Getting started as a small business is an exciting time. It can also be incredibly stressful, especially once you start spending—and making—money. It’s easy for any business owner to become overwhelmed with all the financial data they need to track, store, and eventually use when tax season comes knocking. Whereas large companies have an established bookkeeping process and even an in-house professional accountant, as a small business, it’s likely you’ll be taking on all financial aspects of your business yourself. Financial management is critical as you begin to build momentum—and we don’t just mean accounting practices. Financial management also includes all financial details, such as managing payroll, storing financial information, recording financial transactions, creating a cash flow statement, balance sheet, or financial forecasts, understanding and conducting tax returns, tax filing, and more.

If you need help figuring out financial transactions and your business, you’ve come to the right place. This blog will walk you through the key differences between bookkeeping vs. accounting, the importance of both for a small business and which financial services small business owners may want to consider.

What is Bookkeeping?

At its simplest, bookkeeping is organizing and maintaining a business’s financial records, ensuring everything is accurate and current. Its overarching goal is to record financial transactions and store the correct documentation to understand and manage your business’s overall financial health.

What financial data do bookkeepers keep?

Bookkeeper records include sales and expense receipts, records of day-to-day transactions, and other financial documents and information, such as accounts receivable and accounts payable. Bookkeeping focuses more on recording transactions than on complicated analysis and reporting.

What is a bookkeeper’s job?

Businesses usually conduct bookkeeping using a simple, online method, such as accounting software or even something as basic as an Excel spreadsheet. While bookkeeper credentials and certified public bookkeepers are available, a business can do the job without professional bookkeepers.

Do bookkeepers also create financial reports?

Bookkeepers can also create basic financial reports, such as income statements and balance reports when they keep accurate and up-to-date records.

Why is bookkeeping essential?

When an effective bookkeeping system is in place, businesses have the knowledge and information they need to make the best financial decisions. When financial records are accurate, tasks such as establishing a budget, planning for the next fiscal year, and preparing for tax time are more manageable. Up-to-date bookkeeping can be critical for a small business. When you truly understand your company’s business finances and health, you can make informed decisions, like where to spend and where to save. They also allow you to set realistic goals to improve your top-line revenue and profitability.

What is Accounting?

Accounting also involves examining a business’s daily transactions. However, the accounting process takes this further, using the information to build financial statements and reports that can be sent to governing bodies, such as for tax returns and filings. An accountant may also conduct a detailed analysis of the business’s finances and provide strategic advice to business owners. A business owner may decide to have an in-house accountant and provide sophisticated accounting software, or they may choose to outsource the accounting process to another accounting professional or firm.

What financial transactions do accountants use?

Accountants’ work involves using the financial data from bookkeeper records to perform tax filings and internal audits and better understand a business’s overall financial health. They examine everything finance-related, from a business’s general ledger to the income statement, balance reports, and more.

Are there different types of accountants?

There are several different types of accounting professionals with varying levels of education, certification, accountant credentials, and specialties within the field.

Accountant:

An accountant is a financial professional with a bachelor’s degree. They provide financial advice and tax planning and sometimes even perform bookkeeper’s work. Accountants generally perform business functions such as preparing financial reports, conducting payroll, and business cash management. An accountant has not necessarily performed further certifications, such as passing a CPA exam.

Certified public accountant:

Certified public accountants (CPAs) are also known as public accountants and generally work out of a public accounting firm. CPAs have more training, experience, and valuable expertise than a general accountant. They possess a bachelor’s degree, have public accounting work experience, and are required to pass a four-part CPA exam. All CPAs are accountants, while not all accountants are CPAs. Besides producing financial statements or accounting/bookkeeping, a CPA will also be more qualified during tax season to assist a business by analyzing business finances and personal finance to maximize savings and reduce the amount of taxes paid.

Other Tax professionals:

Besides CPAs and accountants, other tax professionals include attorneys, brokers, and financial planners.

Why is accounting important for a business?

Accounting is crucial to a business for two main reasons.

1) Helping businesses make informed data-driven decisions to achieve their financial goals.

2) Complying with the legal requirements of running a business, such as paying the correct amount in taxes.

Bookkeepers and Accountants: What’s the Difference?

As you probably guessed by now, bookkeepers and accountants perform different roles despite some shared objectives and overlapping tasks. While both a bookkeeper and an accountant look at business accounts and transaction records, accountants take things a step further.

