Question of the day August 25, 2025
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Green Light/Red Light in choosing your bookkeeper
As a small business owner, your plate is already full. You're the CEO, the head of marketing, and the customer service manager all rolled into one. When it comes to your finances, you might feel like you have to be the bookkeeper, too—and that can be a daunting, stressful task. Finding the right bookkeeper is one of the best decisions you can make for your business, but how do you know who to trust? The truth is, not all bookkeepers are created equal. It's crucial to know what to look for and, more importantly, what to avoid. To help you make a confident, informed choice, we've put together a guide on the five most common red lights to watch out for and the five essential green lights that signal a true professional.
Red Lights to make you “Freeze!” and think not for me:
#1 They Can't Explain the "Why"
A great bookkeeper doesn’t just record transactions; they understand the foundational principles behind them. A red light is a professional who can't clearly explain why certain entries are made or how a specific transaction will affect your financial statements. If they can’t explain the purpose behind the process, it's a sign they may not have a deep, practical understanding of bookkeeping.
#2 Lack of Specific Experience
If a potential bookkeeper has a vague resume and can’t name the specific software or accounting standards they are proficient in, that's a red light. While general knowledge is good, a true professional should be able to articulate their experience with tools like QuickBooks Online and demonstrate a clear understanding of your specific industry and its unique financial needs.
#3 Communication Is Unreliable
Your bookkeeper will be a key partner in your business. A red light is someone who is slow to respond, doesn't communicate clearly, or seems unwilling to answer your questions. Effective and timely communication is essential for a smooth working relationship and for ensuring your records are always up to date.
#4 No Clear Process or Workflow
A professional bookkeeper will have a clear, documented process for how they handle your finances, from receiving documents to sending you reports. A red light is a bookkeeper who can't explain their workflow or who seems disorganized. This can lead to missed deadlines, inaccurate reporting, and unnecessary stress for you..
#5 Unrealistic Pricing or Guarantees
Be wary of bookkeepers who offer prices that seem too good to be true or who make unrealistic guarantees about saving you money. While a good bookkeeper will certainly save you money in the long run, a red light is someone who promises to cut corners or offers flat, rock-bottom rates without fully understanding the scope of your business.
Green Lights to make you say “Let’s GO!”:
#1 They Know How to Execute Principles for Your Benefit
This is the hallmark of a true professional. A top-tier bookkeeper doesn't just know the basics; they know how to apply those principles to your business in a way that creates tangible, positive results. They can explain how consistent bookkeeping will give you a clear view of your business's health, help you make better spending decisions, and ultimately save you time and money. They should be able to connect the dots between their work and your financial success.
#2 Clear Expertise and Certification
A bookkeeper who can point to specific certifications, like a QuickBooks ProAdvisor, or who has verifiable experience in your industry is a definite green light. This demonstrates a commitment to their craft and a proven track record of helping businesses like yours succeed.
#3 Proactive and Consistent Communication
A great bookkeeper will be proactive, not reactive. A green light is a professional who sets a regular communication schedule, provides timely updates, and is always available to answer your questions clearly and concisely. They are a partner in your business, not just a service provider.
#4 A Well-Defined, Transparent Process
A green light is a bookkeeper who has a clear, systematic process in place. They can walk you through how they'll handle your data, their reporting schedule, and how they ensure accuracy. This transparency builds trust and gives you confidence that your finances are in organized, capable hands.
#5 A Focus on Value, Not Just Price
A good bookkeeper's value is in their ability to save you time and help you grow your business, which is worth far more than their fee. A green light is a professional who discusses their value and how their services can benefit your long-term goals, rather than just competing on the lowest price.
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Choosing a bookkeeper is one of the most important decisions you'll make for the financial health of your business. By looking for the green lights and steering clear of the red lights, you can find a professional partner who not only handles your books but also helps your business thrive. Ready to see how a professional bookkeeper can make a difference?
At Jetty Waves Bookkeeping, we embody all the green light qualities you've just read about. We're committed to providing clear communication, transparent processes, and the expertise you need to truly understand and grow your business.
What's Your Business Worth?
The Balance Sheet: Your Financial Snapshot
So, you’ve learned about the Profit & Loss (P&L) Statement, which tells you what your business earned over time. Now, it’s time to look at the Balance Sheet. Think of your P&L as a movie showing your business’s performance, while the Balance Sheet is a single, clear snapshot of your business on one specific day. It tells you exactly what your business owns versus what it owes, giving you a crystal-clear picture of its financial health.
The Balance Sheet is built on one simple equation:
Assets = Liabilities + Equity
If your books are in order, the numbers on both sides of this equation will always be in perfect balance!
