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If you're considering hiring either an accountant or a bookkeeper, it's essential to understand the key differences between these two roles. This will help you determine which one is the best fit for your business needs.
Bookkeeping involves the direct recording of all financial transactions conducted by your business, while accounting interprets and analyzes that data to provide insights into your business's financial health.
An accountant can perform bookkeeping tasks, but a bookkeeper cannot perform accounting duties without proper certification.
To determine if you need the services of a financial professional, assess your business's current financial situation and goals for growth, and decide if you have the necessary skills and time to manage your finances effectively.
For business owners who are unsure whether they require the services of an accountant or bookkeeper, this article will provide valuable insights.
Managing your finances is a critical aspect of running a successful small business. Accurate and up-to-date financial data is necessary to make informed business decisions and implement healthy cash flow strategies.
As your business expands and involves more customers, vendors, and employees, keeping track of your finances alone can become overwhelming. At this point, you might need to hire a financial professional, but how do you decide whether to hire a bookkeeper or an accountant? Although these terms are sometimes used interchangeably, there are distinct differences between the two roles that you should be aware of.
Here's what you should consider to determine which professional is best suited for your business needs.
Bookkeeping vs. Accounting
Bookkeeping involves managing the day-to-day financial transactions of a business such as recording purchases, receipts, sales, and payments. It is an administrative role primarily focused on transactions. On the other hand, accounting provides business owners with financial insights by analyzing the data collected through bookkeeping. Accounting is a more subjective role that focuses on interpreting and analyzing financial information.
"Bookkeeping is designed to generate data about the activities of an organization," says Steven Bragg, the author of "Bookkeeping Essentials." "Accounting is designed to turn data into information."
Since approximately 2600 B.C, bookkeeping, in its traditional form, has existed alongside commerce. The role of a bookkeeper is to keep comprehensive records of all the money that has been coming in and going out of the business. Bookkeepers maintain a clear and uniform record of daily transactions, providing a foundation for the accountant to carry out their duties.
Typical bookkeeping tasks include:
Keeping records of financial transactions
Entering debits and credits
Generating invoices
Managing payroll
Maintaining and reconciling accounts, ledgers, and subsidiaries.
A bookkeeper's primary responsibility is to maintain a general ledger that records the amounts from sales and expense receipts. The ledger's complexity can range from a sheet of paper to specialized bookkeeping software such as QuickBooks, which tracks entries, debits, and credits. Every transaction of sales and purchases conducted by your business needs to be recorded in the ledger, and some items require documentation. The IRS website provides more information on the transactions that need supporting documents.
Although there are no specific educational requirements for becoming a bookkeeper, it is essential for them to have knowledge of financial topics and accounting terms and to prioritize accuracy. Typically, the work of a bookkeeper is overseen by an accountant or a business owner. However, it's important to note that a bookkeeper should not be mistaken for an accountant or considered as one.
What credentials does a bookkeeper need?
Bookkeepers have the option to become certified, although it is not required for their job. Certification is available through the American Institute of Professional Bookkeepers (AIPB) and the National Association of Certified Public Bookkeepers (NACPB).
To become AIPB certified, bookkeepers must have at least two years of full-time work experience and pass a national exam. They are also required to participate in continuing education to maintain their certification.
The NACPB offers credentials in small business accounting, small business financial management, bookkeeping, and payroll. They also offer a payroll certification that requires additional education. To earn a certified public bookkeeper license, bookkeepers must have 2,000 hours of work experience, pass an exam, and sign a code of conduct. They are required to complete 24 hours of continuing education annually to maintain their license.
Becoming certified shows that a bookkeeper is dedicated to their profession, possesses the necessary skills and knowledge, and is committed to ongoing learning and improvement.
What does a bookkeeper charge?
The cost of a bookkeeper can vary depending on a few factors such as their location, level of experience, and the scope of work required. In general, bookkeepers can charge an hourly rate or a flat fee per month or year. Hourly rates can range from $20 to $60 or more, while flat fees can range from a few hundred to several thousand dollars per month or year. It's best to consult with bookkeepers in your area to get a more accurate estimate of their fees.
Advantages of a bookkeeper
Hiring a bookkeeper to handle your business's financial records can provide several advantages. These are just a few:
Organizational services: Bookkeepers can help you track and organize your financial documents and reports, which can save time and reduce stress when it comes to filing taxes or seeking financing.
Cost savings: Bookkeepers typically charge lower fees for their services compared to accountants. By hiring a bookkeeper, you may be able to reduce your overall accounting costs, especially if you have a small or medium-sized business.
Direct assessments: While accountants provide detailed analyses, a bookkeeper can give you a straightforward look at your business’s financial standing. This can help you identify areas where you need to cut costs or invest more resources, without the potential for biased analysis.
Efficiency: By hiring a bookkeeper, you can delegate the time-consuming task of recording and categorizing financial transactions. This can free up your time to focus on other aspects of your business, such as customer acquisition or product development.
