- Bookkeeping is a direct record of all purchases and sales your business conducts, while accounting is a subjective look at what that data means for your business.
- An accountant can be considered a bookkeeper, but a bookkeeper can’t be an accountant without proper certification.
- To determine whether you need a financial professional, you should assess your business’s current financial position and consider the type of monetary growth you’re seeking, then decide if you can manage that on your own.
- This article is for business owners deciding whether they need to hire an accountant or bookkeeper.
Staying on top of your finances is a key part of being a successful small business owner. Your financial data must be current and accurate so you have the tools you need to make sound business decisions and implement healthy cash flow strategies.
As your business grows to include more customers, vendors, and employees, keeping track of your finances on your own becomes more challenging.
When your small business’s bookkeeping and accounting tasks are too much to handle by yourself, it’s time to hire help. But do you need a bookkeeper or an accountant? The terms are sometimes used interchangeably, and there can be some overlap in what they do, but there are distinct differences.
Here’s what you need to know to decide which is best for you.
Bookkeeping vs. accounting
Bookkeeping is a transactional and administrative role that handles the day-to-day tasks of recording financial transactions, including purchases, receipts, sales and payments. Accounting is more subjective, providing business owners with financial insights based on information gleaned from their bookkeeping data.
“Bookkeeping is designed to generate data about the activities of an organization,” said D’Arcy Becker, chair and professor in the University of Wisconsin Whitewater Department of Accounting. “Accounting is designed to turn data into information.”
Key takeaway: Bookkeepers handle the day-to-day tasks of recording financial transactions, while accountants provide insight and analysis of that data and generate accounting reports.
What does a bookkeeper do?
Bookkeeping, in the traditional sense, has been around as long as there has been commerce – since around 2600 B.C. A bookkeeper’s job is to maintain complete records of all money that has come into and gone out of the business. Bookkeepers record daily transactions in a consistent, easy-to-read way. Their records enable accountants to do their jobs.
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These are some typical bookkeeping tasks:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Managing payroll
- Maintaining and balancing ledgers, accounts, and subsidiaries
One of a bookkeeper’s primary duties is maintaining a general ledger, which is a document that records the amounts from sales and expense receipts. Ledgers can vary in complexity from a sheet of paper to specialized bookkeeping software, such as QuickBooks and Xero, to track their entries, debits and credits. [Read our review of QuickBooks and our Xero review to learn more about these tools.]
Each sale and purchase your business conducts must be recorded in the ledger, and some items will need documentation. You can find more information on which transactions require supporting documents on the IRS website.
There are no formal educational requirements to become a bookkeeper, but they must be knowledgeable about financial topics and accounting terms and strive for accuracy. Generally, an accountant or owner oversees a bookkeeper’s work. A bookkeeper is not an accountant, nor should they be considered an accountant.
Key takeaway: Bookkeepers record financial transactions, post debits and credits, create invoices, manage payroll, and maintain and balance the books.
What credentials does a bookkeeper need?
Bookkeepers aren’t required to be certified to handle the books for their customers or employer, but licensing is available. Both the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB) offer accreditation and licensing to bookkeepers.
AIPB certification requires bookkeepers to have at least two years of full-time work experience and pass a national exam. To maintain the credential, bookkeepers are required to engage in continuing education.
The NACPB offers credentials to bookkeepers who pass tests for small business accounting, small business financial management, bookkeeping and payroll. It also offers a payroll certification, which requires additional education.
To earn the certified public bookkeeper license, bookkeepers must have 2,000 hours of work experience, pass an exam, and sign a code of conduct. They must take 24 hours of continuing education each year to maintain their license.
A bookkeeper with professional certification shows they are committed to the trade, possess the skills and expertise required, and are willing to continue learning new methods and techniques.
Key takeaway: Bookkeepers aren’t required to be licensed or have certifications, but accreditation and licensing are available from the AIPB and NACPB.
What does a bookkeeper charge?
The salary or rates you’ll pay a bookkeeper depend on your business and its bookkeeping needs. Three main factors affect your costs: the services you want, the expertise you need, and your local market.
