Operating a small business is demanding. Financial management, customer service, excellent communication, negotiation, project management, networking, and leadership are few of the many business skills required to be more profitable. Amidst daily demands, nagging requests, and unforeseen problems, small business owners often oversee a tight budget. According to the U.S. Small Business Administration, nearly 50% of small businesses fail within five years – largely because of insufficient capital and crippling debt. Thus, it is crucial for a small business owner to fully understand the difference between financial necessities and extraneous spending.
One common question arises from this balance: do you need an accountant for a small business? In the following content, we seek to aid small businesses by answering this pressing question.
Accountant vs. Bookkeeper
Many business owners would answer yes to the accountant question. However, we believe it is much more nuanced than this, primarily because of definition misunderstanding.
“Accountant” is an interesting and commonly misconstrued term. A brief Google search reveals this definition: “a person whose job is to keep or inspect financial accounts.” However, the tasks of a bookkeeper are commonly and inaccurately absorbed into the role of an accountant. Googling “bookkeeper” reveals the following definition: “a person whose job is to keep records of the financial affairs of a business.”
In essence, while a full-time CPA is not required for a small business, a bookkeeper is. What are the primary differences? Surprisingly, most people would be hard-pressed to explain the varying roles. Both positions are crucial to different stages of the accounting process, with sometimes overlapping work. Bookkeeping is part of the accounting process. Below, we’ll piece apart each unique role:
Bookkeepers are trained to record, classify, and organize a business’ regular financial transactions. This includes sales, payroll, bills, mileage, PTO, and unforeseen business expenses. Instead of focusing on analytics, bookkeepers emphasize organization and accuracy. If a bookkeeper performs his or her job well, the accountant should be able to pick up and finish the accounting process without returning with a plethora of questions.
As mentioned, accountants pick up where bookkeepers leave off, building on the provided information. Accountants will review financial statements then move to the next steps, including analysis and interpretation. Returned financial statements allow the organization to make financially-informed business decisions.
Why Do You Need a Bookkeeper?
As mentioned, while a full-time CPA is not a small business requirement, a bookkeeper certainly is. Small businesses require the expertise of a bookkeeper for three primary reasons. Firstly, bookkeeping provides a reliable performance measure. Secondly, bookkeeping is a requirement due to taxation. Thirdly, while bookkeeping can be done by a business owner, most do not have the time or training to complete bookkeeping tasks well.
The Importance Behind Bookkeeping
Corporate Financial Institute explains the importance of bookkeeping:
Proper bookkeeping gives companies a reliable measure of their performance. It also provides information on general strategic decisions and a benchmark for its revenue and income goals. In short, once a business is up and running, spending extra time and money on maintaining proper records is critical. Many small companies don’t actually hire full-time accountants to work for them because of the cost. Instead, small companies generally hire a bookkeeper or outsource the job to a professional firm. One important thing to note here is that many people who intend to start a new business sometimes overlook the importance of matters such as keeping records of every penny spent.
Beyond the importance of their position, bookkeepers are essential due to the existence of taxation. Every individual and organization has a responsibility to the IRS. If an organization wants to stay in business and conduct commerce, certain responses, documents, and taxes must be provided. Without taxation, bookkeepers would be unnecessary. Profit and loss documentation, run-off balance sheets, cashflow analysis, etc. would be useless, thus eliminating the need for a bookkeeper’s expertise.
Most importantly, bookkeeping is essential, because many business owners do not have the expertise or time to complete bookkeeping tasks. If you are a business owner who currently completes bookkeeping tasks, or relates to the following questions, it may be time to hire an outsourced expert.
- Are you too busy categorizing transactions to emphasize selling or business development?
- Are you falling behind on collecting accounts receivable?
- Are you falling behind on client invoicing?
- Do you keep bills and receipts in vulnerable areas, such as in a shoebox under your desk?
- Do you have too many accounts to glean valuable, actionable insights for your business?
- Does tax season bring about unhealthy levels of anxiety? Do you play catch-up every year to get your books in order?
- Do you spend over five hours monthly on bookkeeping activities?
- Are you largely unclear what, exactly, you are spending and making?
Identifying an Ideal Bookkeeper
An excellent bookkeeper will perform all necessary accounting tasks at a fraction of the cost of a full-time CPA. The bookkeeper can hand over the work to a CPA who will complete the process without many questions. In the architecture industry, an architect plans, designs, and reviews the construction process of buildings. An architect pays careful attention to the aesthetic and functionality of the building, also adhering to all legal demands. However, the architect does not carry the blueprint to completion. He hands it to the contractors, who follow the blueprint to build the structure. The contractors, however, do not design the building.
The relationship between an excellent bookkeeper and a CPA can be viewed similarly. The bookkeeper plans, designs, and reviews daily financial happenings. When all information is passed to the CPA, he only needs to execute. Finding an organization with complementary teams provide the greatest value.
My Remote Quality Bookkeeping
At MyRQB, our cohesive team provides expert bookkeeping and accounting services. As a team, we are dedicated to you. Each different department works in tandem to create a pleasant, professional, all-encompassing experience. Every decision is made by experts. You do not have to get into the financial mess. Contact us at (866) 567-4258 with any questions, request a quote, or schedule a live full solution bookkeeping demonstration today. We look forward to working with your business.