Better decision-making: With accurate and up-to-date financial records, you can make better decisions about your business. Bookkeepers can help you identify trends, track expenses, and plan for the future.
Overall, hiring a bookkeeper can be a valuable investment for businesses of all sizes, helping to improve financial management and reduce stress.
What does an accountant do?
Accountants use the financial data recorded by bookkeepers and provide business owners with valuable financial advice and insights based on their analysis.
Some common tasks of an accountant include:
Reviewing and analyzing financial data
Creating reports, conducting audits, and preparing financial statements such as income statements, balance sheets, and tax returns
Offering insights on business trends, growth opportunities, and making financial forecasts
Assisting business owners in understanding the consequences of financial decisions
Making necessary adjustments to financial records.
"Accountants are the backbone of any business, providing the financial expertise needed to keep a company running smoothly and profitably." - Mary Barra, CEO of General Motors.
The accounting process generates reports that consolidate vital elements of your business's finances, providing a comprehensive understanding of your financial status, its implications, recommended actions, and your business's potential growth in the near future.
It is important to note that there is a distinction between an accountant and a certified public accountant (CPA). While both can prepare your tax returns, a CPA has extensive knowledge of tax codes and can represent you in case of an audit by the IRS. CPAs are required to pass the Uniform CPA Exam, which is a rigorous test that assesses their understanding of tax regulations and accepted accounting principles.
Are bookkeepers accountants?
Typically, accountants hold a degree in accounting or finance and may pursue additional certifications such as the CPA. While some accountants may also handle bookkeeping duties, it's important to note that their hourly rates are generally higher than those of a bookkeeper. Thus, having an accountant do bookkeeping tasks may result in higher costs for the business.
What credentials does an accountant need?
To become an accountant, one typically needs a degree in accounting or a related field, such as finance. In addition, accountants may pursue various professional certifications to enhance their knowledge and demonstrate their expertise.
The most common certification for accountants is the Certified Public Accountant (CPA) designation, which requires passing a rigorous exam and meeting specific education and experience requirements. Other certifications include the Certified Management Accountant (CMA) and the Chartered Financial Analyst (CFA). These credentials can help accountants advance their careers and demonstrate their commitment to their profession.
What does an accountant charge?
The cost of an accountant varies depending on several factors, including their level of experience, location, and the specific services needed. Some accountants charge by the hour, while others charge a flat fee for their services. According to a 2021 survey by the National Society of Accountants, the average hourly rate for an accountant ranges from $150-$400, with a median rate of $210 per hour. However, keep in mind that this is just an average and actual costs may vary. It's important to discuss pricing with potential accountants and clarify what services will be included in their fee.
Advantages of an accountant
Hiring a small business accountant yields significant benefits. These are just a few:
Expertise: Accountants have specialized knowledge and training in financial accounting, tax preparation, and other financial matters. They can provide valuable advice on financial decisions and help you navigate complex financial regulations.
Tax compliance: Accountants can help ensure that your business is compliant with tax laws and regulations, reducing the risk of audits or penalties.
Strategic planning: Accountants can help you create long-term financial plans and set financial goals for your business, providing a roadmap for growth and success.
Financial analysis: Accountants can analyze your business’s financial data to identify trends, opportunities for growth, and potential risks.
Peace of mind: By working with an accountant, you can have peace of mind knowing that your business’s finances are in order and that you have access to expert financial advice when you need it.
When should you consider hiring a financial professional?
Hiring a financial professional can be a smart move for a business at various stages of its growth. Here are some situations when you may want to consider hiring a financial professional:
Starting a new business: If you're starting a new business, it's essential to set up a solid financial foundation from the start. A financial professional can help you create a budget, develop a business plan, and establish financial controls.
Handling rapid growth: If your business is growing quickly, you may need help managing cash flow, tracking expenses, and making important financial decisions. A financial professional can help you stay on top of these issues and plan for continued growth.
Facing financial challenges: If your business is struggling financially, a financial professional can help you identify the root cause of the problem and develop a plan to address it. They can also help you negotiate with creditors and create a debt-repayment plan.
Preparing for tax season: Tax laws can be complex, and it's easy to miss deductions and credits that can save your business money. A financial professional can ensure that your tax returns are accurate and complete, potentially saving you thousands of dollars.
Needing expert advice: Even if your business is doing well financially, you may still benefit from the expertise of a financial professional. They can provide valuable insights into business trends, identify areas where you could save money, and help you plan for long-term growth.
While both accountants and bookkeepers play essential roles in managing a company's finances, there are distinct differences between their job responsibilities, qualifications, and expertise. If you are a small business owner, it's essential to evaluate your business's financial needs to determine whether to hire an accountant, a bookkeeper, or both.
Whatever you decide, make sure to do your research and choose a qualified professional who understands your business needs and can help you achieve your financial goals. By working with a trusted financial professional, you can gain valuable insights into your company's finances and make informed decisions that can help your business grow and succeed.
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