- Services: The bookkeeping services your business needs and the amount of time it takes weekly or monthly to complete them affect how much it costs to hire a bookkeeper. If you need someone to come to the office once a month to reconcile the books, it will cost less than if you need to hire someone full-time to handle your day-to-day operations. Once you know what tasks you need the bookkeeper to do, estimate how long it will take to complete those tasks. Based on that calculation, decide if you need to hire someone full-time, part-time or on a project basis.
- Expertise: If you have complex books or are bringing in a lot of sales, hire a certified or licensed bookkeeper. An experienced bookkeeper can give you peace of mind and confidence that your finances are in good hands, but they will also cost you more.
- Local market: Your business’s location can also influence how much you pay for a bookkeeper. If you live in a high-wage state like New York, you’ll pay more for a bookkeeper than you would in South Dakota. According to the Bureau of Labor Statistics, the national average salary for bookkeepers in 2020 was $42,410, or $20.39 per hour.
Key takeaway: The rate a bookkeeper charges is based on various factors, including how much work you need done, the level of expertise you are seeking, and the state in which you do business.
Advantages of a bookkeeper
According to professional services agent Ageras, there are several advantages to hiring a bookkeeper to file and document your business’s financial records. Here are a few to consider.
- Organizational services: Bookkeepers can help you track and organize your financial documents and reports. If you later decide to hire an accountant, your bookkeeper will already have detailed, compiled records of your business to reference, potentially saving you money in accountant fees.
- Lower cost: Bookkeepers typically charge lower fees for their services than accountants. The specific amount varies based on the amount of filing and documentation you need.
- Direct assessments: While accountants provide detailed analyses, a bookkeeper can give you a straightforward look at your business’s financial standing. Accountants, on the other hand, can offer estimated or biased analysis.
What does an accountant do?
An accountant analyzes the financial data a bookkeeper records and provides business owners with important business insights and financial advice based on that information. These are some typical accountancy tasks:
- Verifying and analyzing data
- Generating reports, performing audits, and preparing financial reporting records like tax returns, income statements and balance sheets
- Providing information for forecasts, business trends and opportunities for growth
- Helping the business owner understand the impact of financial decisions
- Adjusting entries
“Accountants look at the big picture,” explains John A. Tracy in his book Accounting for Dummies. “[They] step 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.”
The accounting process produces reports that bring key aspects of your business’s finances together to give you a complete picture of where your finances stand, what they mean, what you can and should do about them, and where you can expect to take your business in the near future.
There is 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 if you get audited by the IRS.
Did you know? CPAs have passed the Uniform CPA Exam – a challenging exam that tests knowledge of tax laws and standard accounting practices.
Are bookkeepers accountants?
Accountants generally must have a degree in accounting or finance to earn the title. They may then pursue additional certifications, like the CPA. Accountants may also hold the position of bookkeeper.
However, if your accountant 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.
Key takeaway: Accountants verify and analyze data, generate reports, spot trends, and provide business owners with insights from their financials.
What credentials does an accountant need?
Accountants’ qualifications depend on their experience, licenses and certifications. To become an accountant, they must earn a bachelor’s degree from an accredited college or university.
There are several types of accounting certifications that accountants obtain to expand their skill sets and gain positions within larger organizations. In addition to CPA credentials, other common accounting designations are chartered financial analyst (CFA) and certified internal auditor (CIA).
A CPA is an accountant who has met their state’s requirements and passed the Uniform CPA Exam. They must also meet ongoing education requirements to maintain their accreditation.
When interviewing for a CPA, look for an accountant who understands tax law and accounting software and has good communication skills. They should understand your industry and the unique needs and requirements of small businesses.
Awarded by the CFA Institute, the CFA certification is one of the most respected designations in accounting. In this program, accountants learn about portfolio management, ethical financial practices, investment analysis and global markets. To complete the program, accountants must have four years of relevant work experience.
CFAs must also pass a challenging three-part exam that had a pass rate of only 39% in September 2021. The point here is that hiring a CFA means bringing highly advanced accounting knowledge to your business.
A CIA is an accountant who has been certified in conducting internal audits. To receive this certification, an accountant must pass the required exams and have two years of professional experience.
CPAs can perform some of the same services as CIAs. However, you might hire a CIA if you want a more specialized focus on financial risk assessment and security monitoring processes.
Key takeaway: Accountants can receive several types of credentials. Each certification or designation allows them to provide a specific set of services to businesses.
