“One of these things is not like the other…”
We hear this question all the time: “Do I need a bookkeeper, or an accountant?” The answer is… yes.
Bookkeepers and Accountants are terms that are sometimes used interchangeably, and many of their skills and abilities do overlap, but there are some key differences that should be mentioned that will help you understand when you should be using the services of each profession.
1. Macro vs. Micro
Bookkeeping is an indispensable part of the accounting function. Bookkeeping refers to the process of gathering, organizing, categorizing, storing, and accessing the day-to-day financial information of a business, which is needed for two basic purposes:
- Facilitating the day-to-day flow of financial information through the company
- Preparing financial information, government remittances, and internal reports to managers
Bookkeeping (also called recordkeeping) can be thought of as the financial framework of a company. The information needs to be complete, accurate, and timely. Every recordkeeping system needs a series of rules built into it which are called internal controls.
The term accounting is much broader, going into the realm of designing the bookkeeping system, establishing controls to make sure the system is working well, and analyzing and verifying the recorded information. Accountants give orders; bookkeepers follow them.
Accounting measures the financial effects of the business activity. It includes the production of financial reports from which stakeholders in the business can make decisions for the future. Business managers, investors, and many others depend on financial reports for information about the performance and condition of the company (is it growing, shrinking, flat-lining…).
Accountants generally prepare annual reports for use by others based on the information provided by the bookkeeping process: financial statements, tax returns, and various confidential reports to managers. Measuring profit is a critical task that accountants perform — a task that depends on the accuracy of the information recorded by the bookkeeper. The accountant can only produce reliable reports if the information they are working with is accurate and recorded correctly.
2. What information do you need?
Whether or not you want to deal with it, keeping on top of how your company is doing financially is extremely important to the health and growth of your business. You may be familiar with typical financial reports such as profit and loss statements, balance sheets and statements of cash flows… but do you have any idea how to read them? Bookkeepers, because they deal with the day to day financials of your business, are able to drill that information down and produce reports for you that are clear, understandable, and timely – to help you make decisions.
Most bookkeepers will provide for you graphs, charts, and comparative tables that will clearly show you how your business is doing today versus yesterday, last week, last month and last year. They can easily track other things for you such as listing for you your top five products sold, your bottom five, your top five customers, and more! This information is vital to any business owner who wants to grow their business. Companies today need to be able to change with the market and having the right data to make decisions is imperative!
3. How complicated are you?
There are a large number of bookkeepers out there who do not hold a ‘professional designation’ such as a CA, CGA, or CMA but do possess the knowledge and experience to produce for you accurate financial reports, management reports, financial statements and tax returns. Whether you need an Accountant or a Bookkeeper to perform these functions for you depends largely on how complicated your business is and what your external stakeholders (banks, shareholders, partners, government bodies, etc.) require.
For example, if you have an external stakeholder (such as a government body) that requires you to have periodic fully audited financial statements then you will need the services of an Accountant. They are currently the only ones able to legally produce those documents for you. Now, there is nothing stopping you from having your highly qualified bookkeeper do all of the leg work and bring your books to the point where the Accountant needs to take over – this generally saves you hundreds or even thousands on your Accountant bill!
So what does this all mean for you, the small business owner? Essentially, investing in a high quality bookkeeper can ultimately save you hundreds, and even thousands, of dollars by ensuring your company is always meeting its legislative requirements, you are remitting your taxes and deductions on time, and your books are maintained properly so that at the end of the year your Accountant has a nice, clean set of books to produce your financial statements from. It also frees you up to do what you do best, which is growing your business and selling your products and services.
If you need assistance setting up your bookkeeping system, hiring an in-house bookkeeper, or outsourcing your bookkeeping please give us a call and book a free consultation!