Does Your Business Need an Accountant? A Bookkeeper? Or Both?
Imagine this: you're the owner of a fast-growing small business. You're juggling many hats—from sales and marketing to operations and HR.
As the business grows, invoice counts, payroll administration, and complex tax obligations become overwhelming, raising the question of whether you need a dedicated accountant or bookkeeper. Or perhaps they both have a significant role in optimising your business?
It can be hard to make a solid decision when faced with urgency and ambiguity.
In this article, we dive into the roles, responsibilities, and benefits of hiring an accountant and a bookkeeper. We also address the key question- when is the right time to hire, and how they can contribute to your business growth.
Let's get into it!
What is bookkeeping?
Bookkeeping is the practice of recording financial transactions to maintain a successful business.
It consists of recording transactions, posting debits and credits, producing invoices, preparing financial statements (balance sheet, cash flow statement, and income statement), and maintaining and balancing subsidiaries, general ledgers, and historical accounts.
Additionally, payroll must be completed. General ledgers, where bookkeepers record sales and expense receipts, are one of the core components. Ledgers can be created with specialty software, a computer spreadsheet, or a simple sheet of paper; complexity increases with business size and the frequency of transactions.
It's important to note that the IRS has guidelines for which business transactions require supporting documents.
What is accounting?
Accounting is an advanced process that uses financial info compiled by a bookkeeper or business owner to make financial models.
It is more opinion-based than bookkeeping, which focuses on transactions.
Accounting includes preparing and adjusting entries to record expenses not registered by bookkeeping, examining company financial statements, analyzing operational costs; fulfilling income tax returns, helping the business owner understand financial decisions' effect, and analyzing financial reports to help make business decisions.
Accounting takes data from the general ledger to highlight the business’s overall picture and direction.
Business owners may consult accountants for fiscal planning, assessing their financial status, forecasting, and tax filing.
Difference between a Bookkeeper and an Accountant
Bookkeeping focuses on recording financial transactions, while accounting uses bookkeeping data to provide a clearer picture of business finances. That’s where the difference lies.
What a bookkeeper does:
- Recording transactions
- Managing invoices and bill payments
- Tracking receivables and payables, and
- Compiling financial reports
What an accountant does:
- Preparing and making adjustments to entries
- Analyzing operational costs
- Advising business owners on financial matters
- Reviewing financials and making forecasts
- Auditing
- Filing taxes and giving strategies to reduce tax liabilities.
Bookkeepers and accountants may sometimes appear to do the same work, but they bring different skills to the table. While the bookkeeper's main focus is to keep track of transactions and ensure a smooth financial workflow, the accountants are more apt to offer advice, analysis, and insights on tax matters.
Credentials Required and Professional Organizations
Both accountants and bookkeepers come with their own credentials and may be members of professional organizations.
- Bookkeepers typically do not require formal education but must be precise and well-versed in financial matters. Accountants or business owners typically oversee their work, so bookkeepers cannot be called accountants.
- A bachelor's degree in accounting is usually required to qualify as an accountant. Those without this can often substitute for a finance degree. Furthermore, accountants can gain professional certifications, such as Certified Public Accountants (CPA). To earn a CPA title, an accountant must pass the Uniform Certified Public Accountant exam and have experience as an accountant. These credentials are a major factor in their cost.
This means accountants are generally more expensive to hire than bookkeepers. However, their insights can potentially help your business save money in the long run by identifying inefficiencies, providing strategic financial guidance, and ensuring compliance with taxation laws.
Also read: Bookkeeper vs Tax Preparer: Who Should You Hire First As A Startup Founder?
Making the decision: Bookkeeper or Accountant?
There is no right or wrong in deciding whether to hire a bookkeeper or an accountant for your growing business.
However, your choice largely depends on your business's needs, operational size, and financial complexity. Here's what you should consider:
Business phase and complexity
A skilled bookkeeper might be enough to handle your financial requirements if you run a small business or startup with a simple organizational structure. Hiring an accountant could be a game-changer as your business evolves and grows with more intricate transactions and financial decision-making.
Level of financial understanding
It's essential to gauge your understanding of financial management when hiring your first bookkeeper or accountant. If you're confident in managing numeric insights but need assistance in transaction record-keeping, a bookkeeper will suffice. Conversely, if you lack an understanding of finances or want in-depth analysis, an accountant may be a better fit.
Time involvement
Do you have sufficient time to handle and understand the Cathedral of information flowing at you regarding taxes, payrolls, and transactions? Analysis of your personal time commitments may dictate your hiring choice.
Affordability
With their advanced skills and professional qualifications, accountants tend to be more expensive than bookkeepers.
Such costs can sometimes be mitigated by their strategic financial advice, which can positively impact a business's financial health. Analyze your budget and evaluate whether the business can afford an accountant over a bookkeeper.
Income tax needs
Tax season can be stressful for any business, but significantly more if the company experiences considerable growth or complex transactions. Qualified accountants, especially Certified Public Accountants (CPAs), can be indispensable when filing tax returns, doing the paperwork, advising on possible deductions, and ensuring conformity with the current tax laws.
Use Inkle Books for your Business Accounting
Did you know 64.4% of small business owners make use of accounting software?
Upgrade your accounting with Inkle books and save on capital costs. Automation and software can provide greater control over cash flow.
Even without pricey invoice management software, you can still get payments from clients quickly by using templates regularly, sending invoices strategically, and monitoring accounts receivable for timely reminders.
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