Is it time to hire an accountant or bookkeeper?
Maybe you’ve you noticed one of these warning signs…
- You have absolutely no idea what your bank balance is
- You haven’t got last year’s tax return done because you just haven’t got everything together yet
- Your bills aren’t getting paid on time even though there’s enough money in the bank
- Your QuickBooks is still in its original box because you haven’t had time to install it
- Your QuickBooks is installed, but getting your data into it takes way too much time and makes you want to pull your hair out
- Your Excel spreadsheet is getting to be as large as the national debt ( BTW, I don’t recommend using Excel for accounting data in the first place…no, not even inventory…but that’s a subject for a different time)
- You realize that you missed the deadline to send in that rebate form…you know…the one that made your purchase such a great deal to begin with (yeah, I know THAT one all too well)
You need to understand the difference between bookkeepers and accountants (and the tasks they can do) AND and who can use those words to describe themselves.
What is bookkeeping?
Bookkeeping can be defined as
- The recording of a company’s financial transactions
- On paper, into an accounting software program or on-line service
- In a consistent fashion
- Using standard, well-defined procedures
While it might be somewhat of an oversimplification, I think it’s usually helpful to think of your bookkeeping tasks as data entry.
What is accounting?
Accounting tasks can include the following
- Creating a chart of accounts
- Determining accounting policies
- Reconciling bank and credit card statements
- Preparing financial reports
- Analyzing financial results
- Managing the financial system
Accounting also includes making decisions about what level of detail should be recorded.
Do you want to keep track of your income by type of product sold, by which location or venue you used to sell the product, or by some other criteria? Or do you want to keep track of multiple criteria? Is it more important to you to know your total sales of blue widgets or would you rather know how many you sold on Ebay and how many you sold on Amazon? Maybe you want to know how many repeat customers you have or maybe you could care less. Maybe you’d like to know how many people who bought your widgets also bought an instruction book on how to use widgets. As the business owner, you get to make these choices.
Are accountants and bookkeepers regulated?
There are very few laws regulating who can call themselves a bookkeeper, an accountant, or a tax preparer. That’s one of the main reasons why it can be so difficult to decide who to have help you. And why it’s so important for you to understand the type of work you need done so you’ll be able to evaluate a person’s knowledge, education, experience, references, and credentials. And I suggest you do just that.
Accountants usually have taken some college accounting courses or have a degree in accounting; bookkeepers usually haven’t. Some bookkeepers might have formal bookkeeping training and certification. Many bookkeepers are self taught and have no professional credentials.
But some people who call themselves bookkeepers might actually have formal accounting training. They choose to say they do bookkeeping because that’s a term business owners use and understand.
Keep in mind also that many accountants also do bookkeeping or have bookkeepers on their staff or have cooperative arrangements with bookkeepers they can refer you to.
What about CPAs ? (Certified Public Accountants)
There ARE regulations governing who can call themselves a CPA. To become licensed as a CPA a person must have:
- Completed a certain number of courses and hours in accounting at the college level
- Earned a college degree
- Worked for several years under the supervision of a licensed CPA
- Passed a national exam
To keep their licenses in good standing, CPAs have to take ongoing courses every year, abide by a strict code of ethics, and follow whatever other rules there are in the State where they practice.
While you might think of your CPA as the one who does your 1040 tax return, CPAs have all kinds of specialties (sort of like doctors and lawyers). Some may be in general practice, some in tax practice, some may specialize in consulting.
In addition to accounting and bookkeeping, a CPA might also be able to help with other aspects of your business such as startup advice, choice or change of entity, and tax planning.
How do you choose what kind of help to get?
The best answer for you depends on your knowledge and comfort level and the stage your business is at. If you’re first starting out, I recommend that you get accounting help in setting up the chart of accounts and establishing your accounting policies and procedures.
Whoever sets up your accounting system will establish the procedures so that the bookkeeping entries are made so they’ll get you the information the way you need it.
If you know you’re going to use QuickBooks, make sure the person who actually sets up the program for you is knowledgeable in QuickBooks.
Why is the accounting setup so important?
A good setup is absolutely critical because your accounting system provides the information you need to prepare your tax returns and (more importantly) make decisions about how you run your business. When you have good data, you’ll be able to tell
- Which products are most profitable
- Which locations sell the most
- Who your best customers are
- when you can afford to buy more inventory
Knowing the answers to these questions will help you be more successful.
As far as the actual bookkeeping (or data entry) goes, your accountant and/or QuickBooks advisor (they don’t have to be the same person) can train you or your bookkeeper to put in your purchases and sales records. These transactions are usually fairly easy to make because they follow repetitive patterns from month to month.
What else is important to get help with?
You’ll want your accountant to set up the format for any unusual items or journal entries that need to be made, especially if you have fixed assets that need to be depreciated. It’s always a good idea to have your bank and credit card statements reconciled by someone other than the person who enters all the transactions. You can have the accountant do this every month or you can do it yourself.
No matter who you choose to help you, understanding the numbers is your responsibility. I encourage you to learn as much as you can about accounting and taxes because that’ll help you run a successful business.