What's the difference between Bookkeepers and Accountants?

A common question folks ask us-what is the difference between a Bookkeeper and an Accountant?

Bookkeepers tend to be folks who offer transaction-based recording into a company’s accounting system, such as checking account transactions and invoices. Bookkeepers organize receipts and data for business owners, but generally do not review financial statements or provide advice. In most cases, Bookkeepers are not licensed, certified, or registered with regulatory authorities. Record keeping is important for every business; without good books, it is impossible for small businesses to prepare required quarterly filings and annual tax returns.

Accountants usually hold a higher degree such as a Bachelor’s or Master’s degree. They also may hold an additional professional certification such as a Certified Public Accountant (CPA), Enrolled Agent (EA), Certified Management Accountant (CMA), or other accredited titles. These titles require ongoing continuing education and updates. Accountants are able to perform higher-level duties such as account reconciliations, summarizing and preparing financial statements, analyzing key ratios and performance indicators, assist with planning and cash flow, etc. Overall, accountants offer more consultative services, analysis, and strategic planning for the businesses they serve.

Larger CPA firms go through a rigorous peer review process and are licensed with state regulatory authorities in order to provide audit and attest services. CPAs and EAs can also file tax returns once registered with the IRS.

Some small businesses start out with a bookkeeper paired with an external accountant (for annual tax filings for example) until they are large enough to hire an in-house accountant. Others outsource their entire accounting and tax function. To determine which level of service is best for you, meet with a few different service providers who will take the time to understand your business, your needs and filing requirements. Accounting is not a one-size fits all service; do not be afraid to take time in finding a partner that fits your needs.


Why picking an accounting software program and setting up a system for your business is like car shopping

Car shopping can be tedious. Do you need the fully loaded luxury car with air conditioning, or do you just need a basic one with the roll up windows and four wheels? Do you want Bluetooth or CD player? The Blue or the red one? Is the salesperson upselling you on items that you do not need?

Picking out accounting software and setting up a system for you or your staff to utilize can be tedious too. It is not easy to test drive accounting software either. Businesses usually begin with an off-the shelf program. However, like cars, small businesses should select a package and then have the features customized to your needs.

What is the number one thing I have seen small businesses do wrong that has cost them a ton of time and money to fix later? It is not having their accounting system customized and set up for them by a professional. I have had clients, and have heard stories repeatedly from peers, of small business owners literally having to pay thousands of dollars to have their accountant redo things because they did not spend the time to set up their accounting system correctly.

You may have heard the phrase, “junk in, junk out.” That may sound a bit extreme, but spending the time (and sometimes money) to set up your system to provide the correct output of data is key to a strong, useful, and efficient financial reporting. Just like buying a certified used car at a dealership versus the one with a for sale sign on the side of the road, there are benefits of working with someone who can verify you are not going to stranded wishing you bought a different vehicle.

Similar to the car buying process, when selecting an accounting system, the first question to ask yourself is, who is the end user and what are their needs?

Here’s some questions to ask yourself before investing in an accounting software program:

-What key performance indicators and accounting lines will help you make the best business decisions? Maybe there are certain expense types and line items you want to see broken out in more detail and in a manner that is easy for your analysis. Your accounting system should not only keep track of the ins and outs, but it should also add value to your day-to-day operations.

-Do you need certain accounts and reporting structure in order for your tax preparer to be efficient? Did you know you can save time and money by creating account types and bucketing expenses to match the lines on your tax return type? Most people are unaware of the additional time accountants have to charge for because a company may bucket into one line item widgets and wizzers in one account, when for tax purposes, they need to be broken out separately. Sometimes the opposite occurs; a company wastes time breaking out every single type of office supply expense in their bookkeeping when in fact for tax purposes, it’s all bucketed together on one line.

-Do you need an audit, financials for bankers or investors? Similar to the tax situation above, certain line items shown on financials are based on industry standards and Generally Accepted Accounting Principles (AKA GAAP).

-What does your business look like five years from now? Are you a one-person shop forever, or is your plan to grow into a multi-location, multi-employee entity? Investing in a larger accounting software package may seem like a lot at first, but may save you money and grow much easier with you as you scale your business. On the flip side, if you have no plans to expand, then you may not need a Cadillac with extra bells and whistles that you will never use.

-Who is using your system? If you are going to rely on lower or entry-level staff to maintain your books, you need a user-friendly system that is easy to use and offers ongoing training opportunities. If you plan on outsourcing to bookkeepers, there are industry norms (i.e. QuickBooks, Xero, etc.) that allow any service provider to pick up and catch up wherever another may have left off. To take it one-step further than this article, always have an accounting manual for staff so transactions are entered into the system consistently the same way every time.

