Do you ever feel as if your business finances are a black box that only your bookkeeper understands? Or perhaps your financial reports always arrive late, making it impossible to make timely decisions? Or maybe you don’t know how to read your financial reports and use them to predict the future of your business.

Each of these may be warning signs that your financial systems need an upgrade—and possibly that it’s time to either “train up” or part ways with your current bookkeeper. Let’s explore the warning signs that indicate your financial foundation may be crumbling beneath you and what you can do about it.

The Hidden Cost of Subpar Bookkeeping

Poor bookkeeping costs businesses far more than just accounting fees. When your financial systems aren’t functioning properly, you’re essentially flying blind. You make decisions based on incomplete or inaccurate information, potentially leading to cash flow problems, tax compliance issues, or missed growth opportunities.

Consider this: a recent study by Intuit found that only about 54% of small business owners say they had a good understanding about financial management before starting their business. This knowledge gap makes many business owners overly dependent on their bookkeepers without the ability to evaluate the quality of work being delivered. It’s like having someone build your house without knowing if they’re using the right materials or following building codes—until the structure starts to collapse.

Your financial systems form the foundation of your business intelligence. When these systems aren’t robust, you’re making critical decisions on shaky ground. Let’s look at some clear warning signs that your current bookkeeping situation isn’t serving your business properly.

Red Flags That Should Prompt Immediate Action

Financial systems don’t usually collapse overnight. Instead, they deteriorate gradually, with warning signs appearing along the way. Here are key indicators that should trigger immediate concern:

Consistently Late Financial Reports: Your monthly reports should be available within 15 days after month-end. If your bookkeeper regularly delivers reports weeks after the end of the month, you’re making decisions with outdated information. This delay might indicate your bookkeeper is overwhelmed, disorganized, or simply not prioritizing your business.

Unexplained Discrepancies: Do bank reconciliations show mysterious adjustments with no clear explanation? Are there consistent discrepancies between your financial reports and your actual bank balance? These issues suggest either incompetence or, worse, potential financial impropriety.

Lack of Proactive Communication: A good bookkeeper doesn’t just record transactions—they alert you to potential problems. If your bookkeeper never points out unusual expenses, potential cash flow issues, or tax-saving opportunities, they’re functioning as a data entry clerk rather than a valuable financial partner.

Tax Surprises: If you’re constantly surprised by your tax liabilities or missing deductions you should have qualified for, your bookkeeper isn’t properly planning or communicating throughout the year. Tax planning should be proactive, not reactive.

Inability to Answer Basic Questions: When you ask questions about your financials, your bookkeeper should provide clear, concise answers. If they become defensive, give confusing explanations, or can’t explain basic financial concepts in terms you understand, this is a major red flag.

Modern accounting has evolved dramatically with cloud-based solutions and automation. If your bookkeeper insists on manual processes or outdated software despite better alternatives, they might be holding your business back.

Any one of these warning signs might be manageable, but multiple red flags suggest it’s time to seriously reconsider your current bookkeeping relationship. The question becomes: how do you transition to better financial systems without creating chaos?

Building Stronger Financial Foundations

Upgrading your financial systems isn’t just about finding a new bookkeeper—it’s about creating robust processes that provide accurate, timely information for better decision-making. Here’s how to approach this transformation:

Define Your Needs: Before making any changes, get clear on what you need from your financial systems. Do you need better cash flow forecasting? More detailed expense categorization? Faster monthly closings? Understanding your specific requirements will help you find the right solution. 

Consider a Hybrid Approach: Modern financial management often combines human expertise with powerful software. Cloud-based accounting solutions like QuickBooks Online, Xero, or FreshBooks can automate many routine tasks while providing real-time financial insights. This automation allows your financial professional to focus on analysis and strategy rather than data entry.

Invest in Financial Education: As a business owner, you don’t need to become an accountant, but you should understand financial basics. Investing in your financial literacy will help you evaluate your bookkeeper’s performance and make better use of the information they provide. If need more financial education you can trust, let us know and we can point you toward the resources that have helped me the most – and even may be able to gift you some resources that we invested a lot to learn from. 

Create Documentation: Ensure all financial processes are documented. This documentation serves two purposes: it clarifies expectations for your current team and provides a roadmap for transition if you decide to make changes.

Consider a Higher-Level Professional: Sometimes the issue isn’t just your bookkeeper but the level of financial expertise your business now requires. As companies grow, many benefit from moving beyond basic bookkeeping to working with a controller or fractional CFO who can provide strategic financial guidance.

Meet with Your Advisor on a Monthly Basis for a Financial Review.  It’s important to stay on top of your finances on a consistent basis, and so you should have a standing meeting on your calendar with your bookkeeper or financial team. As a LIFTed Business Advisor, we can support you with this.

With these foundations in place, you’ll be better positioned to evaluate your current bookkeeping situation objectively and make necessary changes without disrupting your business operations.