Why Your Balance Sheet Matters
It’s a Snapshot in Time: It’s the ultimate financial report card for a single day, showing you exactly where you stand.
It Shows Solvency: A healthy Balance Sheet shows lenders or investors that your business is stable and well-managed.
It Reveals Growth: By comparing Balance Sheets over time, you can see how your assets, liabilities, and equity are changing and how your business is growing.
Balance Sheet Glossary: Key Terms
Assets: This is everything your business owns. It can be everything from cash in the bank to a new computer, or even the building your business is in.
Current Assets: Cash and anything you could convert to cash within a year (like money owed to you by customers).
Non-Current Assets: Things that are harder to convert to cash and will be used for over a year (like equipment or a vehicle).
Liabilities: This is everything your business owes to others.
Current Liabilities: Debts you must pay off within one year (like your monthly rent or a credit card bill).
Non-Current Liabilities: Debts you'll pay off over a longer period (like a business loan).
Equity: This is the portion of the business that belongs to the owner. It’s what's left over when you subtract all liabilities from all assets. It’s essentially your investment in the business plus any accumulated profits.
The Balance Sheet might seem intimidating, but once you understand it, it becomes one of your most valuable business tools. A professional bookkeeper can make sure your Balance Sheet is always accurate, giving you the confidence and clarity you need to run your business effectively.
Demystifying Your P&L
Think of your business’s financial reports as its "report card." And the most important one is the Profit & Loss (P&L) Statement. So, what is it? A P&L statement (also called an Income Statement) is a financial report that shows you a simple but powerful thing: did your business make a profit or a loss during a specific period of time? It summarizes your total income and total expenses to give you the ultimate bottom line.
Why is your P&L so important?
It’s Your Report Card: It tells you if you’re actually making money.
It Helps You Make Decisions: See an expense that’s too high? A revenue stream that's not performing well? Your P&L helps you find areas to improve.
It’s Required: It's one of the key financial documents that banks or lenders will want to see if you ever apply for a loan.
The P&L Glossary: Simple Terms, Big Meaning
To help you understand your P&L, here's a quick glossary of the most important terms you'll see.
Revenue (or Sales): This is the "top line" of your P&L. It's the total amount of money your business earned from selling your products or services.
Cost of Goods Sold (COGS): These are the direct costs of creating the products or services you sold. For example, if you sell handmade goods, this would include the cost of materials and labor. For a service-based business, it might be the cost of a subcontractor or other direct costs.
Gross Profit: This is the money you have left over after subtracting your COGS from your Revenue. It shows how profitable your core business operations are before all the other expenses.
Operating Expenses: These are the day-to-day costs of running your business that are not directly tied to a product or service you sell. Think of things like rent, utilities, marketing, and office supplies.
Net Income (or Net Profit): This is the "bottom line." It's the final amount of money your business has left after subtracting all of your expenses from your revenue. If this number is positive, you have a profit! If it's negative, you have a loss.
Understanding your P&L is the key to a healthy business. If you’re ready to get a crystal-clear picture of your finances and feel confident about your business’s future, let’s chat. A professional bookkeeper can not only prepare these statements for you but also help you understand what they mean so you can make smarter decisions.
Double-entry bookkeeping: Keeping the balance
The accounting equation is the fundamental principle of double-entry bookkeeping: Assets = Liabilities + Owner's Equity. Every single business transaction affects at least two accounts and must always keep this equation in balance. Here are common business scenarios and how to record them using the accounting equation.
1. Owner's Investment
Scenario: The owner invests $10,000 of personal cash into the business.
Analysis: The business receives cash, which is an Asset. The owner's claim on the business increases, which is Owner's Equity.
Recording: Increase Cash (Asset) by $10,000. Increase Owner's Capital (Equity) by $10,000.
Equation: Assets ($10,000) = Liabilities ($0) + Owner's Equity ($10,000). The equation remains in balance.
2. Purchase of Equipment with Cash
Scenario: The business buys a computer for $1,500 cash.
Analysis: The business exchanges one asset (Cash) for another asset (Equipment).
Recording: Increase Equipment (Asset) by $1,500. Decrease Cash (Asset) by $1,500.
Equation: Assets (+$1,500 - $1,500) = Liabilities ($0) + Owner's Equity ($0). Assets stay the same, keeping the equation balanced.
3. Purchase of Supplies on Credit
Scenario: The business buys $500 of office supplies on credit, to be paid later.
Analysis: The business receives a new Asset (Supplies) and incurs a new debt, which is a Liability (Accounts Payable).
Recording: Increase Supplies (Asset) by $500. Increase Accounts Payable (Liability) by $500.
Equation: Assets ($500) = Liabilities ($500) + Owner's Equity ($0). The equation remains in balance.
