Running a business is a time-consuming pursuit, and handing off the financial side of things to someone else can be a real life-saver. Hiring a bookkeeper or an accountant ensures that all the numbers add up, but how do you know which one is best? On the surface, they appear to be very similar, but there are some key differences that small-business owners need to be aware of.
What Does a Bookkeeper Do?
Bookkeepers are responsible for maintaining accurate records of a business’s day-to-day financial operations. The actual scope of the job may vary based on the size and type of business, but it typically includes things like recording sales transactions, documenting business expenses, processing payments, completing the payroll, and making sure that the books are balanced at the end of the month.
Keeping track of accounts payable and accounts receivable is another duty that normally falls to bookkeepers. On the accounts payable side, their job is to make sure that vendors are billing the correct amount and invoices are being paid in a timely manner. When it comes to receivables, they’re in charge of sending out invoices to customers, recording payments, and contacting clients who have bills outstanding. Other functions bookkeepers may carry out include handling petty cash accounts and creating basic financial statements.
The Role of an Accountant
Bookkeeping tends to focus on what’s happening with a business from a transactional perspective. Accounting generally takes a much broader view. While accountants are qualified to perform all the same tasks as a bookkeeper, what they actually do for small businesses is often quite different. This may include analyzing the books to look for discrepancies, analyzing sales trends, completing end-of-year financial statements, and handling your tax filing.
Accountants may prove to be an invaluable resource when you need advice about financial decisions that impact your long-term business strategy. For example, if you’re looking to expand, they can help you to identify areas for potential growth and develop accurate financial forecasts. If you’re applying for a business loan, they might assist you with getting all of the necessary documentation together.
In terms of tax preparation, an accountant’s job is to ensure that you’re in compliance with the tax laws and that your return is accurate and filed on time. They’ll look over your income and expenses to find which credits and deductions you qualify for and make sure that you have the appropriate records to support each claim. While the primary goal is to help you avoid an audit, an accountant can guide you through the process if your business becomes subject to closer scrutiny by the IRS.
Which One Do You Need?
Deciding whether to hire a bookkeeper or an accountant ultimately comes down to your short- and long-term needs. First consider where your business is in its life cycle. If you’re still in the startup phase, for example, an accountant can help you choose a business structure, pick an accounting method, and establish a record-keeping system. Once you get underway, you may decide that a bookkeeper is sufficient for managing basic financial information.
Finally, the size of your business also plays a part in determining which type of professional help is most appropriate. If you only have a few employees or your sales volume is still relatively modest, hiring a bookkeeper likely makes more sense, especially from a cost perspective. As your business grows and the complexity of your financial transactions increases, then it may become necessary to bring in accountant on a part-time basis to provide additional oversight.