Your business’s financial records hold the key to your success. From filing accurate taxes to helping you make informed decisions, those records influence the direction of your business. Both bookkeepers and accountants share the same goal of helping small businesses with their financial functions, but they’re responsible for tasks in different stages of the accounting cycle. Understanding those differences helps you decide if you need a bookkeeper, an accountant, or both.

The Accounting Cycle

Before you decide whether or not to outsource your accounting work to a bookkeeper or accountant or do it yourself, it’s a good idea to know exactly what you’re getting into.

Even if you let someone else handle the numbers, you’re still responsible to supply your financial pro with the information they need to complete the work. Plus, it’s always a good idea to know what’s happening with your finances.

Think of the accounting cycle as the process that every financial transaction goes through. Every time you make a financial transaction, such as buying office supplies to stock up your supply closet, you record it in your journal. That’s just a list of all of your business’s financial transactions in chronological order.

Next, you post the transaction to a corresponding general ledger account. That happens for every single transaction you make throughout a given accounting period.

Your accounting period can be a month, a quarter, or a year. It all comes down to what works best for your business. Working with an accountant can help you hash out those details to make the accounting process work for you.

When you get to the end of your account period, you generate an unadjusted trial balance based on the recorded transactions to help you spot an error in the numbers in the entries. What do you do with those numbers?

You make adjustments to the journal entries to make sure all the numbers add up. That might include making corrections to numbers or handling accrued items, which are expenses or income that you incur but don’t yet pay for. That gets you to the adjusted trial balance where all the numbers add up.

Once the accounting data looks fine, you prepare the financial statements, including the balance sheet and the income statement. The last step of the accounting cycle is closing your books for the accounting period. That just means you reset the accounts to zero balances to get ready for the next accounting period.

If that all sounds confusing or time-consuming, you may want to look into hiring a bookkeeper or accountant. Comparing the difference helps you decide which one you need.

What Do Bookkeepers Do?

Think bookkeepers and accountants are the same thing? Even though they both have a hand in your finances, they usually have distinct duties. Bookkeepers handle the operational aspect of your finances. In other words, they get their hands dirty with the day-to-day numbers. You want a bookkeeper to jump into the financial process in the early stages of the accounting cycle.

How exactly do bookkeepers help with the operational side of things? They round up all of your accounting data by recording the day-to-day financial transactions in your journals and posting them to your general ledger. For example, when you receive a payment from a customer, the cash or cheque goes to your bookkeeper, who records the transaction in your journal.

When you receive monthly bank statements, the bookkeeper reconciles your company’s accounting records against the bank accounts to make sure they match. It might not sound like much, but think about all the individual transactions your business does on a regular basis. Doing it yourself can keep you from more important business tasks, so having a bookkeeper is a huge time-saver.

Many bookkeepers use accounting software such as QuickBooks Online to help them with their tasks.

Your bookkeeper can also handle things such as:

• Generating invoices for customers
• Collecting payments from customers
• Issuing payments to your suppliers
• Keeping track of your purchase orders
• Calculating asset depreciation
• Monitoring your cash flow
• Preparing financial statements
• Handling year-end tax preparation
• Budgeting
• Establishing or recommending accounting procedures
• Managing accounts payables and receivables

When you first start your business, you might take on the bookkeeping yourself. It’s fairly simple in the beginning, and it saves you money over hiring out the work. Plus, it helps you have a handle on your finances so you know what’s happening.

But as your business grows, you may start feeling the pull of marketing, sales and operational needs that take up more of your time. And that can mean the accounting functions sometimes get pushed to the side. In a growing business, if you let too much time pass between keeping the books, you lose track of your cash flow and can run into problems. That’s when hiring a bookkeeper can come in handy.

What Do Accountants Do?

Here’s where things start to separate. While your bookkeeper deals with the operational side, your accountant handles the analytical aspect of your finances. You might use an accountant early in your business to get the financial systems in place. The accountant also comes into the process in the later stages of the accounting cycle.

What does that look like in real life? The main role of an accountant is to make sense of all the accounting data you collect. That info helps your accountant produce financial reports that allow you to make better business decisions.

For example, your accountant might help you forecast your business’s cash flow, analyze its financial health, and spot business trends that can increase your revenue.

