So you decided to start a small business (oh yeah!) and then you started looking at the numbers (oh no!). You know you need help, but you're not sure what kind. Which do you need: an accountant or a bookkeeper? What's the difference?
Help me.
Bookkeeping
A bookkeeper makes sure that a business' finances are in order. They are the first line of defense against financial ruin. That is, they help to answer questions like:
- Did your business pay all of your bills?
- Did you receive payment for your invoices?
- Is your account reconciled?
This is usually done on a month-to-month basis.
Based on all of your financial records that are entered over the course of the month, a bookkeeper can then run various financial reports such as a balance sheet or a profit & loss statement (P&L) which will allow you to see how well your business is doing and if you have any problem areas. For example, is your business profitable or not? Do you have enough cash on hand for upcoming expenses? Do you need to collect your invoices in a more timely manner?
Accounting
An accountant, on the other hand, focuses on taxes and audit preparation. They take your business's financial records to the government and make sure that everything is legal and up to code on a yearly basis. If you have a good bookkeeper, your accountant's job will be much easier when it comes time for them to do your tax return. They also help to make sure that your records are in order if or when your business gets unexpectedly audited.
In other words, a bookkeeper keeps a record (or a book!) of your financial transactions and an accountant tells you what those numbers mean for you. A bookkeeper can tell you how much you spent on throwing a pizza party for your clients and if your pizza party was profitable; an accountant can tell you how much you can deduct from the IRS for your pizza party.
Mmmm... pizza
In general, you're more likely to have a closer relationship with your bookkeeper than you will with your accountant because you'll be in contact with your bookkeeper on a more regular basis, whereas you might only see your accountant once or twice a year, just in time to get your taxes done. It's important to make sure that your bookkeeper is someone who makes you feel comfortable and who you feel like answers your questions.
At M. Root Bookkeeping, I specialize in bookkeeping and not accounting, but I am always happy to refer clients to a trusted local partner.