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What is Bookkeeping & What Does a Bookkeeper Do?
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Like with many jobs, bookkeepers wear many hats. Their day-to-day work can differ depending on the type of industry they are employed in. That said, there are a few general duties that almost all bookkeepers perform.
What does a bookkeeper do exactly?
The first role is simple: “Bookkeepers need to keep the books reconciled,” said CPA Susan Clarke, owner of Clarke Public Accounting in Chicago.
That means reconciling all balance sheet accounts to make sure that the transactions included in an asset, liability, or equity account are valid. Bookkeepers need a solid understanding of accounting principles and the industry they are doing the bookkeeping for since some have special requirements, Clarke said.
Bookkeepers will also typically need to manage bank feeds, matching downloading transactions to existing transactions in the corresponding register, and adding transactions that aren’t already there (like credit or debit cards or checks).
Other common duties bookkeepers handle include:
- Categorizing expense transactions (such as itemizing office supplies, taxes, reimbursable expenses)
- Recording bill payments
- Reconciling bank and credit card statements
- Applying payments to invoices to show which clients or vendors has paid and who still owes money
- Running reports to summarize all the financial information for the business owner
- Manage accounts receivable (all the money owed to a business from all his or her clients for products delivered or services performed) and accounts payable (outstanding payments a company owes another company for services or goods bought on credit).
- Manage payroll and inventory
“Based on the particular needs of the business, the business owner really needs to identify the most important duties,” Clarke said.
A bookkeeper’s specific duties will change depending on what the type of business and the needs of the business owner. However, all bookkeepers will do some form of financial record-keeping.
Why your business needs a bookkeeper
Most business owners start a business to perform a service or provide a product — not to keep track of bank reconciliations. Business owners need bookkeepers because that frees them up to run the other business operations. Owners can’t give their small business their full attention if they’re stuck trying to balance the books, or keep track of financial minutiae for tax season. Having a bookkeeper means that someone else is dealing with all of those financial concerns, and owners can focus on the parts of the business that really need their attention.
“Hiring a bookkeeper enables small business owners to outsource a part of the business that they don’t enjoy so they can focus more on the part that drove them to open up shop in the first place,” says CPA Helena Swyter, owner of SweeterCPA in La Grange Park, Ill. “ Having a professional do the books gives the business owner both extra time and extra confidence that things are done correctly. “
A bookkeeper will ensure that finances are tracked properly throughout the year so business owners aren’t scrambling when tax time rolls around. Outsourcing this work lets business owners focus on their business needs, rather than being overwhelmed with financial duties. “When it’s time to file quarterly and annual income taxes, they can be confident that everything is in order and ready to hand off to their accountant,” Swyter said.
An extra bonus is that bookkeepers can also help spot trends or areas of growth for businesses. Because they are so involved in the business finances every day, they can see patterns that others might not. For example, Swyter says, bookkeepers might be able to track expenses from various suppliers to help a business owner reduce inventory costs. This is something that the owner wouldn’t be likely to notice, or have time to pay attention to. But because this is the job of the bookkeeper, they’re able to point out these observations that an owner would otherwise miss.
When to hire a bookkeeper
Most small businesses don’t have a bookkeeper on staff, but hire one on a contract basis. “The bookkeeping function can be easily outsourced, and generally the value of the time saving to the owner far outweighs the costs.”
A Gallup poll found that 39 percent of small business owners work more than 60 hours a week. To decide if it makes sense to hire a bookkeeper, first start tracking the hours you spend doing DIY bookkeeping. Then figure out how much your time is worth, calculate how much “money” you’re spending on it, and compare with what a typical hourly rate of a bookkeeper would be. Needless to say, if you spend more “money” doing it yourself, it’s time to find yourself a bookkeeper.
The earlier you can get a bookkeeper the better. They can help you stabilize your finances after starting a new business, keep an eye on your cash flow, and ensure that you don’t get behind on your bookkeeping. This will be a huge relief come tax season!
Why it’s important to understand bookkeeping
Even though you are outsourcing the actual day-to-day bookkeeping duties, it’s still a very good idea for a small business owner to have at least a basic understanding of a bookkeeper’s duties. That will prevent someone from taking advantage of you. Knowing the basics of their duties and of your business financials will go a long way towards preventing any fraud and every business owner should have a good handle on his or her company’s finances.
A beginner’s course in accounting basics can help if you don’t know where to start. By the end, you’ll at least have an idea of how to review your bookkeeper’s work to make sure it matches up with what you know to be true about your business’s finances. Check your local community college or a business development center to see if they offer classes. The Small Business Administration also has a self-guided, online Introduction to Accounting course.
Although you don’t have to know all the ins-and-outs of your financials, it helps to have some context when you approach your bookkeeper with questions. An understanding of what you’re asking a bookkeeper to do for your business, be it categorizing transactions or payroll services, will help you keep a pulse on the health of your business.
What’s the difference between bookkeeping and accounting?
The difference between bookkeeping and accounting duties can be a point of confusion for business owners, so here’s the breakdown.
The main difference is that bookkeeping is a job that takes care of recording financial transactions while accounting is responsible for interpreting, analyzing and summarizing the financial data of a business. In short, accounting will require analysis while bookkeeping will not.
There are many similarities and plenty of overlap between bookkeeping and small business accounting. These professions both handle important financial data and require basic accounting knowledge. For some small businesses without an accountant, a bookkeeper may take over some of the reporting and analysis (usually with the help of accounting software that can make transaction classification easier.) The inverse might also be true, where a business that has an accountant but not a bookkeeper will record financial transactions on behalf of the company. It’s important to keep in mind that accountants are qualified to handle the accounting process from end-to-end, and bookkeepers generally only handle financial transactions. Accountants can work with bookkeepers as advisers and review their work, while bookkeepers record and track data that accountants will analyze.
In short, both bookkeepers and accountants have distinct roles that may sometimes overlap and will certainly complement each other.
Do I need a bookkeeper and a CPA?
Whether you need both a bookkeeper and a CPA will depend on your business and financial situation, but it’s probably a good idea.
A Certified Public Accountant (CPA) is an accountant who has a CPA certification, one of the most rigorous certifications an accountant can achieve. If an accountant has a CPA credential, it means they’ve successfully passed comprehensive exams on topics like regulation, financial reporting and audits. It’s a difficult kind of accounting designation to obtain, so you can be sure that anyone with a CPA is a highly qualified professional.
Some services that CPAs can provide include proper accounting treatments for difficult financial issues, strategic advice, help with obtaining business loans, advice about tax planning, and assistance with filing your business tax returns. In general, CPAs have a great amount of experience, but it’s worth keeping their background in mind and make sure it’s relevant to your business. If a CPA is from a large firm, they might be very specialized and without the specific experience that your small business needs.
Because CPAs are so specialized and have very thorough qualifications, they charge a premium for their services. If you plan hiring a CPA, the best use of your resources is to delegate the financial duties between a bookkeeper and a CPA. Bookkeepers and CPAs are typically used to working hand-in-hand, with the bookkeeper handling basic accounting and month-end closing duties and the CPA taking over for more complex financial issues and tax returns. It’s also a good business move to have your CPA review your books once a year (at minimum) to make sure your finances are in order. Think of it as a wellness check-up for your business, where the CPA ensures everything is in proper shape and spots any potential issues before they become serious.
A bookkeeper can also serve as a translator between you and your CPA during tax-time. Since your bookkeeper will be much more familiar with your books and finances than you might be, they will be well-equipped to handle questions from your CPA about your tax filing and return. They’ll also be able to pass on your questions to the CPA and get you straight answers. That way, you can just focus on running your small business.