The terms bookkeeping and accounting are often used interchangeably. This is confusing but understandable. The jobs of a bookkeeper and an accountant are very similar. Both of them help small business owners manage their finances. Both of them tend to work together towards the same goal. But it’s important for small business owners to know the differences between the two. This will determine whether your current needs call for a bookkeeper or an accountant. What expectations should you have for each individual? Your business may need to rely more heavily on a bookkeeper whereas an accountant might be instrumental to another business’s growth.
Before explaining what sets them apart, let’s go over the basic tasks associated with each occupation.
Bookkeepers traditionally deal with day-to-day financial records. These are commonly referred to as a business’s “books.” A bookkeeper’s primary responsibilities include recording financial transactions, updating spreadsheets, and processing payroll. At the end of the month, bookkeepers reconcile bank statements, which just means comparing bank statements to your financial records. After identifying and resolving any discrepancies, the bookkeeper produces monthly financial statements.
Since record-keeping is the bookkeeper’s central task, bookkeepers usually have their own method of record-keeping, along with their preferred software. It’s up to the bookkeeper to familiarize the business owner with their methods to ensure a trustworthy relationship.
While these are a bookkeeper’s traditional responsibilities, many bookkeepers perform additional tasks. This includes manually sending invoices, implementing automated invoicing systems, and manually paying the business’s monthly bills. Bookkeepers who have worked with a business for several years typically have a firm understanding of the business’s finances. They may provide general financial advice and forecasting.
These days, small business accountants focus more on financial strategy. The only documents they prepare are financial statements and reports for banks and government agencies, like the IRS. Your accountant files your business tax returns, tells you how much money to put away for tax season, and keeps you informed in regards to new tax laws and deductions.
Aside from tax planning, most of their job involves using the documents prepared by bookkeepers to draw meaningful conclusions about the business’s financial health. Small business accountants tell business owners what to change about their spending habits and identify areas of the business that are most detrimental to profitability. They also explain how to pay for different expenses (credit cards, savings, etc) and help business owners manage debt in general.
This makes accountants extremely valuable when the time comes to seek additional business funding. Accountants can tell you which tools (business term loan, business line of credit, short-term business loan) are most sensible for the investment at hand. They’ll explain when to apply for funding, how much money to request, and what kind of terms would be best for your cash flow. A number of calculations can answer these questions, and it’s the accountant’s job to perform them. A good accountant can be the underlying difference between a business that achieves sustainable growth and another one that tries to grow too quickly or fails to notice the root of its cash flow problems.
The standards for what constitutes a good bookkeeper or accountant have increased as of late. Today’s bookkeepers do a lot of things that were previously only reserved for accountants. This is largely due to advanced technology that has streamlined the bookkeeping process. Bookkeepers now have the time to offer advice for improving your finances or simply maintaining a budget. Accountants used to be the go-to people for advice because they have more education under their belts. Becoming an accountant does require more academic schooling than becoming a bookkeeper. Much of the knowledge taught to accountants, however, is now freely available online.
The increasingly advisory role of bookkeepers is likely one of the reasons accountants have expanded their responsibilities as well. According to the traditional definition, a small business accountant is technically only obligated to assist with business finances. But when you work so closely with someone, the line between business and personal finances begins to blur. Small business accountants are now more knowledgeable about their clients’ personal finances. They might offer advice for shielding your personal finances from the ups and downs of your business’s finances or using your income to build your retirement fund.
All businesses are recommended to hire an accountant as soon as they open their doors. But since the business is still small, you will likely be able to handle bookkeeping yourself. The moment a business becomes so busy that it is forced to hire a bookkeeper is a monumental point in its journey. This is when you are finally ready to serve more customers and take on a higher level of competition. Both of these aspirations will likely require substantial investments. Those investments are much easier to achieve with the help of both an accountant and a bookkeeper.
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