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Bookkeeping vs accounting: what to choose for your business

Sometimes grasping the difference between an accountant and a bookkeeper can be tricky. Both work with your finances, both help make your tax reporting a smooth experience. Still, there are some differences that every business owner needs to know when deciding what to choose for their company.

How to choose a bookkeeper? Do I need one permanently, or can I contact them every so often? Do I only need an accountant if I own a mid or large-sized business? Is an in-house accountant a necessary investment? And finally, how can I find out whether I need a bookkeeper or an accountant? 

In this article, I will cover these and some other key questions that may help you choose what better fits for your business.

What are accounting and bookkeeping services?

Bookkeeping is typically seen as a process that deals largely with financial transactions and general business administration. Accounting, on the other hand, is primarily about processing the information produced by bookkeepers and, based on it, generating business insights and providing financial forecasts.

In practice, the distinction can get quite hazy. With many accounting automation solutions available on the market, bookkeepers have been freed from manual tasks of data entry. So now, they can use the opportunity to give more insight and sometimes play the role of an advisor. This way, the tasks of an accountant and a bookkeeper can sometimes overlap. But certain points of difference remain: a bookkeeper will likely manage your ongoing financial records, ensuring the accuracy of the data in your accounting books. An accountant will analyze this data, do reporting, give you financial advice, and assist you with the taxation.  

Bookkeeping vs Accounting table with differences

Now, let’s take a close look at each of the options.

What should a small business owner know about bookkeeping?

Among some of the daily, weekly, and monthly operations that a bookkeeper can help you with are: 

  • Transaction recording
  • Accounts payable
  • Accounts receivable (invoicing)
  • Payroll
  • Expenses and petty cash management
  • Bank account reconciliation
  • Bank deposits
  • Financial statement management (cash flow, balance sheet, income statement)

Good bookkeeping relies on perfect accuracy, that’s why it’s been increasingly transitioning to using cloud automation software, to avoid all mistakes that come from manual data entry. 

What is the role of a bookkeeper?

Bookkeepers provide essential insight into the financials of the company. They make sure that all financial operations are run smoothly and recorded regularly, and ensure that the tax season isn’t stressful. They timely prepare all reports necessary to fill and file taxes without losing one’s mind. 

If you are starting as a business owner, hiring a bookkeeper can help you establish necessary business processes, understand its nuances, and provide financial reports that demonstrate the financial health of your business at its outset.

Bookkeeping qualifications

The US doesn’t have a standardized qualification for practicing bookkeepers. The U.S. Bureau of Labor Statistics states that those practicing bookkeeping should hold at least a high school diploma, backed up by at least 2 to 4 years of job experience.

A lot of U.S. bookkeepers get the American Institute of Professional Bookkeepers (AIPB) certification. It proves that the bookkeeper has signed the AIPB’s Code of Ethics and has successfully fulfilled its certification standards.

So, while most states won’t require certification for practicing bookkeepers, you can look at experience and AIPB certifications to make sure you are hiring the right professional for a fruitful long-term collaboration.

Hiring a bookkeeper

According to the U.S. Bureau of Labor Statistics, in 2018, there were 1,707,000 bookkeepers in the U.S. alone. This fact makes your search for a bookkeeper quite hard to narrow down, but you can start by asking your colleagues for recommendations and browsing on websites like LinkedIn.

The thing to figure out first is whether you need an in-house bookkeeper or can do with an outsourced one. Typically, businesses hire in-house specialists when there is a lot of payroll and invoices to process. If you are a small firm that does not do a great deal of payroll, you can start by outsourcing bookkeeping services to someone who would update your books ideally every month. 

Costs

The exact pricing will depend on the amount of work needed doing, as well as whether you are hiring someone to work in-house or remotely. Recent market prices are typically around $25-$40 an hour, or around $52,000 a year plus taxes and benefits to hire an in-house bookkeeper.

