In the early days of handling your business finances, one of the biggest questions you’ll have to ask yourself is whether you should hire an accountant or a bookkeeper. Both are essential for keeping track of your business’s financial information, but each is used for something different. Knowing the differences between a bookkeeper and an accountant will help you find the professional whose services are the most appropriate for your small business.
So, the natural, and perhaps the first question would be “Do I need an accountant or a bookkeeper?” Let’s dissect their roles, responsibilities, and when you should employ each one to ensure that your company flourishes financially.
Who Is a Bookkeeper?
A bookkeeper is the person who processes the nuts and bolts of your company’s financial transactions. It is the document upon which the financial management depends to make the record logical and valid. The responsibilities of a bookkeeper are typically:
Recording Transactions
Your bookkeeper keeps a log of every dollar that goes in and out of your business. This spans sales and purchases all the way through to receipts and payments. They record this data in accounting software or spreadsheets in order to keep a detailed catalogue of the financial activity of your business.
Managing Accounts
Bookkeepers maintain accounts payable and accounts receivable. They ensure that invoices are sent promptly, payments are collected, and the bills are paid on time to avoid late fees.
Payroll Processing
Processing payroll is one of the bookkeepers' most important tasks. They can calculate wages, benefits, and deductions and ensure are paid accurately and on schedule. They are also responsible for maintaining correct payroll data for tax purposes.
Bank Reconciliation
Bookkeepers make sure your bank statements align with the financial records of your business. This is important because you want your financial statements to be in sync, and errors or fraud to not harm your business's financial well-being.
Generating Basic Financial Reports
Although bookkeepers generally don’t prepare detailed financial statements for a company, they do prepare some things like an income statement, a balance sheet, and a cash flow statement. These are the kinds of reports that give a picture of how the business is doing and contain the initial data for the accountant to do a deeper dive.
Bookkeepers keep your money matters tidy so that the accountant can do the dirty work of actually filing your returns. Their importance can not be overstated in allowing the business to run effectively without fiscal disaster.
Who Is an Accountant?
By contrast, an accountant does not get down into the details but uses the information that the bookkeeper has compiled to give a strategic overview. They interpret financial information, ensure taxes are paid, and offer recommendations on how your company can navigate these financial decisions.
Financial Analysis
An accountant independently reviews the financial records prepared by the bookkeeper to provide strategic financial advice for the business. They help companies determine how to budget, what costs to slash, and which revenue streams to pursue.
Preparing Financial Statements
Accountants prepare and analyse detailed financial statements, such as profit and loss statements, balance sheets and cash flow statements. These statements are read by various users such as owners, investors, and banks for the purpose of analysing the profit-making aspect and financial capability of the business.
Tax Filing and Planning
An accountant is not primarily trained to handle taxes, however, they take part in tax filing preparation. They make sure financial reporting is in line with tax law and may provide advice on tax strategy. For specialized tax planning, however, businesses will have to turn to a tax preparer or tax professional.
Budgeting and Forecasting
Accountants create budgets and financial forecasts for business owners. By studying the financials of the past, they aid businesses in the creation and growth planning and they make sure that the company is financially sound.
Audit Support
If the business is chosen for an audit, accountants are available to help with the audit. They also make sure that all documents and financial statements are in proper order and resolve any existing discrepancies.
Accountants are really the strategic advisors to guide businesses through interpreting all of their financial information, compliance, and decision-making to grow.
When to Hire a Bookkeeper
Here are some situations in which you might want to hire a bookkeeper:
- You have a high number of day-to-day transactions that must be logged and managed properly.
- Regular payroll must be maintained for all employees.
- Need organized financial records for tax preparation.
- You would like to make sure bills and invoices are paid on time and that accounts are balanced.
Bookkeepers save you the hassle of managing the money and ensure that there are no inconsistencies in the transaction data that you record. This is crucial because good bookkeeping is the basis upon which accountants can engage in their more strategic roles.
When to Hire an Accountant
Here’s when you should hire an accountant for business:
- Requires an in-depth analysis of finances for business decisions.
- Needs help with taxes, the budget or financial planning.
- Must ensure tax law compliance and prepare/verify financial reporting.
- Is under audit or seeking audit assistance.
They can interpret financial advice, look at areas where you can cut costs, find trends in the numbers, and make sure your business stays on the right side of all laws and regulations.
Tax Preparers vs. Accountants
It’s essential to understand the key difference between an accountant and a tax preparer or tax specialist.An accountant tracks and manages overall accounting services, including analyzing information, creating reports, etc. They advise businesses on their financial position and on the business decisions left to make. Accountants focus on financial records and reporting, but that doesn’t necessarily mean they are qualified to handle tax preparation. This is where a tax preparer makes a difference.
A tax preparer or professional does the following:
- Tax Planning: Helping businesses develop strategies to minimize tax liabilities.
- Tax Filing: Preparing and filing tax returns for the business.
- Dealing with Tax Issues: Addressing disputes or issues with tax authorities.
If you need assistance with taxes and tax filing and the development of strategies to lower your overall taxes, you will need a tax prepare or tax professional and not an accountant.
Can One Professional Handle Both Roles?
In smaller companies, especially, a single professional may manage the company’s bookkeeping and accounting. But as your business becomes more complex, you’re usually better off separating those roles. With a bookkeeper handling routine financial affairs, an accountant can maintain a big-picture perspective and make sure everything is in line, legally speaking.
For even more specialized requirements, like tax planning or preparing for audits, you may also need to find a tax preparer as well as a bookkeeper and an accountant.
Cost Considerations
The cost to hire a bookkeeper or accountant depends on their experience, how complicated your business is and where they are located. On average:
- Bookkeepers: Depending on location and experience, bookkeepers earn an average of $50,000 to $81,000 per year
- Accountants: Average annual earnings range from $64,000 to $115,000. However, cost can fluctuate broadly based on the accountant’s speciality and level of experience.
- Tax Preparers: Fees vary by the complexity of the tax return, though on average, tax preparation services range from $200 to $400 per hour.
From a bookkeeper to an accountant to a tax preparer, it’s important to invest in the appropriate professional, who can ensure your financial health and help your business blossom.
Also Read | Do I Need an Accountant for my Small Businesses
Conclusion
When asking “Do I need an accountant or a bookkeeper?”, consider the type of business you are running and what your financial needs are. You need a bookkeeper to manage the daily financial grind, which includes recording transactions, processing payroll and reconciling bank statements, while you run your business. On the other hand, you will need an accountant for strategic financial advice, complying with laws and regulations, and creating more detailed financial reporting information.
While filing taxes and strategizing taxes is the specialization of the tax preparers or the tax experts for all tax stuff and tax matters, your business remains aligned with all tax laws. If you learn the difference between these positions, you can be sure the company is well-positioned to keep going and growing.
