Bookkeeper vs. Accountant: Who Do You Need for Your Small Business?

Business owner with their bookkeeper

Some small business owners hire bookkeepers to manage their day-to-day financials and prepare taxes, while others use a certified public accountant (CPA). With all these options, you may be wondering which strategy – bookkeeper vs. accountant or even a combination of these is the best to grow your business?

There are key differences between bookkeepers and accountants (and bookkeeping software programs) that you’ll need to know to make a decision. Here’s what you need to know to find the best mix for your business.

Bookkeeper vs. accountant: why the right person is essential now

Accurate financial management is always key to business success. As your balance sheet gets more complex, it can be harder to accurately track and account for everything involved in your business.

If you’ve added new revenue lines, pivoted, or changed aspects of your business, it’s even more challenging. These changes need to be correctly tracked and reported, otherwise, your business could lose out on potential funding or even end up in a tax predicament with the IRS.

It’s important to know the differences between bookkeeping and tax preparation and to use the right people for your needs. With the right expert in place, your financial-management system will be cost-effective and efficient.

Here’s a breakdown of the different types of resources and how you can use them:

Bookkeeping software

Free and paid programs like QuickBooks, Xero, and Bench are cost-effective tools to help you manage day-to-day income and expenses. It can also help you quickly generate key financial documents like balance sheets, cash flow statements, interim financial statements, and profit-and-loss statements.

The key is to ensure that your program is set up correctly from the start and that you continue to update your accounts and keep up with revisions as you add revenue lines, loans, grants, and additional expenses. Remember, your bookkeeping software serves as the foundation for your business financials, so the more accurate it is the more effective it will be as a tool for you and a resource for your bookkeeper or CPA.

Small business bookkeeper

Although you should always stay on top of your financials no matter who you hire, many businesses also use a bookkeeper to track financial activity. Bookkeepers enter and maintain the data for all your transactions, typically using financial software such as QuickBooks.

Bookkeepers can generate financial reports, discuss the current state of your transactions, identify trends, and help with budgets and financial projections. They can also serve as a key resource to help maintain your data and to check the accuracy of your entries.

However, not all businesses need a bookkeeper, especially if you already have a strong bookkeeping foundation. Here are some key questions to help you decide if your business needs to make the hire. Using your bookkeeping software, can you:

  • Accurately complete your business’sdaily, weekly and monthly recordkeeping duties?
  • Produce monthly, quarterly and annual financial reports on your business’s revenue and expenses, as well as assets and liabilities?
  • Keep track of your invoicing and your bill payments?

If you already manage these aspects using your bookkeeping software, then you probably don’t need a bookkeeper. You may still need to consider hiring an accountant. There are differences between accountants and CPAs and tax preparers:

Tax preparer

A tax preparer is exactly that – someone whose only responsibility is to prepare and file tax returns on behalf of your business. They’re trained on tax code but can’t provide strategic guidance or compile any financial information on your behalf. They rely on financial records that you, or your bookkeeper, provide to complete your tax returns.

Certified Public Accountant (CPA)

Certified public accountants (CPAs) are experts in tax strategy and preparation. They perform tax planning to help you understand how the tax code applies to your business. They also use reports from your financial software program or bookkeeper to generate tax returns.

A CPA can give you bigger-picture guidance on profitability, expense management, external valuations, and business strategy. It’s important to remember that if you use your CPA for basic bookkeeping instead of your bookkeeping software or a contracted bookkeeper, you’ll be paying more for your day-to-day financial management.

Bookkeepers, accountants, and bookkeeping software: Find the right mix for you

Here’s how you can break down the work and responsibilities to optimize the return-on-investment for your financial-management system:

Step 1: Use your bookkeeping software for your day-to-day financial management. Use your system to generate financial projections and key financial statements in a quick and cost-effective manner. To ensure that you’re using it correctly, it’s a good idea to ask a professional bookkeeper or CPA to help you set it up. Or, if you have it set up but aren’t sure that you’ve done it correctly, ask a bookkeeper or CPA to review it and help you correct any errors.

Step 2: Determine whether you need additional help managing your financials. If you do, then a bookkeeper can help. Depending on your business’s needs, you may need help on a daily basis. Most small businesses benefit from having a bookkeeper review their business financials on a monthly or quarterly basis. This can depend on your transaction volume and your ability to keep your bookkeeping software updated accurately and regularly.

Step 3: Work with a CPA at regular intervals throughout the year. Your CPA will help you develop a tax and business-investment strategy that supports your success. You can meet with them to plan for:

  • purchasing or leasing major equipment
  • expansions (locations, staffing, inventory or whichever areas suit your needs)
  • pivots (if you face a challenge that requires you to change your approach to serving your customers)

Also, your CPA should prepare and submit your quarterly and year-end tax filings for you. Many relief programs, loans, grants, and tax credits require specialized knowledge to do your taxes accurately so that you’re not leaving money on the table.

The right financial-management resources can strengthen your business

In the end, it’s not a case of bookkeeper vs. accountant. Instead, it’s a matter of knowing how to use all of your resources effectively. By doing so, you’ll gain insight into finding opportunities that you can leverage and addressing challenges before they grow.

If you have accurate tax filings and financial statements, you’re in a much stronger position to apply and get approved for the funds you need to grow and succeed.

If you’d like to learn more about small business loans, take a few minutes to read about the different business loan options available through Pursuit. Then get in touch with us to learn more about how we can help.

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