In our last article The Hidden Cost of Messy Books—And How to Take Control of Your Business Finances, we discussed the importance of having good books to support the small business owner. Now, let’s walk through the key steps to hiring a qualified bookkeeper with confidence.
Ready to hire a bookkeeper? Avoid costly mistakes by knowing the key qualifications, red flags, and expert tips to find the best bookkeeper for your business.
As more and more people are looking for remote work, bookkeeping is being suggested as one of the top businesses anyone can run from home. However, bookkeeping requires education, training, and experience to be done right. A bad bookkeeper can create a financial mess—leading to inaccurate records, costly tax fixes, or late filings. Read on to learn how to hire a bookkeeper with confidence.
With the rise of bookkeeping as a remote side hustle, bootcamps now promise ‘an easy remote gig for anyone interested.’ However, the quality of these programs varies. Before hiring a bootcamp graduate, business owners should ask about their additional training or mentorship. This article will walk you through how to ensure you’re hiring a qualified bookkeeper.
Essential Bookkeeping Knowledge: What Every Business Owner Should Know
Bookkeepers should be familiar with the Generally Accepted Accounting Principles (GAAP) within the scope of their work. GAAP (or a similar framework) has guided bookkeepers, accountants, and CPAs since the aftermath of the Wall Street crash of 1929 (1). For a bookkeeper, this includes a general understanding of double-entry accounting and how financial transactions impact business reports. While these terms may not be familiar to you, a qualified bookkeeper should be able to explain them in a way that makes sense.
Debits and credits are the foundation of all bookkeeping. You may have seen these terms on your bank or credit card statements, but in business, they determine how transactions are recorded. A knowledgeable bookkeeper will know how to classify each transaction correctly to ensure your reports make sense.
The Income Statement shows your profit and loss over a period of time, typically over a year. It serves as the foundation of your business’s Schedule C or Form 1120 for income tax. The transactions that flow into the Income Statement must be accurate—otherwise, your tax reporting may be incorrect. But beyond tax compliance, an accurate Income Statement provides critical insights into your business’s financial health.
A skilled bookkeeper should not only ensure accuracy but also interpret the numbers. For instance, if your expenses are climbing but revenue isn’t, a great bookkeeper will flag the issue and help you identify areas to cut unnecessary costs or adjust spending patterns.
The Balance Sheet is a point in time view of the balance of your assets (what you have), liabilities (what you owe), and equity (the value of your business). Understanding the accounting equation (2) is crucial to make sure all the transactions support an accurate view of your business balance sheet.
Your bookkeeper needs to understand how to classify transactions and reconcile accounts to keep your books in tip-top shape. They also need to know how to record expenses such as depreciation. Unlike typical expenses, depreciation isn’t a cash transaction. This is manual adjustment that requires understanding of the value and life of an asset and the mechanism to record accurately.
How to Spot a Qualified Bookkeeper (And Avoid Costly Mistakes)
A friend recently reached out to me about becoming a bookkeeper. I mentioned the bootcamp route but suggested she start with an Accounting 101 class at her local community college. My classes provided me with a foundational knowledge of accounting that has stuck with me for decades. The in-depth study combined with the dreaded practice sets gave me a deep understanding, not just the ability to pass a test. I recently got a copy of my transcripts and found I had 23 quarter credit hours in accounting classes. That’s a lot of study and practice!
I hesitate to suggest that a bookkeeper must have college-level courses to be a good bookkeeper. What they must have is a strong foundation in bookkeeping that allows them to support clients in a variety of situations. So, while my preference would be for someone with at least 10 quarter credit hours, it’s more important to be able to evaluate the foundational knowledge and how they apply it to real world situations. Working with a seasoned bookkeeper, accountant, or CPA can provide hands-on experience, similar to an apprenticeship. Of course, all of this is dependent on their natural talent and abilities.
Red Flags to Watch Out For Before You Hire A Bookkeeper
Here are some things that may indicate your bookkeeper is not yet ready to support your business independently.
They are over-reliant on software. If they blindly follow software prompts without understanding why, that’s a red flag—it indicates a lack of foundational knowledge. Without that understanding, they won’t be well-equipped to support the unique needs of your business.
They provide reports but no insights or guidance. It’s great to have up to date Income Statements, Balance Sheets, and Cash Flow reports – but what do they say? The bookkeeper should be offering observations, insights, and recommendations. Perhaps your clients are not paying you. Your bookkeeper should be able to identify the trend of your accounts receivable going up more than revenue and offer suggestions to get paid. This could mean sending follow-up notices or investing in new billing tools that automate the process. Finally, they should be able to offer insight into when and how to write-off money due to you that is never going to come.
Your bookkeeper’s foundational knowledge should provide you with insights to potentially improve the profitability of your business.
Conclusion
Your bookkeeper should have the foundational knowledge and experience to do more than just record transactions—they should validate the results and provide insights to help you, the business owner, make informed decisions that improve profitability. Hiring a bookkeeper is an investment in your business’s financial health. Before you hire a bookkeeper, ask the right questions—and make sure they can go Beyond the numbers.
Have you ever worked with a bookkeeper? Share your experience in the comments.
Below are two questions you can ask to gauge foundational knowledge before you hire A bookkeeper
“If I give you a list of my business transactions, how would you sort them and make sure everything matches my bank statements?”
✅ What to listen for:
- They should ask about your industry and typical expenses (shows they customize their approach).
- They should mention double-entry accounting (debits and credits).
- Look for an answer that includes bank reconciliations and catching errors or duplicates.
🚩 Red Flags:
- They rely only on software without mentioning manual review.
- They struggle to explain their process clearly.
“How do you ensure my financial reports are accurate and useful for decision-making?”
✅ What to listen for:
- They should mention regular reviews of income statements and balance sheets.
- They should explain how they spot spending trends and potential financial issues.
- A good bookkeeper will discuss working with a CPA for tax strategy or compliance.
🚩 Red Flags:
- They focus only on data entry, not financial insight.
- They don’t mention spotting discrepancies or helping with budgeting decisions.
These questions will reveal whether they truly understand bookkeeping—or just push buttons in accounting software.
RELATED:
Learn the origins of GAAP accounting standards and why they matter https://www.investopedia.com/ask/answers/021315/when-and-why-were-gaap-first-established.asp
Understanding the Accounting Equation: The Foundation of Every Financial Statement https://www.investopedia.com/terms/a/accounting-equation.asp