As a small business owner, you wear many hats. And while most business owners have a variety of skills and knowledge, it’s important to know when your business needs professional help, especially when it comes to business finance. But what kind of professional financial help? Accountant or bookkeeper? And why not just use a software program instead of either?
According to a report from the Chamber of Commerce, just one-third of small businesses use a professional accountant. Yet 82% use “accounting software,” a phrase that covers a broad range of accounting and bookkeeping activities.
The truth is, accounting and bookkeeping have many similarities. Both involve working with financial information. Accountants and bookkeepers both need knowledge and skills in at least the basic accounting principles. The fields of accounting and of bookkeeping both involve classifying financial transactions. And they both involve producing financial statements. Yet they’re different.
Generally, bookkeepers keep records of financial transactions. And accountants analyze these financial transactions and make recommendations.
Before you decide whether to call an accountant or bookkeeper, you’ll need to learn what each does and how they could help your business.
What an Accountant Does for a Small Business
Accountants are accredited professionals in the field of accounting. Accounting includes analyzing and reporting on financial transactions and statements related to business, as well as business taxation and law.
Professional accountants must follow the ethical standards and guiding principals of the professional organization they’re associated with, such as the International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principals (GAAP).
Some accountants specialize in certain areas. These include taxation and auditing.
In the United States, the most common professional accounting designations include Certified Internal Auditor (CIA), Certified Management Accountant (CMA), and Certified Public Accountant (CPA). Only the CPA needs a license to practice.
Advice on Legal Structure for New Businesses
As you launch a new business, talking to an accountant early on can help you save time, money, and hassle down the road. A knowledgeable accountant might work with your legal advisor to help you decide on the best legal structure for your business. They’ll suggest and arrange shares and stock allocations for your business. They might also advise on the financial details to include in your business plan when you’re looking for business financing.
Ongoing Strategic Financial Advice
An accountant can give you strategic ongoing financial advice as your business grows. She might study your financial statements to identify cost-cutting opportunities in operations. Or he might suggest ways to improve cash flow or build an emergency fund for your business.
Annual Financial Statement Preparation
Accountants also prepare annual financial statements. These include balance sheets, statements of retained earnings, income statements, and cash flow statements based on your financial transactions and records from the year. These financial statements get generated from the information in your “books”. Your books include your general ledger and records.
Accountants prepare and file the necessary legal and/or compliance documentation required for your business.
Small Business Tax Advice, Prep & Filing
Navigating small business taxation can seem like a full-time occupation, especially if you haven’t started working with an accountant or bookkeeper yet. Tax laws are complex and ever-changing.
It’s time-consuming to keep up with all the changes to the laws and how they could potentially impact your business. And if your business has grown from a sole proprietorship to a limited company or another structure, business taxes can become even more complex.
Accountants Offer Current Tax Law Knowledge
Finding a good accountant for tax consulting, preparation and filing could potentially save your business both time and money. He or she should have current knowledge of the latest tax laws.
And when you work with an accountant regularly, they can let you know about recent and upcoming tax law changes that might impact your business. They prepare and file your business (and in many cases, personal) tax returns.
If you get audited, an accountant can also help you communicate with the IRS, however only if they’re a CPA.
What a Bookkeeper Does for a Small Business
According to the Bureau of Labor Statistics (BLS), bookkeepers, often take responsibility for some or all of a business’s accounts, known as the general ledger. Basically, they take care of the day-to-day financial transactions and recordkeeping for your business either in a paper-based general ledger, or more often, using accounting software.
Bookkeepers record the money flowing into and out of your business, and post the debits (costs) and the credits (income).
