Small business owners need financial data to be accurate and current to make good business decisions and ensure healthy cash flow. As your business grows, you will feel the expanding complexity of managing more customers, vendors, employees and keeping track of how much money you have coming in and going out of your business. These processes can be extremely time-consuming as well.
At some point, you may feel like the accounting tasks for your small business are too much of a burden and it is time to hire help. Should you hire an outsourced bookkeeper or outsourced accounting services? Although these terms are sometimes used interchangeably, it should be noted there are some key differences. While bookkeepers and accountants share common goals, they support your business in different stages of the financial cycle.
Here is what you need to know before you decide which outsourced professional service you need to hire.
What is Bookkeeping?
Bookkeeping describes the task of documenting every financial transaction your company makes throughout the business day. Many small businesses use software such as QuickBooks or Xero to keep track of their entries, debits and credits.
Bookkeeping tasks include:
• Documenting a company’s daily sales transactions
• Reviewing all bills received, known as accounts payable
• Ensuring company bills are paid on time
• Tracking customer invoices, known as accounts receivable, and payments
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where a bookkeeper records the amounts from sale and expense receipts. This is known as posting and the more sales that are completed, the more often the ledger is posted. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper.
In a smaller company, a bookkeeper might also take care of payroll. This helps in ensuring employee timesheets and contractor invoices are reviewed for accuracy and paid.
The Function of Accounting
Accounting is a high-level process that uses financial information compiled by a bookkeeper or business owner and produces financial models using that information. The objective of accounting is to gauge the financial situation and further communicate the information to the relevant authorities. An outsourced accountant’s analysis can provide information for forecasts, business trends, and opportunities for growth. They can also advise you to restrict spending to manage cash flow.
Why Accounting is Important in a Business
Accounting is concerned with what the data collected in those meticulous bookkeeping records say about your company’s financial health. A business owner most certainly can review their own accounting reports — the balance sheet and income and cash flow statements. But some hire qualified accountants to help them understand what the financial data means.
Some business owners feel qualified to review their own accounting reports such as the balance sheet, income, and cash flow statements. Many small business owners feel the need to hire a professional outsourced accountant to help them understand what financial data means. Understanding this data can help you make important business decisions that could determine the success of your business. Your accountant will be able to tell you which products or services sell best and where your company may be losing money. If you are making a profit, an outsourced accountant will be able to advise you how much you should reinvest in the company or in outside investments.
Note that there’s also a difference between an accountant and a certified public accountant (CPA). Although both can prepare your tax returns, a CPA is more knowledgeable about tax codes and can represent you before the IRS if you’re audited.
Bookkeeping and accounting can appear to be the same profession to the untrained eye. Both bookkeepers and accountants work with financial data. To enter either profession, you must have basic accounting knowledge. Bookkeepers in smaller companies often handle more of the accounting process than simply recording transactions. They also classify and generate reports using financial transactions.
Hiring a Financial Professional
Many small business owners hire outsourced accounting services to act as a consultant. Bookkeeping is much more diverse. Some small business owners manage their own bookkeeping on software their accountant recommends. Other small businesses employ an outsourced bookkeeping service or small accounting department with data entry clerks reporting to the bookkeeper.
Whether you hire an accountant, a bookkeeper, or both, it’s important that the individuals are qualified by asking for client references, checking for certifications or running screening tests.
The biggest difference between accounting and bookkeeping is that accounting involves interpreting and analyzing data and bookkeeping does not. “Bookkeeping is designed to generate data about the activities of an organization,” said D’Arcy Becker, chair and professor of accounting at the University of Wisconsin Whitewater Department of Accounting. “Accounting is designed to turn data into information.”
Choose Limitless Investment & Capital for Hassle-free Outsourced Bookkeeping and Accounting Services
We believe that Bookkeeping and accounting is a very important part of every business. Limitless Investment & Capital has been in this domain for over 6 years now and has served several clients across the United States. Our team comprises of certified, professional accountants who provide the best services in the industry. Our bookkeepers and accountants are updated with the changing market scenarios and are skilled to work on emerging tools and technologies. By outsourcing your bookkeeping and accounting services requirements to us, you can save about 50% of your costs and concentrate more on your core competencies.
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