If you have high revenue but low profit, your accountant can look at the accounting data to figure out what’s happening. They might spot costs that eat into your profits, which you can cut to improve your cash flow. You can also look to your accountant for small business tax-related advice. They can help you maximize your tax credits and deductions so you can keep more of your business income. And they make sure your business follows all tax regulations to keep you from facing issues. At tax time, accountants file taxes for your business.

Signs It’s Time to Hire an Accountant or Bookkeeper

Wondering if you really need a bookkeeper and accountant? Not every small business needs a financial pro, but many growing businesses find it’s a good investment to have that expertise in managing finances. It all comes down to deciding if the return you get from having a bookkeeper is worth the investment.

As a business owner, you wear a lot of hats. And you may tend to focus on things such as sales, marketing, and customer retention, since those are the things that bring in more money. Financial tasks such as tracking expenses and balancing books can pull you away from other revenue-generating activities, which can affect your bottom line.

If you have doubts about whether to hire someone to help with accounting tasks, look for the telltale signs that it’s time to take that step.

Where Are Your Priorities?

Your business is a result of your vision. Undoubtedly, there are things you do really well, but it’s difficult to manage every aspect of your business yourself. By trying to be everything to everybody, you may see certain aspects of your business suffer. You might notice sales are flat from one year to the next. Is it the market, or are you spreading yourself too thin?

It’s probably a good idea to get more involved with generating revenue and spend less effort on internal nuts and bolts to help boost those sales. Even a part-time bookkeeper may help make that move possible.

Delegate Ordinary Tasks

You’re constantly on the move, travelling, visiting clients and prospects, and entertaining when possible. Throw in other primary responsibilities, and you wonder where the time goes. You might also wonder how much time is left to manage the amount of tax-deductible expenses you accumulate.

As the end of the quarter approaches, you’re left with a mountain of paper and digital receipts, all of which need to be tracked to offset business income. If you feel like you don’t have the time to put toward the books or your time is better spent in other areas, it may be a sign it’s time to hire an accountant or bookkeeper.

Accounting Errors

Make managing the financial side of your business easier. Instead of wading through piles of paper, software such as QuickBooks requires nothing more than a computer and internet connection to manage your company’s accounting functions easily.

Even with those advancements, the last things you may want to tackle at the end of a long week are journal entries. You might rush through the entries, doing it once and doing it inaccurately. Without a second set of eyes on your work or someone to focus solely on accounting, errors can lead to lost revenues and higher tax bills.

Customer Concerns

Customers are the lifeblood of your business, and acquiring new ones is costlier than retaining the ones you have. While a customer generally tolerates an occasional error on an invoice, repeated mistakes can affect those customer relationships. When minor complaints turn into major losses in revenue, it may be time to open your books to a specialist.

Tips for Hiring an Accountant or Bookkeeper

When you hire an accountant or bookkeeper for your small business, you can focus on your business while a pro handles the numbers. Choosing the right financial pro for the job requires research and an understanding of what you need.

You may only need bookkeeping services, or you may need a full range of services. Accountants may specialize in just a few areas, so make sure the person you choose can handle everything you need. It’s much easier to use one service for everything.

• Ask for referrals from entrepreneurs with similar businesses. Your attorney, bank loan officer, or other providers may have recommendations. Investigate the recommendations to ensure the accountants offer the services you need, and check on their qualifications and certifications. Asking for referrals from real clients gives you an idea of the quality of an accountant’s work.
• Prepare questions you want to ask the accountant before meeting to ensure the partnership is a good fit. Ask if the person you meet is the person who actually handles the accounting work, as some firms have other people do the work. Ask about licensing, experience, and qualifications. Look for an accounting firm with experience in your industry. Inquire about specializations, the size of businesses the accountant typically handles, and availability.
• Consider the cost. Investing in a quality accountant can help you grow your startup, but you also need to keep your budget in balance. You can expect to pay an hourly rate for the services.
• Recognize the importance of a good personality fit. You don’t have to find someone who's just like you, but you want an accountant who respects you and makes you feel comfortable. You don’t want tension between you and the person handling your finances.

Once you decide it’s time for an accountant or bookkeeper, take your time to find the best option for you. Investigating potential accountants thoroughly before hiring ensures you get the financial services that fit your needs. The right hire frees up your time to focus on your business.

QuickBooks can help run your business more efficiently, whether you do the books yourself or work with an accountant and bookkeeper. Keep your books accurate and up to date automatically. Change the way you manage your finances now.