Bookkeepers and accountants are not the same
If you’re a small business owner, you’ll be familiar with juggling several tasks at once. As well as keeping things running, you need to generate income, keep your customers happy and look after financial information. Tracking the financials can be a chore though, and one of the biggest questions you might have is who you get to help with your accounts. Do you need an accountant, a bookkeeper or both? Let’s demystify things.
Accountants and bookkeepers have different jobs and responsibilities. An accountant’s main focus is:
- the preparation and lodgment of statutory returns
- advising on legal entity structures
- giving general business and financial advice
Accountants are usually members of a statutory association. Qualified and registered accountants might call themselves CPAs (Certified Public Accountants), CAs (Chartered Accountants) or other titles, depending on the country they're working in.
Bookkeepers can manage lots of different responsibilities within a small business. But the main focus is the organisation, recording and reporting of financial transactions as part of the operational life of a small business. In more recent times, some bookkeepers have extended their range of duties to include:
- training clients to use accounting software
- implementing document management and inventory control processes to create efficiencies within the business
- implementing POS (point of sale) systems that capture the daily transactions in a retail environment.
- developing, implementing, maintaining and reviewing internal business processes
You will often find that a bookkeeper has an area of specialisation and it’s a great idea to ask them more about this when you are looking at hiring them for services.
What do bookkeepers do?
Here are some of the tasks of a bookkeeper that will help to keep your business running smoothly.
Keeping track of daily transactions
A bookkeeper can handle the recording of day-to-day bank transactions. If the accounting software you use has daily automatic bank feeds, this is a great tool for your bookkeeper to use. When your bank statement lines are fed into your accounting software, it’s much easier to keep an eye on cash flow and it also saves on data entry time.
Sending out invoices and managing the accounts receivable ledger
Preparing invoices and sending them to clients is usually the bookkeeper's responsibility. Managing the accounts receivable ledger – and chasing late payment – is also likely to be done by a bookkeeper.
Handling the accounts payable ledger
Up to a certain dollar amount, it's usually bookkeepers who will make payments on behalf of the business. This includes payment of supplier invoices, expenses and petty cash.
Keeping an eye on cash flow
One of the most important tasks for a bookkeeper is making sure the company doesn't run out of day-to-day money. They can do this by watching the balance of revenues to expenses. Then they can take action or offer advice if it looks like the company needs more ready cash.
Preparing the books for the accountant
It's the bookkeeper's job to ensure that the accounts are valid and up to date when the accountant needs them. This allows the accountant to use their skills and knowledge to make business recommendations, report to the board and complete company tax returns.
In summary, it's the bookkeeper who does the day-to-day work so that the accountant can concentrate on strategic financial operations. So bookkeepers play an important role – without them, accountants can't do their jobs.
Bookkeepers and accountants working together
A well-run business is likely to make use of both accountants and bookkeepers. The division of labour is important. Here's how it might work:
As noted in our guide about hiring an accountant, you should use an accountant to help you set up your business. Accountants can help you create your business plan and set up a company structure that best suits your business.
An accountant or bookkeeper can also help you choose the right accounting software and set it up so that it works well for you and your employees – especially your bookkeeper.
After completing the above tasks and keeping a bookkeeper can focus on keeping your company's accounts up to date on a daily basis.
The accountant and bookkeeper will get together regularly, perhaps once a month. They might meet in person or they might work remotely, using cloud accounting software with shared access. Either way, the accountant will look at the figures in the accounts and the bookkeeper will explain any numbers and decisions that aren't clear.
The accountant will report to the business owner and the board members. The accountant will report on the state of the accounts so that the board and owner have a clear picture of the financial health of the business. A bookkeeper can also provide reporting, but in a less formal way on a more regular basis with what is called management accounts. These reports are often used by the business owner as checkpoints to see where the business is going often on a weekly basis.
Armed with up-to-date figures, the accountant will make recommendations to the business owner and the board. The accountant will offer advice about any planned expansion and investment. They will also advise on whether the business can afford to move into new markets and other financial strategies.
The accountant will use the information prepared by the bookkeeper to write the company reports. These reports will include information about income and expenses, net profit, assets, liabilities and tax. The accountant will also file the company tax return forms and arrange for tax payments to be made.
This is a sensible way of sharing the workload. The accountant does the work that they have been trained to do, while the bookkeeper provides the necessary financial data.
Five ways that a bookkeeper can help your business
If your business is small, you might be the bookkeeper – at least until you can afford to hire someone to do the work for you. Once your business reaches a certain size, it makes sense to have someone do the bookkeeping for you. Here are five ways that a bookkeeper can help:
1. Concentrate on your business strategy
Bookkeeping involves tracking the fine detail and recording it in accounting software. Working with these numbers can sometimes make it hard to see the big picture. So it's often better to have someone else do this work.
2. Reduce your accounting costs
Are you using an accountant to manage your daily transactions and run your monthly payroll? If so, you could save a lot of money by having a bookkeeper do this work instead.
3. Be an extra pair of eyes watching your cash flow
If you want to avoid running out of money suddenly, you need to keep an eye on your cash flow. We've discussed this in our guide to managing cash flow. It helps to have someone else checking the numbers here, making sure your cash keeps flowing. A bookkeeper can do that.
4. Get quick access to vital figures
Having an accountant manage your monthly business reconciliation and reporting is important. But what if you need some financial information part-way through the month? Bookkeepers can give you the information you need quickly, without you having to wait for your accountant to respond.
5. Keep control of your financial data
Few small businesses can afford to hire their own accountant, so most accountants work on a part-time basis for their clients. If they use quality online accounting software to manage your financials, it makes collaboration much easier. Quality software means that your bookkeeper can work on the same set of data as the accountant. They can both work together to give you the best outcome and help your business grow.
Bookkeeping helps your business run smoothly
Bookkeeping is a vital job in any business. This is true whether you do the work yourself or hire someone to do it for you.
Without proper bookkeeping, your accounts will not be accurate. That means your accountant won't get a clear picture of your company's finances and you can’t make strategic business decisions.
Just as importantly, your business has a legal obligation to accurately record its accounts and file company reports to the tax office. So it pays to get this right.
Bookkeeping will help you do all of this – and will also provide you with useful insights into the financial health of your business.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.