Many sole entrepreneurs bookkeeping jobs are doing all by themselves (popularly referred to as DIY accounting). But, as their business grows, they will need much more time to finish all the tasks. With the job volume, its complexity is also rise, so it would be better to let professionals handle that for you.
You are faced with a choice, will you outsource it to the company, certified professional or hire a person to work full time in your company. It all depends on your needs.
One more thing you need to be aware of, a book balancing can be done by bookkeeper or accountant. Here is the full guide where we will present you differences between those two professions to help you decide which one you will employ (or you will continue to take care of everything on your own)
What is the Difference Between a Bookkeeper and an Accountant?
Many people don’t know the difference between a bookkeeper and an accountant. At the first glance, it seems that they are doing the same job, but that is just common misconception. True, both professionals work to prepare you for audit, advise you regarding taxes and how to manage your cash flow, but there is one major difference between them. They are working at different parts of the accounting process.
Bookkeeper’s job is to collect and sort out company’s financial transactions: paid bills, customer invoices, compensations, etc. They need to give you an insight of your current finances in the given moment, and with that, their role ends.
A person who is doing bookkeeping job doesn’t need to have college degree or accounting certification, he/she just needs to be good with calculations and detail-oriented. Of course, some basic knowledge of accounting standards and principles are necessary to get the job done.
On the other hand, an accountant, continue the work done by the bookkeeper. An accountant need to expand the insight in your finance and prepare you balances with sources of incomes and costs. To do so, an accountant must create complex reports according to international accounting standards.
Only after looking at their reports, the owner of the company, or the board of directors in larger companies, can make strategic and financial decisions.
This division of roles exists in large companies, but in smaller ones it can come to overlap to a certain extent.
It is very common that bookkeepers take over many accounting tasks by order of the superior, even if they are not qualified enough. But with the advance of technology, specifically accounting software, that is not a big issue nowadays. Software made complex calculations and adjusting to accounting standards automated and straightforward.
But, in conclusion, a bookkeeper is responsible for just one aspect of accounting, taking record, while accountants take care of the whole process.
When DIY Accounting isn’t Enough and you need to Hire Someone?
As we already said, an accountant goes through your book records and analyzes all financial aspects of your business. From them you can get precise overview of your company’s status, how it is positioned on the market. Large companies have accounting department with several certified accountants, while mid-sized can go with smaller team or even outsource it.
Besides preparing balance sheets and cash flow reports, you can always get a consultation from your accountant regarding decision making. They can point you in the cases of mergers, acquisitions, bank loans, or functioning of related legal entities.
Some other services you can get from an accountant are:
- Tax preparations and planning
- Preparing financial statements
- Business planning and advising
- Internal auditing of books
- Consultation services to help in decision making
- Budgeting, financial forecasting, and estate planning
- Setting up accounting software
All of these tasks are something you don’t need regularly. That is why DIY accounting is popular among small enterprises. But, for strategic decisions and budgeting with business planning, their help is invaluable. It is always a good idea to consult with accountant before doing any major changes to your business. Their experience from your industry will give you better insight in the course of action.
When is it Better to Have Bookkeeper?
To be clear, it is better to have an accountant, because that person covers all the aspects of accounting. But, if you want to cut costs, you can employ bookkeeper who doesn’t need to possess certification. Of course, you can still use services from professionals occasionally, when you have need for it.
You can hire a full-time employer for your company or seek a freelancer online. The latter can be valid option, but you need to establish communication channels and ways to send files to a bookkeeper. You need to find a person who is punctual and responsible and who will report any irregularities arisen from business operations.
Of course, just as you can go with DIY accounting, you can do the same with your books.
Common bookkeeper tasks include:
1. Maintaining and balancing accounts
2. Preparing financial reports
3. Reconciling bank statements
4. Handling accounts payable and receivable
5. Processing payroll
6. Recording sales and purchases
7. Filing taxes
8. Creating budgets
9. Tracking expenses
10. Monitoring cash flow
Bookkeeper’s has to keep very day’s tasks in order. His concern is to ensure you pay your bills on time. They also organize your work books, so you can easily manage cash flow and maintain liquidity. This is also very important in terms of calculating taxes.
A company owner will work with a bookkeeper on an ongoing basis. One of their duties implies taking care of your stock. These days bookkeepers use accounting software for generating financial documents. They also lead communication with government institutions in charge of enterprises.
Because the bookkeeper organize all the documents your business generates, an accountant will have much easier job in preparing financial statements for your company. That way, you will save money.
What You Need to Know About Managing Your Own Books
Just to be clear, many business owners will that you that DIY accounting isn’t the best idea in the long run. Yes, it is great to manage all aspects of your business and keep things (especially finances) under control, but what if you want for your business to grow. Will you manage to do so if you are taking care of your books? Is it now better to focus on more important things and transfer some of your responsibilities to someone else?
Keep in mind that these are responsibilities you have when doing DIY accounting:
- Track income and expenses through receipts and records
- Prepare basic financial statements
- Prepare and submit business tax returns on time.
- Monitor accounts receivable and payable
- Track cash flow
- Create purchase orders and invoices and bill clients
- Investigate discrepancies in financial statements or transactions.
If you are not afraid of that amount of work, a good idea is to invest in professional accountant software that will make your life much easier. After initial set up, you can manage all your company’s assets through it. You will have overview of your finances just a click away.
A software can be pricy, but if you have a lot of products and clients, you need to have a better solution with proper support. It is not advisable to use free software solutions as they are not sufficient for all the company needs. You can always start with free ones and see how it will goes.
For initial set up of software you will need help from the accountant. You can seek him from the company you purchased your software from, or if you already have one on your payroll, you can ask him for help. Every accounting software needs to be set up according to local legislative and accounting standards that are in use in your county.
Accountant, Bookkeeper, or DIY Accounting?
There you go, you can choose between employing professionals and managing your books all by yourself. Every approach has its advantages and disadvantages from time savings to cost savings, you just need to weigh what is more important for you.
If your budget is limited and you are starting small, DIY accounting seems like logical step, especially if you know with computers and use accounting software. Even hiring a bookkeeper can be a good idea. As your business grows, you can delegate much of your tasks to other people and in the end hire a licensed accountant.