Small Business Accounting: Do You Need a Bookkeeper or an Accountant?

If you asked most people, they wouldn‚Äôt know the difference between a¬†bookkeeper¬†and an accountant. In fact, many think they are one and the same because they are both accounting professionals. As a¬†business owner, not knowing the difference between the two, or not knowing which you need the services of, can be critical to staying in business.¬†Record keeping¬†for a¬†small business¬†is certainly important for preparing your company’s¬†tax returns. But do you need an accountant or a¬†bookkeeper¬†for proper financial management and¬†financial decisions?
The Differences:

EDUCATION:

First of all the educational requirements aren’t exactly the same, but there are no concrete requirements to working as either one. However when looking to use one, realize that most accountants have advanced degrees, and to be considered a Certified Public Accountant (CPA), over 100 hours of post-secondary education is required to sit for the CPA exam. Bookkeepers don’t technically even need a college degree. This is an important distinction. However, it does not automatically indicate or guarantee a level of expertise.

SKILLSET:

Both titles work with numbers and fall under the accounting services category but a¬†bookkeeper¬†is more on the micro-side and an accountant deals with macro- or¬†big picture¬†concepts. A¬†bookkeeper¬†will work with day-to-day tasks that may be time-consuming, such as maintaining and indexing¬†financial records¬†and other daily¬†business needs. In addition, a¬†bookkeeper’s work¬†may include¬†bank reconciliation, daily invoices,¬†accounts receivable, and purchases. On the other end, while an accountant can handle those types of duties, their skill set involves looking at the¬†big picture¬†items. They may look at the day-to-day finances to develop strategies and look for trends in growth, help¬†forecast¬†business trends, generate¬†financial statements, or prepare¬†tax planning¬†information. While both jobs require attention for detail, an accountant can take the work a¬†bookkeeper¬†has done and make decisions based upon those. Both may play an important part in the¬†accounting process¬†and company¬†accounting system.

Small Business Accounting: Who You Gonna Call?

A good way to differentiate what each does is to think of a¬†bookkeeper¬†as someone that gathers data and think of an accountant as someone that takes that data and turns it into useful information. If you are able to decide which of these you need, you will know which services you need. With the advent of different types of software, many¬†business owners¬†have been able to avoid reliance on a¬†bookkeeper¬†and have the software take care of the day-to-day operations.¬†David Mammano¬†is a serial¬†entrepreneur. Having started seven businesses from scratch, he has thrived on starting and growing businesses over the last twenty years. He now coaches¬†entrepreneurs, especially start-ups. He stated,‚ÄĚ A¬†bookkeeper¬†becomes necessary when a lot of transactions start to take place. Usually, a¬†business owner¬†can handle most¬†financial transactions¬†and with¬†accounting software¬†make sound¬†business decisions, have a good grasp of general¬†financial information, and have a system for¬†recording transactions. A vast amount of¬†small¬†business¬†owners¬†have the education and knowledge to do their own¬†bookkeeping. However, if as a¬†business owner, they do not want to be tied down with day-to-day minutiae, then hiring someone to do the¬†bookkeeping¬†or using a software program makes sense. While it may not be critical to your business thriving, it can be quite helpful. While¬†bookkeepers¬†create data such as revenue,¬†cash flow,¬†accounts receivables, transaction records, and a¬†general ledger, an accountant can take this¬†financial information¬†to a¬†higher level¬†and use their expertise to¬†forecast¬†and plan for ways to improve the financial processes of a business.

WHEN YOU NEED AN ACCOUNTANT

The hiring of a bookkeeper or using bookkeeping software may help a business in the short term, but there are instances when not only hiring an accountant makes sense, but is critical to survival. A business may have books that are pristine, accurate and all financial transactions are up-to-date, but still may need an accountant to not only oversee them (for accuracy) but to look for trends in the data and to prepare financial statements that are beyond the scope of expertise that a bookkeeper has. While technically any company could consider hiring an accountant to serve as a bookkeeper, it is much more cost-effective to use a bookkeeper. An accountant can take the data from a bookkeeper and give a business tax advice, they can help develop financial statements and projections for the future and make recommendations about spending habits.

WHEN YOU ABSOLUTELY NEED AN ACCOUNTANT

A good rule of thumb for small business accounting¬†decisions¬†is when dealing with government financial issues, an accountant is your best resource. In addition to filing and preparing tax forms, accountants are well-versed in the current¬†tax laws. Knowing how to use the¬†tax laws¬†to a business‚Äô advantage can not only save a company money but it can keep a company from doing anything illegal. While many companies use the services of an accountant on an “as needed” basis, another critical time for using an accountant is at start-up. An accountant can help develop a strong¬†business plan that will help you get a business loan¬†and also help organize¬†financial statements¬†that will be needed for any type of personal or¬†small business¬†loans. According to Mammano, ‚ÄúI would recommend always going with an accountant from day one when you are looking to start a business and/or need capital. This will allow a¬†business owner¬†to set up the systems in place right from the start.‚ÄĚ

WHEN YOU ABSOLUTELY NEED AN ACCOUNTANT PART II

As a start-up, an accountant can also advise you on what type of company to create. It may make sense to be a sole proprietor, or it may be financially sound to create a corporation or limited liability partnership. Different company types offer different liability issues. Sole proprietors can often be held personally responsible for business-related financial obligations. An accountant can explain all the possible business structures and make a recommendation on which one bests suits your needs.

While bookkeepers and accountants are on the same side of the coin, the distinct differences  between the two are vast, and knowing when you might need the services of either can help you succeed.

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