Accounting and Bookkeeping: What's Best for Your Small Business
The terms accounting and bookkeeping tend to be used interchangeably in the business world. In reality, their actual definitions vary significantly in regard to job function and work experience. As a small business owner, it's important to understand the difference between the two roles in order to decide which will be most beneficial to your business. Remember that all accountants can perform bookkeeping functions, but not all bookkeepers will have the knowledge to manage the entire accounting process.
The Basics of Bookkeeping
Bookkeepers are essentially the recorders of financial data. According to the Department of Labor, bookkeepers are considered to be on the same level as accounting clerks. Although professional certification is available through the American Institute of Professional Bookkeepers (AIPB), bookkeeping positions usually require little or no college education. Aside from recording daily transactions, bookkeepers may also reconcile bank accounts, pay bills, and generate customer invoices. With training, a bookkeeper may be able to complete accounting functions such as balancing journal entries, compiling payroll runs, and preparing financial statements.
The Role of the Accountant
While bookkeepers maintain the daily financial records, accountants are trained to see a company's finances on a much larger, more predictive scale. Beyond the ability to compile annual financial statements in accordance with Generally Accepted Accounting Principles (GAAP), many accountants are asked to advise business owners on the impact of larger, company-wide decisions. Professional accountants will hold a college degree in their chosen field and will oftentimes earn their position as a certified public accountant (CPA) or a certified management accountant (CMA). Due to their increased education and expertise, accountants generally earn a higher salary than bookkeepers.
Which Is Right for my Small Business?
Hiring accounting and bookkeeping staff for a small business often depends on several factors. If your small business processes uncomplicated transactions, a bookkeeper may be able to handle financial recordkeeping in combination with an online accounting program. This is a great option for a small business looking to save money in the initial start-up stage, but may be expensive if you hire additional help during tax season.
When accounting processes increase in complexity as a company grows, a certified accountant may be necessary. This is especially true of the more highly regulated industries like health care or financial institutions. The benefits to hiring an accountant include full-time financial advice and year-end tax preparation, but often come with a higher price tag.
Accountant and bookkeeper duties will overlap to some extent, so it's important to weigh out each option carefully before committing. Keep in mind that with the advances in online accounting systems, many of the financial duties completed by accountants are now simplified and easily accomplished by a bookkeeper.