What does an accountant charge?
According to the U.S. Bureau of Labor Statistics, the median salary for an accountant in 2020 was $73,560 per year, or $35.37 per hour. However, their years of experience, your state and the complexity of your accounting needs affect the price.
Accountants will either quote a client a fixed price for a specific service or charge a general hourly rate. Basic services could cost as little as $20 an hour, while advanced services could be $100 or more an hour.
Advantages of an accountant
Hiring a small business accountant yields significant benefits. Here are some advantages to hiring an accountant over a bookkeeper.
- Analysis: An accountant can give you a comprehensive view of your business’s financial state, along with strategies and recommendations for making financial decisions. Bookkeepers, on the other hand, are only responsible for recording financial transactions.
- Expertise: Accountants are required to complete more schooling, certifications and work experience than bookkeepers. Accountants often bring much more valuable expertise to areas like taxes and investments.
- Legal assistance: Because of their certifications and expertise, accountants can compile financial evidence or information to help your business deal with any legal issues. Accountants’ experience with corporate taxes can also help businesses avoid trouble with the IRS.
Accounting software: An alternative to hiring an accountant or bookkeeper
Your business’s accounting needs might not require the in-depth expertise of a hired professional. You might also be watching your company’s list of expenses and wondering where to reduce spending. In either case, consider handling the accounting yourself or delegating this responsibility to one or a few of your current employees.
Accounting software allows you and your team to track and manage your business’s expense reports, invoices, inventory, and payroll accurately and efficiently. To choose accounting software, start by considering your budget and the extent of your business’s accounting needs.
Many accounting programs have free versions that cover basics such as tracking income or generating financial reports. Wave Financial, for example, offers most of its services for free and allows an unlimited number of users to collaborate on financial projects. [Read our Wave Financial review for more information.]
Other programs charge annual or monthly fees and offer advanced features such as recurring invoices or purchase orders. While these services come at a cost, they can maximize the accuracy and efficiency of vital financial management processes.
Tip: Check out our reviews of the best accounting software for small businesses so you can create invoices, record payments, collect receivables and run reports that help you manage your financial health.
When to hire a financial professional
It can be difficult to gauge the appropriate time to hire an accounting professional or bookkeeper – or to determine if you need one at all. While many small businesses hire an accountant as a consultant, you have several options for handling financial tasks.
For example, some small business owners do their own bookkeeping on software their accountant recommends or uses, providing it to the accountant on a weekly, monthly or quarterly basis for action. Other small businesses hire a bookkeeper or employ a small accounting department with data entry clerks reporting to the bookkeeper.
When looking for a certified bookkeeper, first decide if you want to hire an independent consultant, a firm or a full-time employee if your business is large enough. Ask for referrals from friends, colleagues or your local chamber of commerce, or search online social networks like LinkedIn for bookkeepers.
You can also look at the American Institute of Certified Public Accountants to find CPAs with skills in certain areas, such as employee benefits or personal finance.
It may take some background research to find a suitable bookkeeper because, unlike accountants, they are not required to hold a professional certification. A strong endorsement from a trusted colleague or years of experience are important factors when hiring a bookkeeper.
Still not sure if you need to hire someone to help with your books? Here are three instances that indicate it’s time to hire a financial professional:
- Your taxes are complex. If your taxes have become too complex to manage on your own, with multiple income streams, foreign investments, several deductions or other considerations, it’s time to hire an accountant. An accountant can save you hours and help you stay on top of important matters like payroll, tax deductions and tax filings.
- You’re spending too much time on accounting. If you’re spending so much time taking care of accounting tasks that you’re not able to work on growing your business or keeping existing customers happy, you’re doing your enterprise a disservice. You may make more money long-term if you leave the accounting to the experts and focus on your growth prospects.
- Your business is experiencing growth. Doing your accounting yourself may be fine when your business is small, but if your business is in growth mode, it may be time to bring in someone to help. You could start by contracting with a bookkeeper who balances the books once a month and a CPA who handles your taxes. Then, as your bookkeeping needs increase, bring someone on staff.
Whether you hire an accountant, a bookkeeper, or both, ensure they’re qualified by asking for client references, checking for certifications, or performing screening tests.
Shayna Waltower, Kiely Kuligowski and Lori Fairbanks contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.