As a small business owner, paying close attention to your finances is VITAL for the survival and growth of your company.
You can perhaps manage much of your Bookkeeping on your own with some time and resources, but when you look at your numbers and feel lost, it might be time to call in an expert.
Understanding when to use a financial professional can save you not only valuable time and money but also guard you against pitfalls from Government regulations. Understanding exactly what type of professional you need is equally important. Usually, it comes down to satisfying one or more of these needs: Bookkeeping vs. Accounting.
Bookkeeping and Accounting are connected, but the difference between hiring a bookkeeper and hiring an accountant is remarkably significant.
The first key point is understanding the difference between the type of service offering: Bookkeeping vs Accounting
and then understanding how each of these services is provided by the type of professional: Bookkeeper vs Accountant
and realizing how they can help you optimize your opportunity for growth.
Bookkeeping and Accounting defined
Bookkeeping is the record-keeping process of tracking your Income, Expenses, and Assets.
Accounting is the compiling process of all account information through reporting and then analyzing this information to enable better business decision making.
The basic breakdown of Bookkeeping and Accounting
- Record purchases for stock, assets, and keep track of day to day operations
- Invoice customers, receive their payments, and issue statements
- Process supplier bills and payments and reconcile their statements
- Balance the general ledger accounts and reconciling the Bank Statements of all Business Accounts
- Process payroll and all journals into the General Ledger
- Reports to the Accountant monthly
- Generate Company Reports such as the Trial Balance, Profit & Loss Statement, and Statement of Financial Position
- Prepare the Management Reporting
- Draft the Annual Financial Statements
- Analyze the cost of all operations and do a Ratio Analysis calculating the Gross Profit Margins
- Prepare the Tax Computation and calculated estimated taxable profits
- Advise Small Business owners on how to save on taxes and increase their GP %
How data is used
- Bookkeepers record your Small Business’s daily transactions and generate data.
- Bookkeepers record transactions using a uniform method. Bookkeepers record data, in the same way, every time.
- Accountants verify recorded data about your financial activities.
- Accountants make sense of your data and turn it into reporting and financial statements.
- Accountants look at the big picture view of your Small Business’s finances.
Nature of the job
- Bookkeeping is transactional.
- Bookkeepers enter information from each transaction and compute figures.
- This means bookkeeping is cyclical.
- Accounting is subjective.
- Accountants examine your financial information from a subjective point of view, using their expert knowledge to interpret data.
- They look for patterns in your records to help you make business decisions impacting the future of your Small Business.
When do you need to call a financial professional?
Bookkeepers are needed when you could use help keeping your books processed and balanced. For example, your business may be growing too fast for you to do your own bookkeeping. If you have room in your budget, you might consider hiring a bookkeeper so you can focus on profit-making responsibilities. Choosing to hire a bookkeeper as an employee or as an Independent Contractor will be determined by the type of Small Business you own, your day-to-day requirements, and how you would like to invest in resources.
Accountants are needed when you must make sense of your financial information. You need someone who understands profitability, cash flow, and financial planning. An accountant can advise you on the most financially savvy moves you can make based on your history. An accountant will also help you with year-end business tax planning and filing. Because you only need an Accountant periodically, it makes better sense to outsource this expert service to an Independent Consultant on terms that will assist your Small Business to benefit from it.
Bookkeeping vs. accounting
While bookkeeping and accounting differ, they have overlapping functions.
Both play an important role in informing you about your business’s health and projecting future outcomes.
Bookkeeping is the foundation of your finances while accounting takes care of higher-level processing.
For example, let’s say you offer a coupon to your customers.
- You use bookkeeping to record how many coupons are used.
- You use accounting to look at how the coupons affect your finances and the health of your business.
As a small business owner, you can record your books with a do-it-yourself approach. If you decide to use a financial professional – a qualified Bookkeeper – make sure you hire someone with credentials that match your needs. The more complex your financial situation is, the more likely you will need a registered Accountant.
Prepare to meet with your financial professional
You can help your financial professional get you accurate, meaningful answers about your finances.
When it comes to bookkeeping vs. accounting, knowing the difference can help you prepare for working with a financial expert.
When you hand records over to an accountant, make sure your General Ledgers are organized and correctly balanced.
While your accountant examines your books, keep the communication lines open. If you don’t understand the financial jargon that your accountant uses, speak up, and ask questions.
Preparing to meet with your financial professional cuts down on time, which saves you money and a lot of headaches later.
Do you need a simple method for tracking your small business finances?
Try our online small business accounting software for accurate, up-to-date records. Get a free trial today.
If you need further advice on understanding the differences between a Bookkeeper and an Accountant, or you need to take the next step to find a professional expert, or even if you just need a helping hand to show you how to know what is right for you, do reach out to me for ways I can assist you and your Small Business.
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