It’s kind of a rectangle and square situation.
Your small business is up and running, and you already have money moving in and out. Great! Nice work.
But, like most small business owners, you probably won’t enjoy keeping your own books for very long. It’s a specialized job that takes you away from the entrepreneurial stuff you really want to be doing.
So, you need a little help. After some quick internet searches, you’ve found both bookkeeping services and accounting services you can hire.
Which one are you looking for?
The basics
- Bookkeeping is an important part of accounting, but accounting goes beyond bookkeeping
- Bookkeeping involves recording and organizing day-to-day financial information
- Accounting involves using that financial information to gain insight into a business and make recommendations
- You can hire bookkeeping and accounting services on a part-time basis to get those benefits at a lower cost
Is there really a difference?
You might wonder what the difference is, if any, between bookkeeping and accounting. Aren’t they both in charge of an entity’s financial information?
Yes and no.
Accounting is a broad term involving many different aspects of an entity’s financial information. The first and most important of those aspects is bookkeeping, the collection and organization of that financial information.
The term accounting is sometimes also used to describe what you can do with that financial information once the books are complete and accurate.
What is bookkeeping?
To know what’s going on with your business, you need to keep track of all your day-to-day transactions in an organized, logical way. That’s bookkeeping.
These transactions can include sales, purchases, payments, fees, or any other kind of money going in and out of the company on a day-to-day level. They’re recorded in a ledger, and then used to reconcile bank statements (meaning to check the bank statements against your own financial records) and generate financial reports, like income statements or balance sheets.
| 👩🏫 Note: Over the years, many methods of bookkeeping have been developed, but the most widely accepted method is double-entry bookkeeping, in which every transaction is recorded in at least two accounts, both as a debit and a credit. Once upon a time, all this took place in actual, physical books, hence the name. However, these days, it’s usually done electronically. |
Most accountants have a theoretical understanding of bookkeeping at least, though many of them lack the practical experience that a seasoned bookkeeper would possess.
You don’t need to be an accountant to work as a bookkeeper, especially with the creation of software like Xero or QuickBooks, but many bookkeepers do have accounting degrees or other credentials.
Why do I need it?
When you make decisions for your business, you need to consider the financial position. And to consider the financial position, you need accurate and up-to-date information. Bookkeeping is how you make sure you have access to that information when you need it.
Are you making more money than you’re spending? Which areas of the business are bringing in the most income? What do you owe in taxes? The answers to these questions rely on the data in your books. With that, you can identify problems before they get worse or opportunities before they’re gone. And you need to pay taxes no matter what, which is definitely not happening unless you have accurate financials to work with.
Whatever financial decision making or tax compliance you need to handle for your business, the first step is bookkeeping.
What is accounting?
If bookkeeping is recording financial transactions, accounting is that, plus everything that you do with the information afterwards. In addition to keeping the books, the wide umbrella of accounting includes more specific fields like tax compliance, auditing, and analysis.
A good accountant can use your financial books to gauge the overall health of your business and make recommendations for the future that fit into the big picture.
Why do I need it?
Accountants, like bookkeepers, can help with many practical concerns of running a business, like paying taxes. Tax compliance is a complicated field, and a good accountant can make sure your taxes are filed and paid accurately and on time. They can also make sure you get the best possible deal, with every possible deduction and credit taken full advantage of.
But accounting can go much deeper than that, using the financial information in the books to glean high-level insight into the health of the business.
- Looking to expand the business? An accountant can analyze your financial position to determine if your business has the money and create specially made financial reports to pitch to prospective investors.
- Having trouble maintaining cash flow? An accountant can identify which areas of your business are doing well and which are struggling, letting you tighten up your margins.
- Planning for the future? An accountant can look at things like sales and expenses to create forecasts that will help you make the right moves for your long-term success.
In general, an accountant can use hard data to take a lot of the guesswork out of running your business. With their help, your decisions will be based on facts.
Bookkeeping and accounting services
Okay, so bookkeeping and accounting can do great things for a business. Many large corporations have entire accounting departments for that very reason. But what if you own a smaller business that doesn’t need an accounting department, or even a full-time bookkeeper?
Bookkeeping and accounting services allow you to hire skilled professionals on a part-time basis. The most commonly outsourced services are bookkeeping and tax preparation, but you can also hire accountants for things like financial reporting or building out your operations.
Why outsource?
The biggest reason to outsource your bookkeeping or accounting needs is simple: the cost. You’re able to reap the benefits of bookkeeping and accounting work without having to hire someone on a full-time basis. That’s great if your business isn’t large enough to need a permanent employee. And as your business grows, your use of the accounting services can scale smoothly with your new needs.
The people that do outsourced work also tend to be very experienced, with very high standards of performance. These folks have been doing it for a while and they know what’s up.
The bottom line
Accounting is an entire field of expertise, and bookkeeping is the most foundational part of that field. Bookkeepers maintain financial records, which can then be used for all sorts of other accounting magic.
And though every business needs to keep books, and many could also benefit from other accounting services, not all businesses will want to hire full-time staff to fulfill these needs. Outsourced services let you take advantage of what skilled accountants and bookkeepers can bring to the table, without as much of an investment.
Convinced? Schedule a call with DiMercurio Advisors and we can talk about taking your business to the next level with expert bookkeeping, tax preparation, and more.
