What’s the Difference Between a Bookkeeper and an Accountant? Do I Need Either?
We went straight to an accountant certified for practice in both Canada and the US to demystify these two roles and define how each helps you run a better business.
You’re in the early days of your business, you’ve established a solid customer base, and you have the money to hire some extra help. But like the veteran multitasker you are, you figure you’ll put in a few more hours and put that money aside for a rainy day.
Raise your hand if this sounds like you.
While this sounds like a smart short term strategy, it can come back to bite you in the butt, especially if you apply this attitude to your books.
Why do I need an accountant?
Want to hear a scary statistic? Eighty-two percent of business failures are because of poor cash management. Not a lack of customers or bad employees, but poor cash management.
An accounting professional ensures you work hard and smart. If you don’t know how to price your services and you work yourself to the bone every month only to barely break even, there’s something fundamentally wrong with your business operations. Accountants and bookkeepers can help detect these issues before they become a big problem.
One important way accountants do this is by preparing financial statements. Common financial statements include a balance sheet, income statement, and cash flow statement. All together, they give a clear picture of your revenue, expenses, assets, and liabilities—and you can check out Investopedia for a deeper dive into each.
If you thought financial statements were something only big companies had to think about, think again.
“[Financial statements] give business owners good information to work off of,” says Quan Ly, a Chartered Professional Accountant (Canada) at McRally, who also holds a Certified Public Accountant designation and Masters in Taxation in the US. “With tools available today, like Xero or Quickbooks Online, you can generate these statements on a more timely basis instead of just waiting until the end of the year.”
That’s right. Even if you’ve been producing financial statement on a yearly basis, we’re sorry to tell you that you’re only doing the bare minimum.
If you don’t know how to price your services and you work yourself to the bone every month only to barely break even, there’s something fundamentally wrong with your business operations. An accountant can help detect these issues before they become a big problem.
Depending on the type of business you run, there may come a time when you want to get a loan from a bank to expand your operations or buy new equipment. You’ll also need these reports if you wish to one day win investors.
Banks want documentation of your company’s finances and projected earnings to determine whether you’ll be able to make loan repayments. If your books are in disarray it could take you a couple of weeks to get your paperwork in order which doesn’t help when you need the funds to buy a pivotal piece of equipment to keep your business going asap.
And even if you’re totally happy at your current size with no intentions to grow, it still makes sense to produce financial statements regularly to ensure your business is continuing to head in a healthy direction.
“You definitely shouldn’t wait until the end of the year,” Ly says. “Because by the time you get those numbers it’s probably three to six months after your year ends. The data isn’t as relevant and useful by the time you get it.”
Moral of the story: Work with an accounting professional and take the time to look at the financial statements they produce.
So what’s the difference between a bookkeeper and an accountant and why do I need both?
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, on the other hand, handles the day-to-day financial transactions. A bookkeeper carefully records transactions, sends invoices, handles payroll, and makes sure bills are paid on time. Also, because they 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.
To understand how bookkeeping and accounting work in relation to each other, think of bookkeeping as your daily oral hygiene and accounting as your yearly trip to the dentist. If you invest a little time each day into looking after your teeth, your dental visit will be fairly routine. You’ll get a quick check up to make sure everything’s in order and with no cavities or gingivitis you’ll be sent on your way.
Now, imagine you haven’t been brushing or flossing. Dealing with those cavities and inflamed gums will cost you a lot in dental fees. You could have saved a fortune by keeping things in order over time.
Ninety percent of clients I’ve taken on haven’t had good books. It comes down to experience, so make sure you have someone qualified.
That’s the idea behind the role bookkeeping and accounting play together for your business. Failing to look after your books means paying an arm and a leg for an accountant to do some intense organizing at the end of the year. Poor bookkeeping also causes small expenses that add up. For example, businesses that don’t stay on top of monthly bills waste precious money on avoidable late fees.
It’s obvious that a bookkeeper is necessary. The tricky part is determining when to transition from a casual bookkeeper to a regular bookkeeper.
“Many startups won’t have a bookkeeper until the end of the year, so [business owners] will need to slowly transition as their business grows,” Ly advises. “You may start with a bookkeeper on a quarterly basis and then have someone come in on a monthly basis before getting someone full-time.”
Above all, make sure you have someone who knows what they’re doing. Investing in the services of a certified bookkeeper is well worth it.
“Ninety percent of clients I’ve taken on haven’t had good books. It comes down to experience, so make sure you have someone qualified.”
Whether you’re hiring an accountant, a bookkeeper, or anyone else for that matter, that’s good advice for any business owner to keep in mind.
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