Bookkeepers:

• Record transactions
• Keep business data organized and up-to-date
• Conduct payroll
• Create basic financial statements

Accountants:

• Analyze business transactions and data
• Create detailed financial statements used for taxation purposes
• Performing audits
• Provide strategic advice on key financial topics based on data analysis

With a bit of training, anyone can become an adept bookkeeper. However, formal education and certification are required to become an accounting professional. Bookkeepers also don’t perform audits or further analysis like accountants do, and accountants are not recording daily transactions like bookkeepers. Instead, they rely on a bookkeeper’s detailed and accurate work to provide businesses with the best recommendations.

For example, if, at the end of the month, you want to know how much your business spent on operations versus how much money came in through sales, you’d turn to your bookkeeper for records of sales, expenses, payroll, any other money that came in and out of the company. If you wanted to then look at the bigger picture and analyze which areas of the business you could make tax deductions, you’d take those records to your accountant and determine areas within your operations to make some changes.

Why Your Small Business Needs Both Bookkeepers and Accountants

Reducing the number of services or roles you need within your company might be tempting as a small business. However, having both exceptional bookkeeping and a capable accountant are critical for your success. Here’s why:

Accurate bookkeeping provides the foundation your business needs for financial management. Every penny counts when you’re in your early stages or run with a smaller budget. You need to stay on top of your bottom line, and great bookkeeping allows you to do just that. They also ensure your accountant has everything required to be the most effective for your business.

Accounting then helps small business owners make informed decisions for the absolute best course of action the business can take. They allow you to plan for the future and get your business there through compliance with tax regulations and laws. When you tackle these items yourself, there is room for mistakes, costing you extra money in fines. You may also miss tax deductions and other ways to save. Accountants know the ins and outs of business financial planning, analysis, and taxation, so they’ll have a more profound knowledge of the regulations and tax rules and be able to spot specific financial patterns and pathways.

What happens if you don’t have proper accounting or bookkeeping?

Your business’s financial health is critical for success. By neglecting either bookkeeping or accounting, you’re putting your business at risk of running into financial problems. At the end of the day, you’ll be hindering your business’s growth or even risk putting it under. Besides, time is money. The financial aspect of running a business can be incredibly time-consuming if you do it right. Bringing in the right professionals for the job will lighten your load and allow you to focus on what matters—running the rest of your business.

What Does My Small Business Need?

Only some businesses need to hire a top-of-the-line accountant or trained and certified bookkeeper. It all comes down to several factors that determine your needs. These factors are:

• Business size
• Industry
• Growth stage

A larger business may outsource both accounting and bookkeeping, while a smaller business may choose to have an in-house bookkeeper but outsource their accounting tasks. Massive companies and enterprises will likely also keep an in-house CPA. Industries with more complicated tax laws, such as those in the fossil fuel world, likely want a specialized public accountant to handle the financial records and planning. Finally, a business just starting may wish to begin by using basic bookkeeping software or outsource the role entirely until there’s enough going on internally (including cash flow) to fill a bookkeeper’s role. They’ll likely only use an accountant at the end of the year to provide tax documentation and perhaps perform a small audit to advise on new goals.

If a small business doesn’t have enough capacity or work for a full-time in-house bookkeeper, we suggest using a full-service bookkeeping solution like Precise Ledger LLC.

Precise Ledger LLC is a cost-effective and reliable solution for small businesses. Set-up is a breeze; we even help clean up any previous records to ensure complete accuracy. You can relax during tax season knowing you have organized, up-to-date financial records for your accountant to do their job. Beyond tax season, Precise Ledger LLC frees up precious time so that you can focus on the rest of your business needs—like growing your revenue.

Bookkeepers and Accountants

In short, your small business will need both a bookkeeper and an accountant to maintain and ensure financial health and success. While both roles are involved in the financials of your business, bookkeepers provide the foundation for documentation. At the same time, accountants take it a step further through tax documents, audits, and analysis for financial planning and data-driven strategy. Without both bookkeeping and accounting, you could be wasting time and money, which are critical for small business owners.

When you prioritize having a bookkeeping and accounting solution that works for your business—whether that’s in-house, outsourcing, or a hybrid method—you’ll be putting your finances first. This will help ensure your business’s success and give you more time to focus on other pressing aspects of your SMB.

Understanding the differences between bookkeeping and accounting is crucial for effectively managing your small business’s finances. While both functions are essential, many small business owners find that outsourcing bookkeeping tasks to a professional service like Precise Ledger LLC can save time and ensure accurate, up-to-date financial records. Precise Ledger LLC’s experienced bookkeepers can handle all your bookkeeping needs, providing a solid foundation for your accounting and financial management. This frees you up to focus on making informed decisions and growing your business. Contact us today to learn more about how Precise Ledger LLC can help streamline your bookkeeping and set your business up for financial success.