4. Paying Off a Liability
Scenario: The business pays $300 of the debt owed for the office supplies.
Analysis: The business pays out a portion of its Cash (Asset) to reduce its debt (Liability).
Recording: Decrease Accounts Payable (Liability) by $300. Decrease Cash (Asset) by $300.
Equation: Assets (-$300) = Liabilities (-$300) + Owner's Equity ($0). The equation remains in balance.
5. Services Rendered for Cash
Scenario: The business provides a service and receives $2,000 in cash.
Analysis: The business receives a new asset (Cash) and earns revenue, which increases Owner's Equity.
Recording: Increase Cash (Asset) by $2,000. Increase Service Revenue (Equity) by $2,000.
Equation: Assets ($2,000) = Liabilities ($0) + Owner's Equity ($2,000). The equation remains in balance.
6. Services Rendered on Account
Scenario: The business provides a service for $700 and invoices the client, who will pay later.
Analysis: The business earns revenue, which increases Owner's Equity. It gains a new asset in the form of a promise to pay (Accounts Receivable).
Recording: Increase Accounts Receivable (Asset) by $700. Increase Service Revenue (Equity) by $700.
Equation: Assets ($700) = Liabilities ($0) + Owner's Equity ($700). The equation remains in balance.
7. Collection of Accounts Receivable
Scenario: The client from the previous scenario pays the $700 owed.
Analysis: The business receives Cash (Asset), and the promise to pay (Accounts Receivable) is fulfilled and eliminated.
Recording: Increase Cash (Asset) by $700. Decrease Accounts Receivable (Asset) by $700.
Equation: Assets (+$700 - $700) = Liabilities ($0) + Owner's Equity ($0). Assets stay the same, keeping the equation balanced.
8. Paying a Business Expense
Scenario: The business pays a $200 utility bill with cash.
Analysis: The business pays out an asset (Cash) to cover an expense. Expenses decrease Owner's Equity.
Recording: Decrease Cash (Asset) by $200. Increase Utilities Expense (which decreases Equity) by $200.
Equation: Assets (-$200) = Liabilities ($0) + Owner's Equity (-$200). The equation remains in balance.
9. Owner's Withdrawal (Draw)
Scenario: The owner takes $500 cash from the business for personal use.
Analysis: The business's asset (Cash) decreases. The owner's claim on the business (Owner's Equity) also decreases.
Recording: Decrease Cash (Asset) by $500. Increase Owner's Draw (which decreases Equity) by $500.
Equation: Assets (-$500) = Liabilities ($0) + Owner's Equity (-$500). The equation remains in balance.
10. Purchase of Equipment with a Loan
Scenario: The business buys a new piece of equipment for $2,500 by taking out a loan.
Analysis: The business receives a new Asset (Equipment) but also incurs a new Liability (Loan Payable).
Recording: Increase Equipment (Asset) by $2,500. Increase Loan Payable (Liability) by $2,500.
Equation: Assets ($2,500) = Liabilities ($2,500) + Owner's Equity ($0). The equation remains in balance.
11. Purchase of Inventory
Scenario: A retail business buys $5,000 worth of clothing inventory on credit.
Analysis: The business receives a new Asset (Inventory). It also incurs a new debt, which is a Liability (Accounts Payable).
Recording: Increase Inventory (Asset) by $5,000. Increase Accounts Payable (Liability) by $5,000.
Equation: Assets ($5,000) = Liabilities ($5,000) + Owner's Equity ($0). The equation remains in balance.
12. Sale of Inventory
Scenario: The retail business sells all of the clothing inventory for $8,000 cash. The clothing originally cost the business $5,000.
Analysis: This transaction involves two parts that need to be recorded.
Revenue Recognition: The business receives cash and recognizes revenue. This increases Assets (Cash) and Owner's Equity (Revenue).
Cost of Goods Sold: The inventory leaves the business. The cost of that inventory becomes an expense. This decreases Assets (Inventory) and Owner's Equity (through the COGS expense).
Recording:
Increase Cash (Asset) by $8,000. Increase Revenue (Equity) by $8,000.
Increase Cost of Goods Sold (which decreases Equity) by $5,000. Decrease Inventory (Asset) by $5,000.
Equation:
Assets (+$8,000 - $5,000) = Liabilities ($0) + Owner's Equity (+$8,000 - $5,000).
The net change is +$3,000 on both sides of the equation, which is the business's gross profit from the sale. The equation remains in balance.
Navigating these common issues is part of the journey. If you have a bookkeeping challenge of your own or specific scenario that you need help with? Feel free to share your questions in the comments below! We will discover a solution and answer any other questions that develop.