The Role of a Bookkeeper vs. an Accountant: Do You Need Both?
The Role of a Bookkeeper vs. an Accountant: Do You Need Both?
Financial statements provide essential information about the company’s financial health and performance. However, the use of financial ratios enables us to analyze different aspects of the business, which are not evident by simply looking at the business’s financial statements.
Successful financial management is the cornerstone of any business that wants to achieve a sustainable future. The modern business landscape is extremely challenging and hence it is of paramount importance that aspiring business owners must invest proper time and effort into making their business profitable. For these purposes, 2 roles come into view that at first glance look similar but have some distinctions that set them apart from each other. These roles are bookkeepers & accountants.
What does a bookkeeper do?
Bookkeepers are involved in carrying the overall bulk of day-to-day financial transactions that a business makes. They must ensure that all transactions carry on without any mishap and that the stored records of transactions stay up-to-date and are stored accurately for future reference.
Key Responsibilities of Bookkeepers:
- Keeping transaction records: Bookkeepers keep a close watch on all the transactions that take place within the organization. This includes the purchases, expenses and sales all made by a business.
- Managing Account/Receivables & Account/Payables: Both sides of the business namely the sales and the purchases must be watched over properly such that timely transactions can be executed.
- Discrepancy Mediation / Reconciling of Back Accounts: Bookkeepers make sure to verify whether the financial findings are accurate or not. This helps in providing businesses with peace of mind that they’re financial affairs are properly sorted.
- Preparation of financial reports: Bookkeepers are instrumental in generating minimal financial reports that can be used to roughly analyze the overall financial health of any business. These reports include the cash flow statements or the profit/loss statements.
- Handling employee payroll: Some bookkeepers are involved in the management stratum of employee salaries. They must make sure everyone is paid the adequate amount that they are contracted on at the correct time without fail.
What does an accountant do?
Accountants take the work of a bookkeeper and turn it up a fair notch or two. They analyze financial data and aid in the future financial decision making that a business may undertake.
Key responsibilities of an accountant:
- Financial Analysis: Accountants provide the business with valuable financial analysis that can help in formulating the future trajectory of a business. This is done in collaboration with the bookkeepers.
- Preparing Financial Statements: Accountants are heavily involved in procuring the more complicated financial statements like the balance sheet and the income statement that are then given to the regulatory authorities or to the lenders.
- Tax Preparation and Filing: Accountants help in writing the tax returns of the business as well as keeping a keen eye out to detect any and all potential tax law infringements. They also help in the calculations of tax obligations and the minimization of tax liability as a whole.
- Budget & Forecasting: Accountants play a role of utmost importance when helping the business plan for the future as you may never know what can happen. They do their best to direct the path of the incoming financial future towards a sustainable and profitable period.
- Advising on Financial Strategy: Accountants are efficient vendors of sound financial strategical advice due to their vast experience and can help in multiple aspects of a business from the ground up. These can pay off with great benefit later on.
The Difference b/w a Bookkeeper & an Accountant:
The major differences b/w a bookkeeper & and accountant occur in the overall scope and direction of their work. Both of them share common ground in dealing with finances but operate at distinctly different levels.
| Aspect | Bookkeeper | Accountant |
|---|---|---|
Aim |
Day-to-day financial transactions |
Financial analysis and strategy |
Jobs |
Recording, organizing, and reconciling |
Tax prep, financial reporting, advising |
Required Knowledge |
Basic financial knowledge and software |
Advanced financial expertise |
Goal |
Accurate, up-to-date records |
Strategic decision-making |
So, are both roles required?
The answer is that it depends heavily on the given situation. Both roles are suited for different levels of financial management.
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When might you prefer a bookkeeper?
A bookkeeper is preferred when the needs of the business lean towards the smaller and more manageable side. The business only has a handful of financial tasks that need to be done and hence the overall stress is low and can be managed easily. These tasks can be easily handled even with basic knowledge.
When might you prefer an accountant?
An accountant is preferred when the needs of a business lean towards the smaller and more chaotic side. The business has a plethora of tasks that need to be executed with extra precision. Advanced tasks like dealing with financial strategy, tax filing/returns require the expertise of an accountant to be done properly.
When would you opt for both?
Businesses that necessitate extensive financial operations that are complex in nature might leverage both bookkeepers and accountants in order to properly deal with the ever-increasing demands of a successful business venture. The grunt of the financial work can be mitigated by the bookkeeper and his efforts can aid in the planning, analysis and compliance spheres where the accountant resides.
How can accountants and bookkeepers work together:
On first glance, bookkeepers and accountants might look like 2 different sides but we must understand that they are part of the same coin. Hence, they can overlap and do work together quite well. An example is:
- Bookkeepers collecting data: Bookkeepers can be used to gather all the relevant financial data that a business need to keep a healthy track of. This includes each and every transaction so that the records are proper.
- Accountants utilizing collected data in analysis: From the data gathered by the bookkeepers, the accountants can carry out thorough analysis that can be of great aid to the business in the long stretch.
- Streamline Collaboration b/w both parties: This collaboration leads to a very linear financial concerns resolution pathway where both parties pull their own weight in order to benefit the business as a whole.
Choosing the right professionals for our business:
Before choosing whatever role you need for your business, you must verify whether the person that you are selecting actually has the necessary qualifications in order to benefit your business dealing or not? For this purpose, the following tips have been curated to ensure correct decision making:
- Opt for Experience: Always look for the potential hire with the most experience so that they may hit the ground running when they join your company and you won’t have to utilize extra resources in order to train them.
- Make Use of Modern Technology: As the world keeps evolving, it has made it a necessity to learn the intricacies of modern technology so that our work can be done more efficiently. Tools like Xero and Quickbooks make data sharing easier and lower operating costs.
- Check Credentials: Before making any potential hire, do verify if they have the qualifications required for the job or not. In particular, look for CPB (Certified Professional Bookkeeper) and CPA (Certified Public Accountant).
Start Small and Aim for Rapid Growth: Take your time in developing your business so that you may not need to face any adversity or in the worst case possible you can deal with said adversity properly.
Conclusion:
Bookkeepers and Accountants both have their own distinct roles in the financial ecosystem and its important to understand their defining characteristics so that we may use them in the best ways possible. Making great use of both of these resources is essential in developing a successful, long-lasting and profitable business.
