October 12, 2016
Bookkeeper vs. Accountant: Which Do You Need?
Posted by David Miller
Although bookkeepers and accountants are often seen as interchangeable, they have different qualifications and fill different business roles. As your company evolves, you will likely need one or both of them. To help you find the right level of expertise, here’s a brief comparison of the two types of professionals to help you determine which is right for your company: bookkeeper vs. accountant.
Training and governance
Accountants typically have a four-year degree in accounting and are well versed in both its theory and its practice. To become a certified public accountant (CPA), they must pass a rigorous licensing exam and meet educational and experience standards, as well as continuing education requirements. CPAs are also subject to strict industry oversight for ethics, accounting principles, etc.
Bookkeepers―who tend to be entrepreneurial, self-starter types―may have received formal or informal training in accounting. This training can be via a structured two-year associate’s degree or certificate program, online certification classes, or a certification process from a credible organization, such as the American Institute of Professional Bookkeepers. Some bookkeepers have an unrelated academic degree, and many have no formal training in accounting. Beware of those who have no formal training or certifications.
What they do
Bookkeepers generally work with single-entity businesses. They have a transactional focus and typically handle simpler, cash-basis accounting, using QuickBooks, Xero or other basic software. For example, they pay bills, send out invoices, and prepare profit and loss statements for income tax returns.
Accountants handle single-entity and multiple-entity organizations. They have an analytical focus and continuously look for ways to streamline operations and strengthen the business. They evaluate financial statements and tax filings for consistency and accuracy, establish internal controls, and analyze data to generate reports and insights that support business decisions. They have the higher level of accounting expertise required by advanced software (Intacct, Dynamics GP and AX, etc.), and they can handle more complex accounting issues, such as revenue recognition. As part of their analysis, they typically do monthly or quarterly reviews.
The two types of professionals often work as a team. For example, a small business may use a full-time bookkeeper and bring in an accountant monthly, to prepare consolidation workpapers and reconcile balance sheet accounts beyond the cash accounts (for prepaid expenses, cost accruals, deferred revenue, loans, intercompany accounts, equity adjustments, etc.). The accountant’s goal is to prepare income statements and balance sheets in accordance with generally accepted accounting principles. This level of preparation is critical for the accurate measurement of an organization’s cash flow, and goes well beyond what’s required for year-end tax filings.
Which do you need? Bookkeeper vs. Accountant
Your choice of a bookkeeper and/or accountant depends on your type of business and where you are in your growth cycle.
When you’re starting out, you focus on the essential transactional work: getting bills paid, invoices sent, etc. You need bookkeeping. If your company stays small and private, and you just want a cash-basis profit and loss statement for income tax purposes, you can continue to accomplish your goals using a bookkeeper.
When you start thinking in terms of growth, you need books that are detailed and accurate―which means you need an accountant. Investors will want to see a balance sheet, not just a profitability statement, even if you’re still a pre-revenue business. An accountant can prepare your balance sheet, or if a bookkeeper has prepared it, the accountant can evaluate it for consistency and accuracy before you share it with any potential investors or other third parties. Once you hit the revenue stage, you’ll need a formally trained accounting professional. If you’re not using an accountant at this point, it’s a disservice to your investors.
You also need an accountant if you have subscription-based revenue or other revenue that’s not cash-driven. There are very specific revenue recognition rules that a CPA must know, but that a bookkeeper generally will not. The same goes if you have other complex accounting issues, such as multiple entities, or multi-currency transactions involving foreign customers, investors or entities.
The price of bookkeeping and accounting can vary greatly, so it’s important to understand the value you are receiving, and to evaluate the cost against the needs of your business. An independent bookkeeper may be on the low end of the cost spectrum, for example, but he or she will likely have little or no backup, limited training and limited access to continuing education. Accounting professionals and firms may cost more, but they deliver services through a highly trained team of accountants (and bookkeepers), with a goal of preparing timely and accurate financial information to support business decisions. In short, the higher the value, the higher the cost.
CPA firm or sole proprietor?
New clients often tell us that their former bookkeeper or accountant got too busy and became unresponsive. Because there is such market demand for qualified professionals, service continuity can be a real challenge. Instead of hiring a sole proprietor, you may want to consider using a CPA firm that has a flexible team of bookkeepers and accountants to support you. In addition to having a deep bench, a firm will also have a broader range of experts, so they can meet your changing needs as your business evolves.
To learn more about how Armanino can handle your bookkeeping and accounting needs, contact the Outsourced Finance and Accounting team.
As the Partner of Outsourced Finance and Accounting services, I specialize in providing superior client service and CFO support to emerging and growing businesses in the franchise, technology, nonprofit and entertainment industries. My expertise is focused on the business needs of the client and translating those requirements into actionable financial and accounting solutions.