Before determining whether or not you should hire an accountant or a bookkeeper, it’s imperative to understand the difference between the two roles. On the surface, you can think of them as respectively subjective and objective.
Bookkeeping is the process of recording daily transactions in a consistent way. As mundane as it may seem, it’s an essential component to building a financially successful business. Bookkeepers will produce invoices, post credit and debts, record expenditures, complete payroll, and balance subsidiaries.
Maintaining a general ledger—a basic document that records the amounts from sale and expense receipts—is one of the main functions of bookkeeping. The complexity of these systems depends on the size of the business and the amount of daily transactions made.
Accounting, alternatively, is a higher-level subjective process that uses the information compiled by a bookkeeper or business owner to produce financial models. Accountants will analyze costs of operations, prepare adjusting entries and financial statements, complete tax returns, and aid the business owner in understanding the impact of certain financial decisions.
Accounting brings together financial indicators, resulting in a better understanding of profitability and awareness of cash flow. Accountants will take the ledger from the bookkeeper to produce a bigger picture of the business and company progress. Whereas bookkeepers may or may not have college degrees, accountants usually always come with credentials.
When to Hire and When to Wait
Some business owners learn to manage their finances on their own, while others opt to hire professionals, freeing themselves up to focus on the aspects of the business that they love. What should you do? Well, if you’re still filing your taxes with a Form 1040EZ, chances are your financial situation is simple and not in need of an accountant. However, once you have kids, own a business, and have a mortgage, the tax codes get increasingly complicated. Accountants can be a great investment for both your business and personal life.
Hiring a professional to track the constantly-changing tax codes will prevent costly audits and penalties, as well as free up your own time to redirect productivity elsewhere. Furthermore, accountants can save a sizeable amount of money for the self-employed or small business owners. They know how to navigate tricky tax write-offs and look for things such as a home office, mileage, internet connection, new equipment and much more. The fee to hire an accountant is small in comparison to the amount of money they can save.
Some people are confused as to whether a bookkeeper is redundant if they’ve already hired an accountant. In short, no – you should have both. For one, the accountant depends on the information provided to them by the bookkeeper. You will save money on the accountant’s fee if they don’t have to gather all of this financial data themselves. All sales and purchases made by your business must be recorded in your ledger.
This can be a cumbersome responsibility for a business owner who already has much to juggle. Additionally, some items will require certain supporting documents. The IRS lists which business transactions mandate a supporting document on their website, and it’s a bookkeeper’s job to keep up-to-date with this information.
Hiring someone for bookkeeping tips can improve your financial situation in both your personal and professional life, especially if you have multiple streams of revenue. Besides, most people hate doing math, and a bookkeeper can save you a major headache by tracking and recording numbers on your behalf.
The Bottom Line
Both your business and your personal life stand to benefit from organized financial records and balanced finances provided by a bookkeeper, especially when combined with an accountant’s smart financial strategy and accurate tax filing. Ultimately, it comes down to a choice between investments.
Would you prefer to invest money by paying professionals to do your taxes, or would you to prefer to invest time, by handling the processes and research yourself? The decision is different for everyone, but if you choose the latter, make sure you’re fully aware of what you’re signing yourself up for.