Bookkeepers are in the business of accuracy. A simple mistake on their part can have dire consequences for an entire organization. While you promise to deliver accurate results for their clients all the time, having bookkeeping insurance serves as your protection against errors. After all, no one can really guarantee that they can provide 100% accurate reports, 100% of the time.
What Are the Bookkeeping Business Insurance You Should Avail?
Also called errors and omissions (E&O) insurance is your protection against:
Errors in Journal Entry: You are responsible for recording the daily financial activities of businesses. Data entry is one of the tasks that are prone to mistakes.
Negligence: When a client gets audited and fined by the IRS, they can sue you for negligence. If you have professional liability insurance, you can protect yourself against claims of negligence.
Also called Commercial General Liability (CGL), this insurance is your business’ protection from claims of bodily injury, damage to property, and associated medical costs.
Who Needs Professional Liability Insurance for Bookkeepers?
You may need this bookkeeping business insurance if:
It is a requirement from your clients.
In most cases, businesses who will contact you for your services have already had a bad experience with a previous bookkeeper. To protect themselves, they may ask if you have any form of insurance because they do not have an idea of how a professional liability really works. Also, they are indirectly trying to gauge your credibility as a professional. Having a bookkeeping business insurance is, in a way, something that can help set you apart from other bookkeepers.
Your professional organization requires it to maintain membership.
Some professional organizations, such as the Institute of Certified Bookkeepers (ICB), require their members to secure professional liability insurance.
You provide services that are prone to error and omission.
Lawsuits can happen at any time, primarily since bookkeepers deal with sensitive financial transactions. Should something go south, it is pretty standard for clients to look for someone else to blame, and bookkeepers are not immune to them.
Some of the reasons that may cause clients to file a case against you are:
- Sudden negative changes with your client’s financial status.
- Your client is the subject of an ongoing fraud investigation, and they want to sue someone else.
- A client is looking to recoup losses after filing for bankruptcy.
- Presence of errors in tax filings.
Best Practices for Managing a Bookkeeping Business
Managing a business comes with responsibilities, more so, if you have employees of your own. Since you are not the one who will carry out all the bookkeeping tasks, it is essential to keep in mind these best practices to prevent lawsuits from damaging your business. Here are some that you can apply to help you improve your bookkeeping processes:
- Prepare a written specification of what your responsibilities to the clients are.
- Pay attention to the business.operations of your clients, and notify if there are any irregularities.
- Record and document all your accomplishments in writing, including email and software permissions.
- Secure written approvals before carrying out any financial dealing on behalf of your client.
- Create a chart of accounts that can help you monitor all your bookkeeping information.
- Record and balance daily sales and cash receipts every day.
- Don’t forget to reconcile bank accounts.
- Attend conferences and stay updated about recent changes in tax laws and regulations.
For some certified bookkeepers, having a bookkeeping business insurance is a requirement to protect their name and their business. Even if you are a fastidious bookkeeper, you can still commit mistakes, which may be a simple miscalculation or the omission of data. These little mistakes can cause significant financial losses. Add to it the fact that the law constantly changes. Failure to stay abreast about the latest regulations can cause you to use outdated methods and computations, which can be detrimental to your client’s business. Incidents such as these can give your clients the reason to file a case against you.
Remember, lawsuits against bookkeepers are pretty common. Whether you are to blame or not, it is a must that you have protection. And as always the best way to prevent litigations is to always be prepared for the worst. Never fail to give your clients the best and honest service that you can.