Small Business Finance: The Importance of Bookkeepers and Accountants
As a small business owner, one of the most important tasks is managing finances. Poor cash flow management is one of the primary reasons why companies fail. This makes it essential to understand the difference between bookkeeping and accounting and how hiring professionals for these respective roles can benefit your business.
Bookkeeping vs. Accounting: Understanding the Difference
Although the terms are often used interchangeably, bookkeepers and accountants are not the same. Bookkeepers record financial transactions and activities within a business, while accounting refers to the process of accumulating, organizing, storing, and accessing your company’s financial information. Bookkeeping is a largely subjective process, while accounting tends to be more transactional, with accountants being more knowledgeable about tax rules.
Why Hiring a Bookkeeper is Necessary for a Growing Business
With bookkeeping often being an afterthought, it is not uncommon for small business owners to leave it to an employee with no experience or training. This can lead to haphazard record-keeping. Paying bills online may be easy, but inputting the transactions into the accounting program is critical. The same goes for writing paychecks – proper withholding and tax payments must be deposited on time. A professional bookkeeper can provide additional services such as accounting program setup, payroll setup, and sales tax configuration, which can save you time and prevent costly mistakes down the line.
The Role of an Accountant in Helping Businesses Thrive
While a bookkeeper tracks financial activity, an accountant uses this data to provide a more in-depth understanding of profitability, cash flow, and financial planning. This role is critical for businesses looking to make better financial decisions. Accounting reports ensure better accountability, and controls can help detect and deter fraud and other dishonest activity. Not all accountants are created equal, some have CPA designations, demonstrating they have gone through rigorous certification processes.
When to Call in a Professional
Bookkeepers are essential when your business grows rapidly and the paperwork becomes overwhelming – they can keep your records managed. Accountants and their expertise are critical when you need help understanding profitability, cash flow, and tax planning. The less straightforward your financial situation is, the more inclined you should be to hire an accountant.
Finding the Right Bookkeeper and Accountant
It’s critical to understand your needs before looking for a bookkeeper or accountant. Do you need help with data entry or financial analysis? Find someone familiar with your industry. Ask for references; ask about software and security features, and how communication will take place. It’s also essential to ask any potential accountant for certification and accounting experience – don’t forget to check out any references provided.
Expanding on the Topic: Tips for Effective Small Business Financial Management
In managing small business finances effectively, knowing the difference between a bookkeeper and an accountant is only the start. Here are some additional tips:
1. Understand Your Financial Needs
It’s essential to have a good understanding of your financial requirements to know whether you need a bookkeeper, accountant, or both. This will inform your decision when it’s time to hire a professional.
2. Maintain Accurate and Organized Records
Keeping accurate and organized financial records is critical for knowing where you stand financially at any given time. It’s important to maintain records of all financial activities that occur in your business.
3. Use Accounting Software
Investing in accounting software can help streamline financial management tasks, especially if you don’t have the resources to hire a bookkeeper or accountant. Nonetheless, it’s important to devote the necessary time to learn and properly implement the software.
4. Separate Business and Personal Finances
Mixing business and personal finances can be a recipe for disaster. You must keep your business finances separate from your personal ones to avoid confusion, errors, or mismanagement.
5. Track Cash Flow
Cash flow is the lifeblood of any business, and it’s critical to monitor it closely. Regular tracking of cash flow can help inform decisions regarding investments and financial planning.
Summary
In summary, managing finances as a small business owner is no easy feat. Hiring professionals such as bookkeepers and accountants can go a long way in ensuring proper cash flow management and financial planning. Accurate record-keeping, using accounting software, separating business and personal finances, tracking cash flow, and being proactive about identifying financial needs are all essential tips for any small business looking to thrive financially.
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As a small business owner, managing your finances is no easy task. One of the main reasons why companies fail is poor cash flow management. If you don’t have a lot of accounting/bookkeeping experience, there are a few things you need to know. The money you will spend on these professional services is well worth it!
Although the terms are often used interchangeably, bookkeepers and accountants are NOT the same thing. Each provides distinctly different services for your business. Bookkeepers record the financial transactions and activities of your business. Accountants use this financial data to help you make better business decisions and are generally more knowledgeable about tax rules. Accounting is largely transactional while bookkeeping is more subjective.
Accounting refers to the process of accumulating, organizing, storing, and accessing your company’s financial information, known as general ledger maintenance. The bookkeeper tracks the money going in and out of your business through sales, purchases, payroll, taxes, and all other relevant transactions. Bookkeepers may have two to four years of experience or an associate’s degree.
In addition to filing the necessary tax documents, accountants use the information generated by bookkeepers to generate reports, forecast trends, and make recommendations to help keep your business running. The accuracy of these reports is entirely dependent on the accuracy of the information provided by the bookkeeper. Accountants’ reports provide a better understanding of actual profitability and raise awareness of cash flow in the business. Also, the accountant establishes checks to make sure the system works well. These controls can help detect and deter theft, embezzlement, fraud, or other dishonest behavior.
Not all accountants are CPAs. Accountants with a CPA (Certified Public Accountant) designation have completed a specific certification process, including a bachelor’s degree in accounting or finance, passed a certification exam, and gained hands-on experience under the tutelage of other certified professionals.
These entities are not mutually exclusive. Businesses generally do better when the bookkeeper, accountant, and owner work together to set goals and share information.
Bookkeeping in a small business is often done as an afterthought, by an employee with no accounting knowledge or training and many other duties. This can lead to haphazard record keeping. If you are going to use a clerk, make sure they are properly trained in your accounting system and have regular communication with your accounting professional.
When to call a professional? Bookkeepers are needed when your business is growing rapidly and you can’t keep up with paperwork. Accountants are needed when you need help understanding profitability, cash flow, financial planning, and business tax planning. Rule of thumb: The more complex your financial situation, the more likely it is that you’ll need an accountant.
Finding the right bookkeeper and accountant is important to your business. First of all, you need to understand your needs. Do you need simple data entry or superior financial analysis? You need to find someone who is familiar with and understands your business or industry. A used car salesman probably won’t want to hire someone who only has restaurant experience.
Professional bookkeepers can provide additional services to your business, such as accounting program setup, payroll setup, and sales tax setup. Misconfiguration in any of these areas can lead to costly mistakes down the road.
Paying bills online is easy, but are you entering these transactions into your accounting program? Writing paychecks in a timely manner is important to your employees. More important to your business is making sure that proper withholding and tax payments are deposited in a timely manner. Not your forte? Then it’s time to hire it done. Find out what you don’t have time or want to do, then pay someone else to do it.
Before you hire someone, ask questions. Do they have certification? Do they have experience in your industry? Do you provide local references? What accounting software do you use? What services do you provide? What is your billing structure? Does your software have security features? What is the best way of communication (email, phone, on-site visits)?
Can you afford to hire these professional services? The real question is, can you afford NOT to have them? A ticket, accompanied by penalties and interest, can easily exceed the cost of professional services. Do what you do best and hire a professional to take care of the details.
Cheri Hoffman is a volunteer business mentor with SCORE’s Tip of the Mitt chapter. She earned an MBA and gained 35 years of management experience in multiple business settings, including medical office management, real estate development, oil and gas exploration and production, and nonprofit management. To apply for SCORE’s free and confidential small business tutoring service, call the Petoskey Regional Chamber of Commerce at (231) 347-4150.
https://www.petoskeynews.com/story/business/columns/2023/06/03/bookkeeping-and-accounting-for-small-businesses/70278889007/
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