The Difference Between Bookkeeping and Accounting: Which One Do You Need for Your Business?
As a business owner, you know that you have to spend money to make money. But when it comes down to recording those expenses and analyzing them, you don’t always have the time or knowledge to do that.
That’s where a bookkeeper and an accountant come in.
In this guide, we demystify these two important business roles and define how each helps you run a better, more successful business. Plus, we’ll help you determine which one you need for your service business.
What is the difference between accounting and bookkeeping?
Bookkeeping is the record-keeping part of the process in which all financial records of a business (including the day-to-day transactions) are recorded and stored in a database. Bookkeepers do not require a license though bookkeepers can obtain an optional certification. This is often dependent on the location.
Accountant vs Bookkeeper
Accountant vs bookkeeper, what’s the difference between the two roles?
An accountant looks at a company’s financial big picture. They analyze and interpret data, compile reports and financial statements, and prepare taxes.
A bookkeeper handles day-to-day financial transactions. A bookkeeper carefully records transactions, sends invoices, handles payroll, and makes sure bills are paid on time.
Because bookkeepers are heavily involved in the day-to-day finances of your business, they can provide more immediate financial advice, as well as provide you with reporting to help you with your decision making.
If you’re just starting out, they can be an especially valuable resource. They can help you answer financial questions like do you need a business bank account or not.
Depending on the company, accountants can also perform the duties of a bookkeeper. Many small businesses don’t have the resources to have both a bookkeeper and an accountant so the accountant might be tasked with bookkeeping duties, especially if they’re less experienced.
What does a bookkeeper do anyway?
A bookkeeper doesn’t require formal training and typically reports to the accountant at an organization. But just like an accountant, the duties of a bookkeeper are vital to the financial success of a business.
Here are just some of the duties a bookkeeper is typically responsible for:
- Record day to day financial transactions by entering expenses and income into accounting software
- Paying bills and following up on invoices
- Manage accounting software like QuickBooks Online
- Recommend bookkeeping policies and procedures
- Maintain historical records and annual budget
- Process and manage payroll
- Manage bank reconciliations monthly
- Monitor accounts receivable
- Create cash flow statements
A bookkeeper can help you make better budgeting decisions, make tax season less stressful, and they may better understand the seasonality of your business (especially as a home service business owner).
How do bookkeepers and accountants work together?
Think of bookkeeping as your financial upkeep. Your bookkeeper keeps your records in order and their work affects how the accountant will report and consult on your business.
Failing to look after your books means spending more on an accountant to do some intense organizing at the end of the year. Poor bookkeeping also causes small expenses that add up.
As a field service business owner, you can’t do absolutely everything. For example, businesses that don’t stay on top of monthly bills can end up spending and wasting money on avoidable late fees.
Do I need a bookkeeper or an accountant?
This is entirely dependent on your business needs. You may need both a bookkeeper and an accountant, or you may need one or the other.
It’s common that business owners only consult with their accountant at the end of the year and many home service businesses don’t even have full-time accountants.
Here are some signs that you might need professional financial help:
- If you find yourself wanting to talk to your accountant more regularly, it might be time to hire an accountant
- If you’re spending more time organizing your books and falling behind on other aspects of your business, it may be time to hire a bookkeeper.
If your business is new, you may only get a bookkeeper at the end of the year. As your business grows, you’ll have to transition. You can go from having a bookkeeper on a quarterly basis to having someone come in monthly until you eventually hire someone full time.
The tricky part of this is determining when to transition from a casual bookkeeper to a regular bookkeeper.
Whatever you decide to do, make sure you have someone who knows what they’re doing.
Investing in the services of financial professionals is worth it and it can help you save time, money, and a headache when you start preparing for tax season.