Many outsourced bookkeeping services can start at $500 a month, but bear in mind that this will mean that your bookkeeper will be working for several businesses and won’t be as available as an in-house professional. 

What should a small business owner know about accounting?

Among some of the regular operations that an accountant can help businesses with are:

  • Financial audits
  • Forecasting
  • Financial planning and long-term budgeting
  • Tax returns
  • Performance optimization

In order to avoid the confusion given by the sometimes blurred lines between accounting and bookkeeping, one can see them as being a part of a whole accounting cycle. Recording of data is a part of the process, and both contribute to successful tax filing. The results of a work done by a bookkeeper allow the accountant to provide business forecasts, that’s why many mid- and large-sized businesses will need to hire both a bookkeeper and an accountant.

What is the role of an accountant?

Typically bookkeepers and accountants work together, allowing accountants to prepare taxes and financial statements. Often the bookkeeper will serve as an expert at using the latest software to track transactions and generate reports. Ultimately, though, an accountant will have a larger perspective in overseeing your business. They might perform tasks such as budgeting, analyzing, planning, but are unlikely to deal with everyday processes of recording the transactions. Accountants are also responsible for providing tax and representation on taxation matters.

Accounting Qualifications

In the U.S. accountants have to have at least an undergraduate degree in accounting, or more rarely in finance. Those wishing to work for larger companies pass the examination necessary to become a CPA, a Certified Public Accountant, who can represent their clients before the IRS, work for a public company, and assist with an array of official bureaucratic and financial matters on all levels. 

Hiring an accountant

If your business already has a bookkeeper, but you begin to struggle with legal financial questions, it might be the time to hire an accountant. Typically, only larger businesses would need an in-house accountant. But if you work in a very tax specific area, you might think of hiring one as well. Otherwise, you can outsource accounting to a CPA firm. 

There is a tool called CPA Verify that you can use to do a background check before hiring external help. It will confirm the license and check for any disciplinary action taken against a potential CPA. 

Outsourced accounting isn’t always cheaper than in-house, so it’s good to compare the pricing by getting several quotes. 

Costs

The costs of hiring an accountant are higher than those of hiring a bookkeeper. According to the Bureau of Labor Statistics, the median pay for accountants in 2019 was $71,550. CPA qualified professionals typically earn the most. 

How to decide whether you need an accountant or a bookkeeper?

Young businesses often get away by doing their bookkeeping themselves. In the long-run, it wouldn’t be financially wise to keep doing that, as many errors might creep in, potentially losing your money and time. There are several telltale signs that you might need to hire professional help. 

  • Problems with maintaining financial statements
  • Struggling to reconcile accounts every month
  • Confusion with using the Chart of Accounts
  • Issues with cash flow

Many businesses might only need to hire a bookkeeper and invest in an accountant during the tax season. Having a bookkeeper that regularly produces financial statements will give you enough data for an accountant to process tax returns.

As the business grows, you might have to enlarge your bookkeeping team and hire an accountant for more than just the tax season. 

If you are looking for investors for your business, diligently processed financial statements over an extended period will be a must. A bookkeeper can assist with producing those regularly. 

While the majority of small businesses can follow the model of hiring a bookkeeper for a month-to-month collaboration and investing in accounting help during the tax season, it is important to note that combining both will certainly guarantee that you are covered. 

Summary

A notable factor in hiring bookkeepers and accountants is that it can be seen as a real investment, and often it brings you more in revenue and savings than you end up paying. Proper financial management, as well as diligent record-keeping, is crucial for businesses. When you have an established business, even a small one, having the two work together for you can allow you to feel secure, knowing that financial experts are making sure your business stays in perfect shape.


Fanya Becker

Fanya Becker

Fanya Becker is a Synder expert with sound experience in consulting various clients on automation solutions. She researches and provides guidance for small businesses on their path towards automating mundane and recurring parts of their workflow, works with professional accountants, and frequently interviews industry experts to create relevant and forward-looking content for Synder.

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