As a small business owner, you need your financial data to be current and accurate so you can make good business decisions and ensure you have a healthy cash flow. But as your business grows and you take on more customers, vendors, and employees, keeping track of how much money you have coming in and going out of your business gets complex – and time-consuming.
When the accounting tasks for your small business are too much to handle by yourself, it's time to hire help. But do you need an accountant or a bookkeeper? The terms are sometimes used interchangeably, and there can be some overlap in what they do, but there are some distinct differences.
Here's what you need to know before placing that help wanted ad.
What do bookkeepers do?
A bookkeeper handles the day-to-day task of recording financial transactions, including purchases, receipts, sales and payments. Many small businesses use software such as QuickBooks or Xero to keep track of their entries, debits and credits. [Looking for accounting software? Check out our best picks.]
The experts from Accounting Coach assert that a bookkeeper's role can vary depending on the size of the business and its unique needs. For instance, at a very small company that does not have an accountant, a bookkeeper will have more extensive responsibilities. They will be responsible for processing payables, receivables, payroll, and related tasks that are more widely distributed in larger companies. At larger companies, according to Xero, bookkeepers are often expected to do data entry, bank reconciliation and monthly reports.
"Bookkeeping is designed to generate data about the activities of an organization," said D'Arcy Becker, chair and professor of accounting at the University of Wisconsin Whitewater Department of Accounting. "Accounting is designed to turn data into information."
According to EasyBooks, bookkeepers may be tasked with any of the following:
- Maintaining accurate records
- Handling the day-to-day management of accounts
- Ensuring that businesses stay in compliance with the laws
- Managing bank feeds
- Handling accounts payable
- Sending out invoices and managing accounts receivable
- Preparing financial statements
- Processing payroll
- Dealing with foreign currency transactions
- Performing stocktake
- Managing cash flow
- Preparing the books for the accountant
Benefits of hiring a bookkeeper for your business
DCA names these benefits of hiring an accountant:
- Error prevention: One of the top benefits of hiring a bookkeeper is that they often help you avoid errors. Even the most seasoned business owners are known to make errors when they are not properly trained in bookkeeping, such as entering data incorrectly, mixing up types of expenses and missing some entries.
- Analysis: Another major benefit of hiring a bookkeeper is that they are skilled in analyzing where a company stands on a financial level. This helps companies make well-informed financial decisions.
- More free time: Since bookkeeping can be highly tedious, hiring a bookkeeper frees up more time for you and your employees to spend on your primary duties.
Tips for hiring a bookkeeper
Fourlane provides some important tips for hiring a bookkeeper:
- Set a budget. Before you try to hire a bookkeeper for your company, you need to consider your budget. You may only be able to afford a bookkeeper who works part time or even just a few days a month.
- Look for tax experience. Even if you have a smaller company, you will definitely want to hire a bookkeeper with experience doing taxes for a business. Taxes can have a major impact on your income and even your ability to remain a functional business, and a bookkeeper who has tax experience can help you reduce your tax burden legally.
- Consider a virtual bookkeeper. While you may be more comfortable with a bookkeeper who physically visits your company, a bookkeeper who works remotely can be a cost-effective alternative.
- Look for software experience. Since the software a bookkeeper uses is essential to their ability to complete their jobs in a timely and effective fashion, you should always ask your candidates which types of software they are experienced in. If you already have software that you want them to use, you should ask if they have experience using that program or comparable ones. To protect your business, you need them to use software that gives you administrative access to everything in your books.
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What do accountants do?
The role of an accountant is to verify the data, analyze it, and use it to generate reports, perform audits, and prepare financial reporting records, like tax returns, income statements, and balance sheets. An accountant's analysis can provide information for forecasts, business trends and opportunities for growth. They can also advise you to restrict spending to manage cash flow.
"Accountants look at the big picture," wrote John Tracy in his book Accounting for Dummies (For Dummies, 5th edition, 2013). Tracy explains, "[They] step and back and say, 'We handle a lot of rebates, we handle a lot of coupons – how should we record these transactions? Do I record just the net amount of the sale or do I record the gross sale amount too?' Once the accountant decides how to handle these transactions, the bookkeeper carries them out."
If your accountant also does your bookkeeping, you may be paying more than you should for this service, wrote Bryce Warnes in a Bench blog post, as you pay more per hour for an accountant than a bookkeeper.
Note that there's also a difference between an accountant and a certified public accountant (CPA). Although both can prepare your tax returns, a CPA is more knowledgeable about tax codes and can represent you before the IRS if you're audited.
Hiring a financial professional
While many small businesses hire an accountant outside the company as a consultant, bookkeeping is more diverse. Some small business owners do their own bookkeeping on software their accountant recommends or uses, providing it to him or her on a weekly, monthly, or quarterly basis for action. Other small businesses are large enough to employ a bookkeeper or have a small accounting department with data entry clerks reporting to the bookkeeper.
Whether you hire an accountant, a bookkeeper, or both, it's important that the individuals are qualified by asking for client references, checking for certifications or running screening tests. Bookkeepers "may not always be certified and … the onus is more on experience," noted Angie Mohr in an Intuit blog post.
Not sure where to begin? Visit our guide to choosing a business accountant.
Sammi Caramela, Emily Schmitt and Marci Martin contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.