How does your business currently maintain financial records? Do you use online bookkeeping software to keep track of your finances and cashflow, and try to keep track of everything yourself, or do you employ or outsource your bookkeeping or accounting?
As your business grows and your financial transactions become more complex, it often makes sense to retain experts in bookkeeping or accounting services.
Whether you hire someone in-house or choose to outsource your bookkeeping and accounting needs, how do you decide whether you need a bookkeeper, an accountant, or both? More importantly, what’s the difference between the two?
While the two roles have many similarities and are often used interchangeably, the expertise and responsibilities of each are distinct.
The primary difference is that the bookkeeper handles the day-to-day finances, while the accountant focuses on your long-term financial information. Make no mistake, however, both are equally important when it comes to your small business’ finances.
We’ll explore the differences more closely, to help you determine what services your business needs to grow and stay healthy financially.
Bookkeeping vs. Accounting: What’s the Difference?
Bookkeepers and accountants share many skills and the two often work together. Often bookkeepers are skilled in providing accounting services that don’t require CPA certification. The key distinction between the two is that bookkeeping involves maintaining and organizing a company’s financial data, and tracking what comes in and goes out. Accounting is focused on the interpretation of that data, providing more strategic advice to help companies become more profitable.
In other words, a bookkeeper will handle your company’s day-to-day financial data, while an accountant will utilize the data the bookkeeper provides to focus more on the long-term goals of your business.
Many accountants start off providing bookkeeping as they work towards their credentials, but not all accounting services must be provided by accountants with certification or a specific degree like an MBA in accounting.
Bookkeepers don’t require the same specialized training as accountants, but should have incredible attention to detail and be mathematically proficient.
What Does a Bookkeeper Do That an Accountant Doesn’t?
A professional bookkeeper is responsible for recording financial transactions and documenting a business’ cash flow— including profit, business transactions, and expenses.
Bookkeepers use financial information such as payroll, business expenses, and incoming revenue to paint an accurate picture of the state of your business’s current finances. These reports will clearly outline whether your business is thriving, or if it is struggling.
Their attention to detail is vital to ensuring your business’s financial health is where it should be. Without balanced and accurate books, it can be difficult to determine the financial state of your business’s profit-to-cost ratio, and can severely impact your financial decisions down the line.
A bookkeeper’s primary duties can include:
- Data entry such as balancing your company’s books.
- Bank reconciliation— confirming your books’ accuracy compared to financial statements and other documents.
- Creating a financial report— usually monthly— that summarizes your company’s cash flow and financial status.
- Accounts receivable— creating and sending invoices so that your business receives the payments you are due.
- Creating good bookkeeping processes.
- Calculating and managing payroll for employees.
What Does an Accountant Do That a Bookkeeper Doesn’t?
An accounting professional will use the financial records prepared by the bookkeeper to project what your business’s financial health will look like in the long run.
An accountant will review documents like the monthly cash flow statement and the general ledger to predict essential financial projections, so your bookkeeper’s work must be as accurate as possible.
Both bookkeepers and accountants can be hired by your business directly, or either may be hired from a professional firm or they may work independently under contract for multiple clients.
An accountant’s main duties can include:
- Evaluating your company’s financial status, identifying any potential issues, and coming up with solutions to ensure that your business runs as smoothly as possible.
- Offering guidance and suggestions to help your business increase revenue while sensibly reducing costs.
- Ensuring that their client’s financial records comply with the law and any other local regulations.
- Helping you apply for business loans, and advising you on factors like interest rates or other conditions you need to be aware of.
- An accountant can prepare and file your company’s annual tax return and may understand the tax code more thoroughly. A CPA can also represent you with the Internal Revenue Service, provide opinions, and audit financial statements.
Do You Need Both a Bookkeeper and an Accountant?
Technically no, you don’t necessarily need both. If you want to make running your business easier, I highly recommend using the skills of both an accountant and a bookkeeper.
Hiring a specialized accountant will save you time and frustration when tax season arrives each year. Small business owners can absolutely benefit when hiring a CPA for their expertise in tax services and ability to analyze the financial conditions of a business.
Many small business owners may choose to do their own bookkeeping, especially if they have access to bookkeeping software like QuickBooks that can make keeping track of their books much easier by automating much of the process.
However, you may not be using your QuickBooks software to its fullest potential, and as a business owner with an already overwhelming number of responsibilities, hiring a bookkeeper can improve your business and lessen your workload.
Once you are able to determine if you need to hire an accountant or a bookkeeper, the next question you need to ask yourself is when.
When to Hire a Bookkeeper
If you are operating a small business, working as a freelancer, or just getting off the ground, you may be able to handle the bookkeeping aspect of your business yourself, assuming expenses and accounting are minimal.
However, keeping track of your books is still essential, no matter the size of your business. You should consider hiring a bookkeeper if any of the following applies to you:
- You’re not great with numbers
- You’re too busy with the rest of your business operations, and you’re falling behind in sending invoices or payments
- Balancing the books is a long, labor-intensive task that takes more than a few hours a month
If you struggle with any of these, it’s imperative that you hire a professional bookkeeper. Here are some additional signs you need a bookkeeper. Your finances and your workload will thank you in the long run!
If hiring an in-house bookkeeper is not within your budget, explore outsourced bookkeeping options or hire a consultant to train you and your team on how to best use bookkeeping software like QuickBooks Online and assist in setting up the bookkeeping process.
When to Hire an Accountant
Although many accountants are not tax preparers, most businesses regardless of size can benefit from an accounting expert preparing annual income taxes.
Beyond tax preparation, accounting experts can provide consulting that ultimately saves your business money. Even if you’re confident with numbers, an accountant’s expertise, understanding of the tax code, and guidance can be invaluable to your business’s growth and financial health.
When it comes to your small business, any time is the right time to hire an accountant. They can help you apply for business loans, ensure your business is primed for growth, and offer guidance to help you make the most of your finances and projections moving forward.
While hiring a full-time accountant can be costly for many businesses, hiring an accounting service can be a more cost-effective solution. An accounting service provides a network of specialists that can offer financial insights needed to move your business forward.
Looking for Financial Experts? Trust MISSION Accounting
Whether your business needs an accountant, a bookkeeper, or both, the goal is the same— trust their expertise with numbers and your finances so you can focus on the rest of your business operations. If you’re looking for a specialized team that can help your business thrive, trust MISSION Accounting.
Our expert team can provide accounting services and bookkeeping solutions for all your small business’s needs, from tracking inventory and preparing invoices to managing accounts and laying the groundwork to help your business make informed financial decisions.
Does your business need QuickBooks software? We can help there too.
When you purchase your preferred QuickBooks software from MISSION, we can help you install it, train your team to use it, and help you get the most out of your software.
Bernard Roesch, MISSION Accounting’s founder, is a Harvard MBA and a QuickBooks ProAdvisor. He has over 25 years of experience in advising his clients and helping them make smart and profitable business decisions. He and his team of QuickBooks experts can also help you choose the right QuickBooks version and help your business unleash the full power of QuickBooks to help your business and its finances thrive.
Contact MISSION Accounting today to schedule a complimentary consultation for your bookkeeping or accounting needs. We’re here to help you find solutions to all your business’s financial needs!