No matter what kind of business you run, at some point you’ll need a finance professional to help ensure that your books are clean, up-to-date and easy to read. But while some companies are comfortable working with a bookkeeper, others seek accountants. And since these finance professionals provide very different yet complementary services, many firms understandably use the terms “accountant” and “bookkeeper” interchangeably.
To ensure that you have clarity about your business’ finances, it’s important that you have a clear accounting strategy in place. And depending on your finance and accounting know-how, you may need a bookkeeper or an accountant for your firm. Knowing exactly what accountants and bookkeepers can do for your company will allow you to hire more strategically or outsource wisely.
If you are running a small business, it may not make sense for you to hire a full-time bookkeeper and/or accountant. A full-time employee raises your overhead expenses and puts added financial strain on your business’ cash flow. According to Salary.com, the average hourly wage for a bookkeeper in the United States was $21 as of August 27, 2020, but the range typically falls between $18 and $24. This hourly rate can vary widely depending on such important factors as certifications, education, additional skills, total experience and so on. For a certified accountant, it’s even higher.
Advantages of Outsourcing
Apart from the obvious time- and cost-saving benefits that outsourcing these services can offer, here are the top three reasons why outsourcing your accounting and bookkeeping services makes sense.
- Access to Experts: Basic bookkeeping mistakes can have catastrophic consequences for your company, such as penalties, cash flow issues and even possible investigations by the Internal Revenue Service (IRS). Outsourced accounting and bookkeeping give you access to a team of highly qualified and trained professionals. In addition, the outsourced experts will use the latest technology and processes to ensure that your data is secure and accurate.
Bookkeeping and accounting also have an effect on factors such as the number of employees you need to hire, and identifying the most and least profitable product lines to your future expansion plans, because these experts provide a platform for improving cash flow, driving profits and growing your business.
- Flexibility and Scalability: Services provided by an accounting and bookkeeping services firm are tailored to your business’ needs. You get the flexibility to expand or scale back on the services, depending on how your business is growing.
- Fraud Prevention: The most common victims of fraud are small businesses that employ fewer than 100 employees, and the median fraud amounts to an astounding $147,000, according to the Association of Certified Fraud Examiner’s study from 2012. This is because most small businesses don’t have access to a controller or CPA who could spot abnormal activity in the transactional and billing data. By outsourcing accounting and bookkeeping services, you can have multiple people looking at all transactions and reports and ensuring increased internal controls.
So the question now is: Which financial professional service — bookkeeping or accounting — should you outsource? Let’s look at both the roles individually.
The Role of the Bookkeeper
In simple words, bookkeepers maintain complete records of all money that has come into and gone out of a company. They record daily transactions in an easy-to-read, consistent manner, and their records allow accountants to carry out their jobs properly. Some typical bookkeeping tasks include:
- Recording financial transactions
- Managing payroll
- Posting debits and credits
- Maintaining and balancing ledgers, accounts and subsidiaries
- Handling accounts payable and accounts receivable
- Producing invoices
Essentially, bookkeepers maintain a general ledger, which is a document that records the numbers from expense and sale receipts. This ledger tracks various entries, debits and credits, and can differ in complexity. It can be either in the form of a sheet of paper or specialized bookkeeping software such as QuickBooks.
The complexity of a bookkeeping system often depends on the size of the company as well as the number of transactions that are completed on a daily, weekly or monthly basis. While records of all income amounts and expenses made by a firm must be recorded in the ledger, there are some items that need proper supporting documentation, according to the IRS.
Lastly, even though one does not typically require any formal education to become a bookkeeper, they must be knowledgeable about the different financial terms and topics, and always aim for accuracy. Usually, a bookkeeper's work is overseen by an accountant. Remember, a bookkeeper is not an accountant, nor should they be asked to handle the responsibilities of an accountant.
