Accounting 101 for Small Businesses

Do You Need a Bookkeeper or a CPA?

    If you’re like most small business owners, you started off wearing a lot of hats and performed your own bookkeeping. But, at a certain point, it makes sense to bring in a professional. An accounting professional can perform tasks more efficiently, meet compliance requirements, and convert accounting data into useful information. This allows you to refocus your time on growing and managing your business.

    Bookkeepers and CPAs both extend their services to small businesses that are ready to outsource their accounting. Although you could hire just one, it makes sense to use both to keep your accounting costs low and finances in order.

    Use a Bookkeeper for Basic Accounting Tasks

    Bookkeepers handle day-to-day accounting transactions and issues. Most bookkeepers are able to manage accounts receivable (sending out invoices and collecting payments), accounts payable (making payments for business expenses), monitor and report on available cash, perform bank reconciliations, and run payroll. More advanced bookkeepers, sometimes referred to as “full charge bookkeepers,” can also book routine journal entries, including month-end journal entries, and prepare internal-use financial statements.

    The term “bookkeeper” is not a protected title, so bookkeeper skill and experience varies. Some bookkeepers have no formal accounting education and have learned procedures on the job. Others may have an accounting degree or have completed a few bookkeeping courses. Many have a solid grasp of accounting principles and can keep your books in shape by themselves while others are limited to basic data entry.

    Call On a CPA for Complex Accounting Issues

    Although there are quite a few types of professional accounting designations, the CPA is arguably the most rigorous and difficult to obtain. To earn the CPA credential, an accountant must pass comprehensive exams on tax, regulation, financial reporting, audit, economic, ethics, and business topics. They also must have sufficient accounting education and work under another CPA for at least one or two years before obtaining the license.

    CPAs can identify the correct accounting treatment for complex issues, perform a review to help you obtain a business loan, file your business tax return, advise you on tax planning, and offer you strategic financial advice. But just because an accountant is a CPA doesn’t automatically mean he can handle any accounting job. If the CPA earned his stripes at a large accounting firm, it’s likely that he specialized in either tax or audit from the get-go. As a result, there are some CPAs who have never filed a tax return and others who have never worked an audit engagement. Carefully review a CPA’s experience and specialties before engaging his services.

    Divide Accounting Duties

    The amount that bookkeepers and CPAs charge for their services varies based on experience, industry specialization, and region. However, the Bureau of Labor Statistics reports that accountants earn about twice the annual salary that bookkeepers do. Figure that the hourly rate for the average CPA for will be at least twice what a bookkeeper charges.

    Since you’ll pay a premium for CPA services, it’s wise to confine their duties to high-level accounting issues. Your best bet is to find both a bookkeeper and a CPA with complementary skills that can work together. For example, you can hire a full-charge bookkeeper for basic accounting and month-end closing duties and only consult your CPA for ad-hoc accounting issues and tax returns. In this situation, it’s best that the CPA still review your books once a year or every six months to identify and correct potential accounting issues.

    Find the Right Fit

    CPAs and bookkeepers are accustomed to working hand in hand. If you already have a CPA, he can probably recommend a bookkeeper he’s worked with and vice versa. If your business is a little bigger (more than $1 million in revenue) but you’re not quite ready to hire in-house accounting staff, a bookkeeping or managerial accounting firm can be a good option. These firms staff a team of professional bookkeepers, accounting managers, controllers, and CFOs. By using this type of firm, your business can benefit from a cohesive team of accounting professionals without having to pay full-time salaries.

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    Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.