When Corey and I talk to prospective clients for the first time, we frequently have to explain to them that Evolved Finance is not an accounting firm. This confusion is understandable, as most online entrepreneurs don’t engulf themselves in the financial aspects of running a business. The majority of entrepreneurs will hire an accountant at the end of the year and then hope for the best.
If you’re unclear about the difference as well, you are in luck! We want to clear up the confusion and explain how bookkeepers provide a much different service than your accountant.
What does a bookkeeper do?
Let’s see how Wikipedia defines bookkeeping:
“Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation.”
This is a nice and concise definition of the role bookkeeping plays in a business, but it still might seem a little foreign if you’re not familiar with the financial side of your business. Here are the basics of what you need to know about bookkeeping.
- A bookkeeper collects and records all of your business’s financial data using accounting software like QuickBooks. These financial data include all of the transactions that occur in your various business accounts (checking, savings, PayPal, credit cards, etc.).
- Once your financial data are recorded into the accounting software, a bookkeeper will then organize these data so you and your accountant can more easily see:
How much revenue your business generates before expenses (your gross revenue)
How much money your business spends on expenses such as rent, utilities, software, advertising, etc.
How much profit your business makes (profit = gross revenue – expenses)
- A bookkeeper will also make sure that your financial data in QuickBooks match up with the transactions occurring in your bank, credit card, and merchant accounts. This is called “reconciling” an account and it’s usually done on a monthly basis.
- Once all of your accounts have been reconciled and your transactions organized, the bookkeeper can then generate a profit and loss statement (P&L), a basic financial report that shows your revenue, expenses, and profit.
Hiring a bookkeeper isn’t just for tax purposes. The financial reporting a bookkeeper can provide (like your P&L) can be hugely valuable for managing your business more effectively. It’s so much easier to make decisions when you have clear financial data to utilize.
What does an accountant do?
The main service an accountant provides is the actual filing of your taxes. An accountant will take the financial data your bookkeeper has compiled and use it to file your taxes.
Here are the five main ways an accountant can serve your business.
- An accountant will file all the necessary paperwork with the federal government and your state government during tax time.
- An accountant will provide advice and guidance around what expenses you are able to write off for the business.
- An accountant can help you estimate your tax bill throughout the year. They can also file estimated payments for you every quarter if you’d rather not wait.
- An accountant can provide general guidance around building a tax strategy that will limit your tax liability while also ensuring you stay within the confines of state and federal tax laws (very important when your business starts generating six or seven figure revenue).
- An accountant can help you through an audit with the IRS.
Accountants can provide some other services as well, such as helping you to create a business entity or setting up a payroll system for your employees. Not every business needs these extra services, but all businesses – making any amount of revenue – need a tax professional to make sure their taxes are handled properly.
If you have aspirations to grow your business in a significant way, establishing strong financial practices early on can make future growth so much easier to handle, especially as the business becomes more complex and the IRS starts to want a bigger cut of your profits. A strong financial team can significantly reduce stress around your taxes and finances while also freeing up your time to focus on driving revenue and managing your team. Don’t wait until you’re in tax trouble to get professionals involved in your business.