Bookkeeping and accounting keep your small business ship sailing. But, do you know the difference between the two? Are you familiar with how each can benefit your business when done properly? Do you have a clear understanding of how both disciplines impact your small business taxes? Well if not, allow us to clear things up.
The first thing you should know is that bookkeeping and small business accounting is not the same thing. They sound similar but they are not interchangeable roles. And while they are complimentary of each other, they each play a specific role in serving your business. Think about it this way…booking focuses on the everyday tasks that maintain your business’s finances while accounting for small business considers the big picture strategy to keep your business strong and growing.
Bookkeeping tracks and records important financial information. Accounting puts that information to good use. Make sense? Good. Now, you know what to expect from each party. You can also expect both your bookkeeper and account to work closely together to ensure information is accurate and you are set up for success. Especially during tax time, January through April.
Key Differences in Bookkeeping and Accounting
We’ve explained the difference in the concept behind bookkeeping and accounting. But, the difference between the two really is in the details.
The traditional role of a small business bookkeeper involves managing the day-to-day financial record keeping of a business. As the name implies, they are truly keeping the books. That means transactions get plugged into the QuickBooks or whichever accounting software is being used. Spreadsheets are updated. Bank statements get reconciled at the end of each month. And, financial statements are prepared. In small businesses especially, you’ll often see bookkeepers paying bills, cutting checks to employees, invoicing clients, and making deposits.
So, what’s the accountant doing during this time?
Small business accounting involves analyzing the business’s financial trends and forecasts in order to advise business owners of ways to keep the operation financially sound. They also work to prepare for and minimize your small business taxes. This involves putting together monthly and quarterly statements and making quarterly tax filings. At least, those are the traditional roles of an accountant and a bookkeeper.
Changes in Bookkeeping Methods
It’s perfectly understandable if you thought bookkeepers and accountants did the same thing. After all, they both deal in numbers. And for many of us, numbers turn our minds to mush. But beyond that, dramatic changes in software and technology have streamlined many traditional accounting and bookkeeping processes. As a result, duties are crossing over between the two roles. For instance, new software releases bookkeepers from having to be so focused on data entry. This allows them to spend more time advising their clients, much like an accountant would.
Not Your Grandfather’s Bookkeeping
Speaking of technology…it has become so prevalent in modern bookkeeping and accounting that bookkeepers are now often consulting clients on technology stacks that can help them optimize their business. At the same time, due to the ever-increasing complexity of the tax code, accountants are more often finding themselves in the role of tax coach. They design small business tax strategies for businesses to ensure money stays in the business instead of needlessly going to the government. And, because business income can be directly linked to personal income, the accountant’s tax advice can carry over to the business owner’s personal finances and taxes. Consider it a tax-taming twofer.
Clearly Defining Accountant Roles
Naturally, the blurring of accountant/bookkeeper duties can create some confusion. That’s why certain states are stepping in to define who can or cannot claim to be an accountant. For instance, in some states, like Texas, a person must be a certified public accountant to even be able to call him or herself an accountant. Other states only require you to have a degree in accounting. Regardless of what they call themselves, the most important thing for you to do is ask your prospective accountant or bookkeeper what specific roles they will perform for you and your business.
Which is Best for Your Business?
Ultimately, it’s best for you and your business to have both a bookkeeper and an accountant. Their varied perspectives on your finances can help ensure you’re able to anticipate problems and have the appropriate solutions ready to go. To hire just one or the other could leave you with an incomplete picture of your company’s financial health. The more eyes looking out for your business, the better. That not only allows your bookkeeper and accountant to keep in their respective lanes and focus on what they do best, it also frees you up from those extra tasks and worries to concentrate on running your business. If you wanted to be an accountant you wouldn’t have started your business, right?
Finding The Right Accountant
Finding the right bookkeeper and the right accountant for your small business isn’t as difficult as it might seem. One thing to consider is that many bookkeepers know accountants and vice versa. So, you could always ask them. And because accountants and bookkeepers work so closely together, it’s safe to presume they won’t recommend anyone they don’t like working with themselves.
Here’s another thing to consider: Unlike other companies, Xendoo caters to both bookkeeping and accounting needs. We can provide you with excellent financial management as well as long view advice to help you make the best decisions for your company. Why not contact us now? We’re ready to discuss the best solutions for you.