The financial side of running a business can be tricky like no other area - sometimes you'll want to consult an expert. Accountants help you to keep your finances in order, but bookkeepers play an important role too. So what are the differences between a bookkeeper and an accountant? And how can a bookkeeper help you to run your business? We spoke to some experts at Xero, producers of accounting software for SMEs, to find out more.
Bookkeepers and accountants are not the same
If you’re a small business owner, you’ll be familiar with juggling multiple tasks. As well as keeping things running you need to generate revenue, keep customers happy, and look after the financials. Tracking financials can be a chore though, and one of the biggest questions you might have is who you get to help with your accounts. Do you need an accountant, a bookkeeper or both? Let’s start by clarifying a few things.
Accountants and bookkeepers have different jobs and responsibilities. Your accountant’s main focus is:
- the preparation and lodgement of statutory returns
- advising on legal entity structures
- giving general business and financial advice
Accountants are usually members of a statutory association. Qualified and registered accountants might call themselves CCAs (Chartered Certified Accountants), CAs (Chartered Accountants) or other titles.
Bookkeepers can manage lots of different responsibilities within a small business. But the main focus is organising, recording and reporting financial transactions as part of the operational life of a small business. In more recent times, some bookkeepers have extended their range of duties to include:
- training clients to use accounting software
- implementation of document management and inventory control processes to create efficiencies within the business
- implementation of POS (point of sale) systems that capture the daily transactions in a retail environment
- development, implementation, maintenance and review of internal business processes
You will often find that a bookkeeper has an area of specialisation, and it’s a good idea to ask them more about this when you are looking at hiring them for services.
What do bookkeepers do?
Here are some of the tasks a bookkeeper will perform to help keep your business running smoothly:
Keeping track of daily transactions
A bookkeeper can handle the recording of day-to-day bank transactions. If the accounting software you use has daily automatic bank feeds, this is a great tool for your bookkeeper to use. When your bank statement lines are fed into your accounting software, it’s much easier to keep an eye on cashflow, and it also saves time on data entry.
Sending invoices and managing the accounts receivable ledger
Preparing invoices and sending invoices to clients is usually the bookkeeper's job. Managing the accounts receivable ledger – and chasing late payments – is also likely to be done by your bookkeeper.
Handling the accounts payable ledger
Up to a certain amount, it's usually bookkeepers who will make any payments on behalf of the business. This includes payment of supplier invoices, expenses and petty cash.
Keeping an eye on cashflow
One of the most important tasks for a bookkeeper is making sure the company doesn't run out of money day-to-day. They can do this by monitoring the balance of revenues to expenses. Then they can take action, or offer advice if it looks like the business needs more ready cash.
Preparing the books for the accountant
It's the bookkeeper's job to make sure that accounts are valid and up to date when the accountant needs them. This allows the accountant to use their skills and knowledge to make business recommendations, report to the board, and complete company tax returns.
In summary, it's the bookkeeper who does the day-to-day work so that the accountant can concentrate on strategic financial operations. So bookkeepers play an important role – without them, accountants can't do their jobs properly.
Bookkeepers and accountants working together
A well-run business will usually make use of both accountants and bookkeepers. The division of labour is important. Here's how it could work:
As noted in our guide about hiring an accountant, you should use an accountant to help you set up your business. Accountants can help you create your business plan and set up a company structure that best suits your business.
An accountant or bookkeeper can also help you select the right accounting software and set it up so that it works well for you and your employees – especially your bookkeeper.
After completing the above tasks, a bookkeeper can focus on keeping your company's accounts up to date on a daily basis.
The accountant and bookkeeper will get together regularly, perhaps once a month. They might meet in person or they work remotely, using cloud accounting software with shared access. Either way, the accountant will look at the figures in the accounts and the bookkeeper will explain any numbers and decisions that aren't clear.
The accountant will report to the business owner and the board members. The accountant will report on the state of the accounts so that the board and owner have a clear picture of the financial health of the business. A bookkeeper can also provide reporting, but in a less formal way and on a more regular basis with what is called management accounts. These reports are often used by the business owner as checkpoints to see where the business is heading on a weekly basis.
Armed with up-to-date figures, the accountant will be able to make recommendations to the business owner and the board. The accountant will offer advice about any planned expansion and investment. They will also advise on whether the business can afford to move into new markets and other financial strategies.
The accountant will use information prepared by the bookkeeper to write company reports. These reports will include information about income and expense, net profit, assets, liabilities and tax. The accountant will also file company tax return forms and arrange for tax payments to be made.
This is a sensible way of sharing the workload. The accountant does the work that they have been trained to do, and the bookkeeper provides the necessary financial data.
Five ways that a bookkeeper can help your business
If you run a very small business, you might be the bookkeeper – at least until you can afford to hire someone to do the work for you. Once your business reaches a certain size, it will start to make sense to have someone do the bookkeeping for you. Here are five ways that a bookkeeper can help:
Allows you to concentrate on business strategy
Bookkeeping involves tracking fine detail and recording it in accounts software. Working with these numbers can sometimes make it hard to see the big picture. So it's usually better to have someone else do this work.
Reduce your accounting costs
Are you using an accountant to manage daily transactions and run monthly payroll? If so, you could save a lot of money by having a bookkeeper do this work instead.
Have an extra pair of eyes watching your cashflow
If you want to avoid running out of money suddenly, you need to actively monitor your cashflow. We've discussed this in our guide to managing cashflow. It helps to have someone else checking the numbers, making sure your cash keeps flowing, and a bookkeeper can do that.
Get quick access to vital figures
Having an accountant manage your monthly business reconciliation and reporting is important. But what if you need financial information part-way through the month? Bookkeepers can give you the insight you need quickly, without you having to wait for your accountant to respond.
Keep control of your financial data
Few small businesses can afford to hire their own accountant, so most accountants work on a part-time basis for their clients. If they use quality online accounting software to manage financials, it makes collaboration much easier. Good software allows bookkeepers work on the same set of data as the accountant. They can both work together to deliver the best outcome and help your business grow.
Bookkeeping helps your business run smoothly
Bookkeeping is a vital job in any business. This is true whether you do the work yourself or hire someone to do it for you.
Without proper bookkeeping, accounts will not be accurate. That means your accountant won't get a clear picture of your company's finances, and you can’t make strategic business decisions.
Just as importantly, your business has a legal obligation to accurately record its accounts and file company reports to HMRC. So it pays to get this right. Bookkeeping will help you do all of this – and will also provide you with useful insights into the financial health of your business.