If you own or manage a small business, you know the importance of accurate financial records. You also know that your business success often depends on having a clear financial path forward. Bookkeeping and accounting are two processes businesses rely on to accomplish these goals.
Some business owners take on bookkeeping and accounting tasks themselves. Others hire outside professionals to do them, preferring instead to spend their time concentrating on their customers or clients. However you approach them, you need a firm understanding of what each process is and how they support your business.
Bookkeeping 101
The process of bookkeeping helps businesses track money in and out of the business. Using receipts and other documentation, bookkeepers record every transaction your business makes. From financial and banking transactions to debits and credits, bookkeepers capture it all. This is usually done on some routine basis—daily, weekly, or monthly.
Books can be kept on paper ledgers, but the growing industry of bookkeeping software makes it easier to use computers. Information entered digitally can be more easily collated, summarized, compared, and reported. Bookkeepers may also produce invoices and process payments. If you have employees, bookkeepers can maintain payrolls and cut checks, ensuring proper taxes have been withheld.
Professional bookkeepers aren’t required to have a college degree, though most have completed at least a two-year course of study at a university or business school. They are characterized by a keen attention to detail and the ability to classify and prioritize. Accuracy is their principal goal. They realize that crucial business decisions, as well as loan and investment assessments, are often made based on the information contained in the books.
Accounting 101
Accounting is a higher-level process that’s often more subjective than bookkeeping. Typically, accountants prepare company financial statements, analyze the costs of operations, and complete income tax returns. Accountants also take financial information compiled by the business owner or bookkeeper and use it for modeling business plans and for offering strategic advice.
Accountants look at the big picture of your business. The reports that accountants prepare offer key financial indicators that allow you to make more informed decisions about the direction of your business. In the end, you get a better awareness of the cash flow of your business and a higher understanding of your actual profitability.
Professional accountants generally have a four-year college degree in finance or accounting. They can also become a certified public accountant (CPA) by undergoing rigorous study and testing to do so. Accountants use smart business sense, as well as a deep knowledge of finance and taxes, to support your business. They often think outside the box to deliver business solutions you may not have thought about.
Hiring a professional bookkeeper or accountant is easy. But make sure you check credentials and references before you hire someone you don’t know. It could save you lots of headaches in the long run.
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