The Role of the Accountant
On the other hand, accountants tend to look at the big picture. They analyze the financial data recorded by the bookkeeper, and provide companies with crucial financial advice and business insights based on that information. Some quintessential accounting tasks include:
- Verifying and analyzing data
- Generating reports, performing audits and preparing financial reporting records such as income statements, tax returns and balance sheets
- Providing information for business trends, forecasts and opportunities for growth
- Helping the business owner understand the impact of their financial decisions
- Adjusting entries
The accountant creates reports that bring key aspects of a business’ finances together to give business owners a complete picture of where their finances stand and what they mean, what they can and should do about them, and where they can expect to take their company in the near future.
It’s important to note here that an accountant is not necessarily the same as a certified public accountant (CPA). Even though both professionals can prepare tax returns, a CPA typically has more knowledge about tax codes and can represent your business before the IRS in case of an audit.
Typically, an accountant must have a degree in finance or in accounting in order to earn the title. They may then pursue additional certifications, such as the CPA. To become a CPA, an accountant must have experience as a professional accountant and should pass the Uniform Certified Public Accountant exam. While a bookkeeper cannot typically do what an accountant does, an accountant can hold the position of a bookkeeper.
Which Financial Professional Is Best for You?
As a rule, companies perform better when they have a complete picture of their finances, and bookkeepers and accountants look at a business’ numbers through different lenses. Engaging both a bookkeeper and an accountant ensures that you receive the best advice for your firm.
Knowing when the professional understanding of either a bookkeeper or an accountant is needed, either separately or together, will depend on the following factors:
- The type of business your organization is involved in
- The size of your company’s inventory
- The total number of employees in your company
- The variety of products and/or services your company offers
- The level of expertise that your company has
- Whether or not your company needs financial support
- The complexity of your company’s financials and operations
- The demands of the industry
Here are some signs that your startup or small business needs professional help in financial management:
- Consistent cash flow problems
- Not keeping adequate financial records
- Not performing bank reconciliations at the end of each month
- Not using accounting or balance sheets correctly
While a bookkeeper can fix most of these issues, you’ll need an accountant or a CPA to help you make strategic business decisions. Combining a professional bookkeeping service with an accountant ensures 360-degree advice and management.
As a small business owner, you don’t have to choose between a bookkeeper and an accountant; you can simply have both. Here are a few tips that can help you decide when you need either or both:
- When you are starting your business, it’s important that you consult an accountant in order to understand the financial workings and requirements of your business. One essential role an accountant plays is helping you choose an entity for your company.
- At the beginning, you can probably do your bookkeeping yourself, provided that your company is still new and small.
- It’s a good idea to always use the services of an accountant when you’re filing your business taxes. An accountant is essential in making sure that you’re doing it the right way and getting the most out of it (any refunds, etc.).
- For any business financial advice, always go to an accountant. This is because a bookkeeper typically only compiles the financial data; it is the accountant that makes sense of it and can help provide recommendations.
Many startups and small businesses can get by with a bookkeeper and need to only invest in an accountant during the tax season. A bookkeeper can provide all the data an accountant needs to process tax returns. But if you are seeking investor funding, an accountant can help you prepare your pitch deck financials. With accurate data, you can answer most due diligence queries that the potential investors may have, back up your growth projections with a handle on current finances and plan when to ask for more money based on cash flow.
That being said, for certain industries, employing the services of both a bookkeeper and an accountant is essential. While a bookkeeper can look over the daily transactions, an accountant is required when a business owner needs to make a decision with periodic financial reviews in mind.
Finally, the decision to use an accountant, a bookkeeper or both depends on a number of factors. While the two financial services complement each other, it’s mostly only larger companies with daily and complicated financials that are likely to need the regular (full-time) services of a bookkeeper, controller, auditor and a CPA.
However, startups and small businesses also need to have access to financial service providers, including accountants and bookkeepers, during their early growth stages. Proper plans and decisions can only be made when all the information is available, which is ultimately time- and cost-effective.
As a small- or medium-sized business owner, you may not always have the time to pore over financial statements when you can be focusing on growing your business. Hence, a full-service outsourcing accounting firm that has certified CPAs on board and will also take care of your bookkeeping needs can do just that for your small business.