A bookkeeper’s responsibilities include:
- Entering, classifying and paying the business’ bills
- Issuing, sending, and following up for business invoices
- Reconciling bank and credit card statements monthly
- Organizing and maintaining Accounts Payable supplier/vendor files
- Organizing and maintaining Accounts Receivables clients files
- Preparing bank deposits
- Verifying receipts
Some tasks can be performed by an accountant or bookkeeper. For example, your bookkeeper may also generate financial statements or other reports as requested by you or your accountant. Other responsibilities might include payroll and purchasing. Bookkeepers don’t usually analyze your financial reports for you.
Bookkeeping Tasks Your Business Needs To Do
While not all businesses need the services of an accountant, every business – even those run by solopreneurs, need to complete certain bookkeeping tasks. Accurate financial record-keeping is important for a few reasons. Spotting patterns and trends in your cash flow, complying with small business regulations, tracking daily transactions, and preparing your books for tax time are all key bookkeeping activities.
Full-time, Part-time, Virtual Bookkeeping Options
Does your business really need a full-time bookkeeper? That depends on the size of your business and the bookkeeping requirements of your industry.
For example, law firms must meet specific record-keeping requirements and have specialized bookkeeping needs. One thing to keep in mind is the cost of a full-time, on-staff bookkeeper. According to the BLS, the average 2018 salary of a full-time bookkeeper was $40,240 per year.
Some bookkeepers may charge you an hourly rate to do your books. Others charge a set monthly fee for a package that includes services such as posting and bank and credit card reconciliation.
Bookkeeping and Accounting Software
With today’s technological advances, business owners have more options than ever before when it comes to choosing an accountant or bookkeeper. In addition to hiring a full-time, part-time, or contract bookkeeper, you can choose to use an accounting software program to take care of your monthly bookkeeping needs. Programs such as Quickbooks, Wave, Sage or Xero have become popular with business owners because they’re easy to use and not as expensive as hiring a “real life” bookkeeper.
These programs mean that you or one of your staff could fulfill the bookkeeping role quickly. They also blur the lines a bit when it comes to bookkeeping or accounting. Financial reports and statements get issued with a few keystrokes. And “balancing the books” now takes minutes instead of hours.
Some Accounting Firms Also Offer Bookkeeping
Some of the larger accounting firms also offer bookkeeping services. They have bookkeepers on staff who will take care of your business’ books each month. The benefit of this is convenience. Your books and your accounting work get done by the same firm, so the transition of monthly data and records to the reports and details needed at tax time is seamless.
Why It’s Important to Know Whether to Call an Accountant or Bookkeeper
Some of the responsibilities of an accountant or bookkeeper, such as payroll and generating financial reports overlap. So it can seem tricky to decide just who to call when you have a financial-related question or issue. However, making the wrong choice could potentially cost you – either in time or in cold hard cash.
For example, let’s say your bookkeeper gives you a correct but incomplete answer to a taxation question. This could lead you to make an incorrect tax payment. And that could lead to a tough situation – like owing more tax – at tax time. Calling your CPA would have been a better choice. He or she is a business taxation expert. They should be comfortable offering a detailed explanation in response to your business tax questions.
Or maybe you call your accountant because you can’t make sense of last month’s financial records. They patiently walk you through each transaction. And then send you a big bill for the time they spent talking you through it. Calling your bookkeeper would have been a cheaper option.
How Complex is Your Financial Question?
You don’t want to pay for what you don’t need, such as advice from an accountant when a short call to a bookkeeper will do.
One of the key things to consider in the accountant or bookkeeper question is complexity. Generally, if you have a legal or taxation question or situation to take care of contact an accountant. Yet day-to-day financial transactions and recording fall under bookkeeping. So if your question is more of a transactional nature, call your bookkeeper.
Not all business owners need an accountant to complete taxes and prepare financial statements. For example, if you operate as a sole proprietor you might find you can do it yourself. However, keep in mind that certain legal structures do in fact need an accountant to prepare financial statements. Also, lenders may need accountant-prepared financial statements as part of your credit application.
Whether you call on the services of an accountant or bookkeeper, or choose to use a software program, professional money management may make the difference between the financial success and failure of your business.