-Are you paperless and cloud-based, or more of a shoebox and file cabinet kind of business? Regardless of form, record retention is key. Under audit, you are expected to provide backup for your business financial records. Is it easier for you and your staff to have access digitally or do you prefer a paper system?

Five reasons why you need a virtual CFO

1. An independent perspective.  You love what you do and you are passionate about your business. While that love and passion can push us to work hard to further our goals, it can sometimes blind us to things that may not be working well or lead us to taking risks when the company may not be financially ready.  An independent, outside perspective can help you avoid making costly mistakes and ensure that you invest in a way that allows your business to grow when it needs to.

2. Flexibility.  Whether you are an entrepreneur, an artist, or a long time small business owner you can expect that your needs will change as your business changes.  From day to day bookkeeping and monthly accounting reconciliation, to hiring new employees, investing for future expansion of your business, and of course tax time, a virtual CFO is there to meet your needs however big or small they may be.  

3. Affordability.  Your business is growing.  You know you need the skills of a CFO but you cannot afford to hire a fulltime accountant or take on a new employee.  Contracting a virtual CFO allows you to have the support you need at a price you can afford, and often at monthly flat rates that allow you to have predictable costs. 

4. Knowledge.  No one is an expert in everything.  When it comes to the financial stability of your business having an expert to advise you is invaluable.  CPAs are required to keep up to date on the latest accounting regulations and changes to tax law.  Plus, many CPAs specialize in providing support for particular industries, so you can know how to plan financially in a way that makes sense for your business.

5. Time. You want to be able to spend as much time as you can focused on growing your business, but you often find yourself bogged down by seemingly endless paperwork, payroll, bank statements, and account reconciliation.  Hiring a virtual CFO allows you to focus on what you do best, and leave the rest to the experts.  You’ll receive regular updates so you have the financial information you need to make your day to day decisions as well as plan for the future.

 Why businesses fail

According to the Small Business Administration, one third of businesses with employees will fail in the first two years, and fewer than half make it to five years.[1]  Those are some discouraging numbers, but the good news is that if you make it to five years your likelihood of success is pretty high.  What can you do to help make sure that you have the best chance possible to make it to that five-year mark? 

There are many reasons businesses fail.  There may be too much competition in the market they are in, or worse, there is not a market for their product at all, but even if a business has a great product, it won’t succeed if there are financial stumbling blocks.  82% of businesses fail due to cash flow problems and 29% run out of money altogether![2]  That’s huge and quite likely preventable.

Having the support of a virtual CFO can help you make sure you are on the right financial track.  They can assist with predicting how much funding you might need to start your business, or how to help it grow.  They can provide you with a review of your financial history so you know if you are in a place to hire new employees, or expand.  They will work with you to determine what your financial goals are and what steps you may need to take to meet them.

Knowledge is power and having a virtual CFO on your side will help ensure that you have the financial knowledge to succeed.

[1] https://www.sba.gov/sites/default/files/Business-Survival.pdf

[2] http://www.visualcapitalist.com/why-do-businesses-fail/

You can’t do everything…really

In American culture the pull yourself up by your bootstraps entrepreneur is practically a superhero.  They are celebrated for their drive and ambition.  We stand in awe of their seemingly undepletable supply of energy; their passion for what they do.  That there might be a darker side to the entrepreneurial life is not discussed.  But the life of the entrepreneur is not all go-go glamour.

According to a recent study by Harvard Business review the vast majority of entrepreneurs experience anxiety, stress, and worry.[1]  Many have reported a fear of burnout and that they don’t have enough time in their lives for family or self-care.  The drive to make the business succeed can become an obsession crowding out all other things in their life.  This doesn’t sound very glamorous at all!

How can you avoid burnout?  Having the right help can go a long way.  A virtual CFO you trust can make sure your business stays on the right financial track.  They can take over the hours of accounting tasks you are currently doing alone, giving you the time to focus on your customers, clients, and running the business that you love. 

They can reduce your risk by offering an outside perspective so you can make sure you are not missing important opportunities and prevent your business form being tripped up by unseen stumbling blocks.  They will also make sure you are following proper accounting principles and are operating in line with the latest changes in tax law.  Less risk means less stress!

More time and less stress make it much easier to achieve the work life balance that might have been part of the reason you sought to work for yourself in the first place. You want your business to succeed and thrive; having the help you need can make sure that you succeed and thrive too.

[1] https://hbr.org/2018/04/what-makes-entrepreneurs-burn-out