If you've been "keeping the books" for your small business, you know how time consuming it can be. Even with online tools and software, paying bills and issuing invoices can take hours to complete and keep track of. If you’ve considered hiring a professional to help with the financial aspect of your business, you may have wondered whether an accountant or a bookkeeper would be best. Could you need both?
Here are some of the key differences between a business accountant and bookkeeper:
What Does a Bookkeeper Do?
A bookkeeper’s main purpose is to manage the daily financial transactions of your business. They typically record transactions electronically using accounting software. They may perform bank reconciliation and generate financial statements for you as well. The specific tasks of a bookkeeper will vary from business to business, but they can include the following:
- Accounts Receivable. Bookkeepers may generate sales orders and issue invoices. When payments are received, they typically match them to invoices and prepare or make bank deposits.
- Accounts Payable. Bookkeepers also typically enter bills into your business accounting system. They can generate a report of payments for you or a manager to approve before outstanding invoices are paid. A bookkeeper also typically organizes your invoices into categories so they’ll appear correctly on financial reports and balance sheets. They may also manage payroll for your business.
- Account Reconciliation. Bookkeepers are usually responsible for reconciling their records with the account statements your business receives from the bank. The process is similar to balancing a checkbook. Depending on the size of your business, the reconciliation may occur at month-end or during the month.
- Year-End Preparation. At year-end (which may be calendar year or your business’s fiscal year), bookkeepers may prepare 1099s and W-2s. They may also export electronic files to your accountant so they can prepare your business's tax returns.
What Does an Accountant Do?
While bookkeepers focus on the daily finances of your business, accountants typically involve themselves with taxes and long-term financial strategy. Here are some of the values a business accountant can provide:
- Business Structure Knowledge. Accountants can help you better understand your current business structure, or help you identify which structure is best for your business. This can help immensely when it comes to taxes, as the way your business is structured will have a direct impact on your tax obligations.
- In-Depth Tax Knowledge. Every business owner needs an accountant to help with taxes. Whether you file your own taxes or use a third party, having an accountant on hand to answer questions can ensure you are preparing your taxes correctly. They can discuss the pros and cons of different tax laws so you can make the best financial decisions for your business. It’s also worth noting that certified public accountants (CPAs) are state regulated and must meet several requirements in order to prepare tax returns. They are required to continue their education through workshops, seminars, and courses to stay current with new tax laws and ever-changing regulations.
- Business Performance Analysis. While a bookkeeper organizes all of the financial data for your business, an accountant can help you make sense of it. They can help you interpret your business’s financial performance and make recommendations regarding budgeting, financial forecasting, and strategic planning.
Technology has made it possible for bookkeepers and accountants to work seamlessly to help businesses maintain their financial health. In most cases, accounting software has replaced paper ledgers, allowing bookkeepers to be more efficient and effective. Likewise, accounting firms can now easily import bookkeeping data for use in tax preparation and planning.
The more complete your financial picture, the more informed your decisions are. Having both a bookkeeper and an accountant can help you obtain a clear view of your business’s critical daily finances while also maintaining a strategic mindset for long-term profitability.
Ultimately, whether you’re ready to hire a bookkeeper, an accountant, or both, will depend on your business’s current financial situation and goals. As you make these critical decisions for your business, remember that it’s a smart move to consult a dedicated business banker as well. If you’re a business owner in MA or RI who’s looking to take your business to the next level, don’t hesitate to reach out to our expert business banking team today!