If your small business is experiencing growth, your financial paper trail is also increasing. As your need for well-maintained financial records increases, you might be considering adding either an accountant or a bookkeeper (or the software equivalent) to your staff.
But, which is best to add? This post will explore the function of bookkeepers and accountants so that you can choose which is best to hire for your growing business.
But, to answer that, we first need to address the difference between the two.
What is the Difference Between Bookkeeping and Accounting?
The easiest way to break down the difference between bookkeeping and accounting is to look at what each does for your business. When explored further, bookkeeping and accounting are actually like two sides of the same coin—they are both concerned with maintaining the financial wellbeing of your business, but they each have a different scale of concern.
Let’s dig into this further.
Accounting is Big-Picture Oriented
An accountant’s primary responsibility is getting your business ready for tax season. Additionally, they provide business insights and financial counsel based on data collected and curated by bookkeepers. As a result, it’s easier to describe an accountant’s role as top-down, big-picture.
Accountants will handle the following:
- Getting your business’s tax returns ready for tax season
- Monitoring financial growth and assessing financial performance
- Monitoring spending and addressing the budget
- Advising on financial risks
- Compiling quarterly financial reports to assess growth, profits, and losses
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Bookkeeping is Focused on the Small-Picture
Bookkeepers take a bottom-up perspective. Their concern is with the day-to-day financial transactions and financial relationships your business engages in during its normal operations. In addition to this, bookkeepers are responsible for maintaining a ledger of financial transactions and balancing your business’s budget.
Here’s a breakdown of the duties of a bookkeeper:
- Managing, tracking, and following up on invoices
- Conducting and recording financial transactions
- Keeping track of accounts payable and receivable
- Sometimes handling payroll
- Maintaining the ledgers of the whole business, departments, and subsidiaries
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Bookkeeping and Accounting Are Both Essential For Maintaining Your Business’s Financial Wellbeing
If you need to decide what role is a more essential hire for your business, you have to assess what your business is lacking. The question isn’t so much about which is “better” because both bookkeeping and accounting provide equally essential assets to a business. You need to assess how effectively your business is currently managing its finances.
If you aren’t maintaining good bookkeeping practices, any accountant you hire no matter how skilled—won’t be able to do their job effectively. That’s because an accountant’s success depends entirely on the thoroughness and accuracy of the financial records they have access to. They use your business’s financial data to project profits and losses, assess financial risks, and other essential tasks.
If you don’t have your bookkeeping in order, hiring an accountant is a waste of time and money.
That’s why you need to get your bookkeeping in order before you hire an accountant. Luckily in 2022, there are many bookkeeping options available to small businesses—from self-managing your business’s ledger by using bookkeeping software to outsourcing the task to third-party bookkeeping companies or even hiring on-staff bookkeepers.
What Are Bookkeeping Options For Small Business Owners?
There is no “superior” option when choosing the bookkeeping strategy for your business. What you ultimately decide on should be based in part on the type of business you operate and the size and scope of your business.
Keeping Your Own Books
If your business is small enough, you may want to take advantage of bookkeeping software to help you maintain financial records. By managing the tasks yourself, you are saving on the costs of hiring someone else to do it.
Bookkeeping software has come a long way since the simple programs of the 1980s. To be competitive, most bookkeeping software companies optimize their user interface for convenience and accessibility, making it an ideal choice for small business owners who want to manage their business’s finances independently.
Though there are some differences between them, all bookkeeping software will help business owners manage the following:
- Managing accounts payable and receivable
- Generating, issuing, and tracking invoices
- Collecting online payments from clients/customers
- Credit card and bank synchronization
- Cash flow analysis
- Financial Statement Generation
- Access for accountants, bookkeepers, and other employees
However, there may come a point where your business grows too large for you to manage as its owner and bookkeeper. That’s when you’ll need to consider hiring a third-party bookkeeper service or adding a bookkeeper to your staff.
In-house Bookkeeper vs. Third-Party Bookkeeping Service
Small business owners need to consider two factors when choosing between an outsourced bookkeeping service and hiring a bookkeeper on staff.
- The costs
- Specialization
Weighing the Costs
You have to decide what is more cost-effective based on your business’s needs—adding a bookkeeper on staff or using outsourced services. According to the US Department of Labor, the median annual pay for a bookkeeper in the US in 2020 was $42,410. Likewise, depending on the services you need, outsourced bookkeeping can cost as low as $400 per month but as high as $5,000. That’s a range of $4,800 – $60,000 per year!
You need to shop around to determine the most cost-effective solution for your business. You might find that an outsourced service is best, but it may be cheaper to hire one on staff, depending on your business’s needs.
Considering Specialization
You also need to consider your business’s niche. If your business’s industry is uncommon, you might need to hire a bookkeeper on staff to deal with the peculiarities of your specific industry. Some “one-size-fits-all” bookkeeping services might not be suitable for your business.
What Does Your Business Need?
You now have the information you need to determine whether your business needs a bookkeeper or accountant. To sum up, if you need to pick one or the other and you don’t have adequate bookkeeping skills, go with a bookkeeper.
Hiring an accountant and not having good financial records is a waste of money. After that, consider what kind of bookkeeping services are best for your business.
Roni Davis is a writer, bookkeeper, and legal assistant operating out of the greater Philadelphia area. She writes for Seattle employment lawyers, Rekhi and Wolk.