Starting your own business
Accounting and bookkeeping: A guide for sole traders
MY FIRST YEAR
Bookkeeping vs accounting: which is right for your business?
The great advantage of using accounting software like QuickBooks is that it makes it easy to stay on top of your business finances. However, expert accounting help is still advisable for most businesses. Why?
To get peace of mind from someone who understands tax and accounting regulations inside-out.
To get expert advice on running your business better and to make it more profitable.
Running a successful business is about allocating resources efficiently and your time is gold. So, when is it a good time to ask for help and what kind of accounting support should you be looking for?
Bookkeeping vs accounting
While they may carry out some of the same functions, a bookkeeper is not the same as an accountant, so it’s helpful to know which one is right for your business.
What is a bookkeeper?
As the name implies, a bookkeeper is someone who keeps the books. They are good at managing day-to-day paperwork, such as creating and sending out client invoices, managing supplier bills and receipts, and getting them into the computer system. Many can also help with VAT returns and payroll.
In the UK, bookkeepers can get professional qualifications by passing rigorous exams. If your bookkeeper will be handling most aspects of your accounts, including VAT and payroll, you would be advised to use one who holds one of these recognised certifications:
What is an accountant?
An accountant might do some bookkeeping, but given their higher rates this isn’t the best use of their time. Accountants typically take over when the bookkeeper has entered all the transactions, and they prepare monthly management accounts or year-end statutory accounts for a limited company. They also advise on tax and VAT and should be able to offer more practical business advice too.
In the UK, anyone can call themselves an accountant but there are recognised accounting qualifications to look out for:
ACA or FCA: member or fellow of the Institute of Chartered Accountants in England & Wales (ICAEW). Only members of this institute can call themselves Chartered Accountants. There is also a Scottish and Irish Institute.
CIMA: members of the Chartered Institute of Management Accountants typically train in industry and can call themselves Chartered Management Accountants.
ACCA: members of the Association of Chartered Certified Accountants typically train in industry.
Part qualified or P/Q: accountancy exams are very tough and not everyone passes them. As a result, you can find a part qualified professional who has great experience and knowledge but who can’t charge as much.
When do I need a bookkeeper or an accountant?
As a rule, you should ask for professional accounting help as soon as you wonder if you need help. Depending on the size and nature of your business, you might use an accountant or bookkeeper on an ongoing basis or just at specific moments.
Starting up. You should talk to an accountant who can help you get off to a good start and advise on issues such as accounting software and VAT. Most will offer a free initial consultation. An accountant can also advise on the best business structure, based on their knowledge of tax breaks and more.
Getting a business health check. You can benefit from simply having a regular chat with a bookkeeper or accountant to go over your finances and processes, and to pinpoint any opportunities or risks facing your business.
Doing your tax return. If you are a sole trader, you can do your own tax return but it is usually worth consulting an accountant anyway. They can check your return and verify you are claiming expenses correctly. Even if you manage your money using QuickBooks, it’s worth having your tax return checked and approved by an accounting expert.
If you have a more complicated business structure, such as a limited company, it’s rarely advisable to do your own tax return, given the detailed knowledge required.
Getting organised. If you have trouble staying organised, consider hiring a bookkeeper to help you keep on top of paperwork. However, although it’s OK to delegate some responsibility for your financial affairs, you need to make sure you still have a good overview of your business’s finances at all times.
With tools such as QuickBooks, you can collaborate more easily with your accountant and bookkeeper and can log in anytime, anywhere to update your books or get an overview of your business. There is even a QuickBooks Online Mobile app that allows you to stay connected from your mobile devices.
Freeing up your time. If your business is growing fast or you need to focus on sales and customer service, using a bookkeeper can free up much-needed time. A bookkeeper can also help chase payments from clients in a professional way, making your business look bigger and more established.
Doing your VAT registration. Reaching the VAT threshold is a key milestone for a business - you need to check with an accountant that you are managing VAT correctly to avoid costly errors. You would also be advised to get accounting software like QuickBooks to save time doing your VAT return.
Taking on your first employee. This is another big milestone. Talk to an accountant to make sure you have got the right legal documents in place, such as a contract and insurance. Also, you will need to administer Real Time PAYE and NI. Software such as QuickBooks Payroll allows you to do this yourself, or you might want to use a bookkeeper or specialist payroll service provider.
Auditing your business. When your business reaches a certain size, it needs an audit to reassure creditors and shareholders that the management is in control. To do an audit an accountant must be qualified and also a Registered Auditor.
When do you need your own accounts department?
If your bookkeeper is working for you three or more days per week, it might be time to think about creating an internal accounts department. An internal bookkeeper is known as an accounts assistant. When you have two or three of them, you might hire a management accountant (qualified or part-qualified) to supervise them.
As your business grows more, the next step would be a qualified financial controller and then your own finance director or chief financial officer!
Did you find this article about bookkeeping vs accounting useful? The QuickBooks Blog covers many more topics. It’s all part of the support we offer to small businesses in the UK.
Share:
