Many entrepreneurs shudder when they think about tracking and managing their finances. One study in 2019 found that 61% of Americans turn to their parents as key influencers in how they manage their money but also found that 46% of kids under the age of 21 gave their parents a financial literacy grade of C or lower. Most people view money management as something confusing that should be avoided.
However, if you are starting a small business, you need to stay on top of your finances. Good bookkeeping is essential for knowing where you stand financially, while strategic accounting moves can help you save money and take calculated risks.
But what is the difference between accounting and bookkeeping? Is there one? Should you hire an accountant, a bookkeeper, or both? This guide will review these answers to help you make strategic decisions for your business.
What Does a Bookkeeper Do?
Simply put, a bookkeeper keeps the financial books accurate and organized. Every transaction that goes through a company is recorded by the bookkeeper, down to each sale or expense. The bookkeeper is in charge of the general ledger, which records every expense and all revenue.
Without clear organization and detailed bookkeeping, companies cannot have a full picture of the health of the business. Missing invoices might not reflect how much a company truly owes, and business owners could fall behind on their payments if they don’t know who they need to pay.
Additionally, if a bookkeeper doesn’t record each of its income streams (both passive and active) accurately, the business owner might not take certain calculated risks because they don’t have all the data needed to make their decision.
While many colleges and universities offer bookkeeping courses, there are no formal education or certification requirements for this job—making it hard for small business owners to properly vet bookkeepers. Generally, when looking for a competent bookkeeper, assess their financial acumen as well as their organization and attention to detail.
What Does an Accountant Do?
While bookkeepers primarily record the company’s financials, accountants analyze the information and provide insights to the business. With the help of an accountant, a business owner can take steps to grow the company’s profitability and understand the risks that come with new ventures.
For example, an accountant might review the coupons that a company offers to determine which ones are most used by customers and which ones are most profitable. Do more customers use a “percent off” coupon? Does the company lose money from coupons? Is the price right for the product to justify the coupon? Your accountant will then collect the data to form a report and present their findings and recommendations moving forward.
Accountants are also valuable with complex financial challenges like tax filing. The tax system is complicated for individuals and sole proprietors, but it can get even more confusing for small business owners—especially as your business scales. An accountant will take the information provided from your books and do their best to make sure your taxes are accurate and that you’re taking advantage of eligible tax credits.
Which Do You Need for Your Business?
Both professionals provide value to business owners. However, the decision as to which one to hire will depend on your company size, industry, and background.
The first thing to ask yourself is how disorganized is the state of your current financials. If you need someone who can update your books and keep them in order every day, then you may want to hire a bookkeeper to keep on staff. You can also contract a freelance bookkeeper who works at your business once a week to update all of the records.
Next, evaluate your ability to objectively look at data related to your business and produce insights from the information. If you don’t like working with numbers or don’t have time to sort through data to find insights, an accountant can help. Once again, instead of a full-time employee, you can work with an accounting firm or contract an accountant for a set number of hours each month.
What Does it Cost to Hire an Accountant Vs. Bookkeeper?
One of the key considerations when deciding between a bookkeeper and an accountant is the costs tied to each. While the costs will vary depending on your needs, location, and other factors, hiring a bookkeeper should be substantially more affordable than an accountant.
PayScale estimates the average salary for an entry-level accountant at $51,388 compared to a bookkeeper’s salary of $43,175. The price for an accountant can rise to $100,000 or more annually if you’re looking for senior-level accountants or CPAs.
As a business owner, you need to be very diligent with your expenses—especially when it comes to managing your finances. Before you hire an accountant or bookkeeper, consider the tasks that you need that individual to perform and whether you even need an accountant. The last thing you want is to pay a premium for an accountant’s skills and training only to use them for bookkeeping tasks.
Instead of hiring a full-time accountant or bookkeeper, consider alternative options for financial management such as outsourcing, hiring a part-time person, or leveraging online solutions like Sunrise, which offers small businesses a dedicated bookkeeper and financial tools starting at $149/month.
Accountant Vs. Bookkeeper: Which is Better?
Both bookkeepers and accountants have a place in business. Analytic insights move a company forward, but only if they are accurate. “The data analytics are only as good as the data received,” Ryan Wichmann, an accountant at Rehmann, says. “If there is bad data or too much data, the focus can easily be lost.”
Your company may not be able—or need—to hire both a bookkeeper and an accountant, but knowing your options and understanding the pros and cons to each is important in deciding the best way forward for your business.
If you do decide to look into software solutions to help mitigate the need for a full-time accountant or bookkeeper, consider the Sunrise app, which was designed to help small business owners with bookkeeping specifically.