxes
- The salary recommendations of owners
- Income tax returns for individuals and businesses
- Payroll
- Bookkeeping
- Issuing and filing tax forms
Your business will benefit from ongoing bookkeeping assistance and upfront and periodic consultations with legal or tax experts with an outsourced bookkeeping service.
What do online bookkeeping services do?
It’s possible to pick the online bookkeeping service that fits your business best and is the most affordable as well.
Formation and organization
Business structure is closely related to how you manage your business’s finances. It is usual to separate financial services from legal services. A new small business owner may find it confusing, inconvenient, and costly to make such decisions.
Most contract bookkeepers and online accounting products do not provide help with forming your LLC (or any other business structure) or registering for taxes.
In addition to outsourced accounting services, Collective offers support for company formation. You can count on us for:
- Make sure your state allows LLCs
- A contract for operations should be created
- IRS tax ID number
- IRS S Corp election
- In your state, register your company as an employer
- Please provide a Registered Agent (someone who can handle your tax and legal issues)
- Help you register your business and obtain licenses in your state each year.
Taxes and tax planning
Tax support is often included in bookkeeping services. Depending on the service you choose, the amount will vary.
A CPA or IRS Enrolled Agent can provide you with full tax support. Unlike CPAs and EAs, bookkeepers can help you prepare for tax time by keeping track of your financial records. But they cannot prepare and file taxes for you.
A tax professional can help you with:
- Quarterly tax estimates
- To meet IRS requirements for S corporations, salary recommendations are provided
- Forms for business and individual income tax returns filed with the state and federal governments
- To minimize your tax bill and stay compliant throughout the year, you should plan your taxes throughout the year
Your bookkeeper likely won’t be able to help you with taxes if you hire a virtual bookkeeper year-round. There are some CPAs who offer bookkeeping services year-round, while others only offer tax preparation and planning services.
When you subscribe to a high enough level of online bookkeeping software, you will likely receive quarterly tax estimates and reports. Depending on your situation, you may be able to work one-on-one with a tax professional for a fee.
In addition to outsourced bookkeeping, Collective offers full tax support as part of its monthly fee.
Accounting
There is some level of accounting included in all bookkeeping services. Essentially, bookkeeping is just financial recordkeeping, which can be handled by any bookkeeper – or by bookkeeping software.
An accountant or bookkeeper keeps track of your business’ income and expenses. Having that information is important for reporting and for tax purposes. In addition to being important externally, it is also important internally. It helps you to keep costs in check, as well as determine how to price your products or services.
An accountant can handle much more complex accounting for larger businesses. Their expertise includes various types of accounting and standard accounting practices that are cross-industry compatible.
Small businesses with contractors or a few employees usually only require simple bookkeeping. If you want to file your taxes, you’ll probably only need the help of a CPA.
Invoicing
Your clients or customers may pay you through monthly invoicing depending on the type of business you run.
Probably you’ve already completed this task. But it’s a lot of work! Because invoicing is primarily data entry and tracking, you can get an assistant without bookkeeping or accounting expertise.
It might make sense to have your bookkeeper handle your invoicing since accounts receivable (money owed to your company) are integrated with the other financial tracking a bookkeeper does.
Payroll and bill payment
Paying employees and contractors can be time-consuming, especially when it comes to filing tax forms and paying payroll taxes.
Small and large businesses can benefit from services like Gusto that simplify payroll and taxes. What are the downsides? Payroll service does not include accounting.
However, it is available through Collective! In addition to all the accounting and tax services you need, you’ll enjoy a free Gusto subscription and unlimited automated payroll runs, W-2s and 1099s, as well as automated payroll taxes.
Online accounting software often offers upgrades for payroll services, but tax payments and tax form filing are usually not included.