Accountant vs Bookkeeper: which to choose for your business
Staying on top of your finances is a key part of being a successful small business owner and building wealth. It's important that your financial data is current and accurate so that you have the tools you need to make sound business decisions and ensure healthy cash flow.
But it’s not enough to understand where you were in your business. You can use your numbers to ensure you hit your profit and wealth goals, prepare for tax time, and free up your time while you continue to earn more.
As your business grows to include more customers, vendors and employees, it can get more difficult to keep track of your finances on your own. When the bookkeeping and accounting tasks for your small business are too much to handle by yourself, it's time to hire help. But do you need a bookkeeper or accountant?
Most people would be hard-pressed to describe the difference between an accountant and a bookkeeper. The terms are sometimes used interchangeably, and there can be some overlap in what they do, but there are distinct differences. As a business owner, it’s important to know the difference.
While bookkeepers and accountants share common goals, they support your business in different stages of the financial cycle. Simply put, bookkeeping is more transactional and administrative, concerned with recording financial transactions. Accounting is more subjective, giving you insights into your business’s financial health based on bookkeeping information.
What is the difference between bookkeeping and accounting?
Bookkeeping is the process of recording daily transactions in a consistent way, and is a key component to gathering the financial information needed to run a successful business. Most businesses fail because they run out of funding meaning that their dollars are walking out the front door.
Bookkeeping is comprised of:
Recording financial transactions
Bill payments
Producing invoices
Employee payroll
Bank reconciliations
Maintaining and balancing general ledgers, and historical accounts
Preparation of financial statements (balance sheet, income statement and cash flow statement)
The bookkeeper’s focus is on accurate record-keeping and less focused on interpreting the data and analytics. Good record keeping is maintained in a general ledger. All sales and purchases made by your business need to be recorded in the general ledger, including certain items need supporting documents by the Canada Revenue Agency. General ledgers can vary in complexity from a sheet of paper to specialized bookkeeping software, such as QuickBooks Online, Wave Accounting and Xero, to track their entries, debits, and credits.
Technology that handles CRM and invoicing (think Dusado, Honeybook) or vendor payments (think Plooto) are making the process of bookkeeping easier for business owners who want to handle the bookkeeping themselves and to seek help only when there are new or complex transactions. This allows the business owner to have immediate access to her numbers and know where their cash is at all times. It also saves her some money which is good at the beginning stages of any business.
“Accounting is the language of business”
— Warren Buffet
Bookkeepers and accountants’ work often overlap, as bookkeeping is the beginning part of the accounting process. Accounting is a high-level process that uses financial data compiled by a bookkeeper or business owner to produce financial reports and models. Accounting can help you summarize the transactions and make some honest conclusions about how you are spending your money. The accounting process is more subjective than bookkeeping, which is largely transactional.
As such accountants, unlike bookkeepers, acquire and possess professional certifications. For example, accountants with sufficient experience and education obtain the title of Certified Professional Accountant (CPA). To become a CPA, an accountant must pass the Common Final Examination (CFE) and possess experience as a professional accountant. These required credentials are a determining factor in the cost of an accountant.
Accounting is comprised of:
Accounting system set-up or audit
Review financial statements prepared by a bookkeeper
Preparing adjusting entries
Analyzing and interpreting financial statements
Profitability pricing
Analyzing costs of operations
Create budgets and planning business investments
Track metrics, margins and profitability
Cash flow management and forecasts
Aiding the business owner in understanding the impact of financial decisions and to help set strategy
Set estimates for taxes and tax preparation
A key part of the accounting process is analyzing financial reports to help you make business decisions. The result is a better understanding of actual profitability and an awareness of cash flow in your business. Accounting turns the information from the general ledger into insights that reveal the bigger picture of the business, and the path the company is progressing on. Business owners will often look to accountants for help with strategic planning, analysing their financial position, forecasting, and tax filing. Sometimes, they just need another business owner to be a sounding board and provide encouragement.
Bookkeeper vs Accountant: How to decide?
Young businesses often get away by doing their accounting and bookkeeping responsibilities themselves. In the long-run, it wouldn’t be financially wise to keep doing that, as many errors might creep in, potentially losing your money and time. It is important to understand whether you need to hire a bookkeeper or an accountant or both. This choice is primarily dependent on your skills set, your personal interest and where your business is today.
There are several telltale signs that you might need to hire bookkeeping and accounting help.
Problems with maintaining financial statements
Struggling to reconcile accounts every month
Getting surprised by tax bills quarterly or annually
Issues paying bills or making payroll
Using personal or credit card loans for funding
Understanding your financial statements to grow your business profitability
It’s never too early to engage an accounting professional. Business owners, who hire financial support in the early stages of their growth, rarely regret it…if ever!
Having the support of a bookkeeper will free up your time, allowing you to focus on your business. And an accounting professional can help you create a plan, ultimately saving you time and money in the future.
The bottom line
Some business owners learn to manage their finances on their own, while others opt to hire a professional so that they can focus on the parts of their business that they really love. Whichever option you choose, investing—whether it be time or money—into your business financials will only help your business grow.
If you are looking for clarity on your current business financial future, start with a consultation call with us. We can help you set a financial strategy and grow your business without bringing on a new employee in your business.