Have you reached the point where you are ready to hand off your books?
From the smallest of businesses to the largest of corporations, there are two things that will always happen: you will make money, and you will spend money. The person who will help you monitor the flow of your money is a bookkeeper.
If you are new to owning a business, or have just focused on other aspects, you may not recognize what a bookkeeper actually does. This article will outline the capabilities a good bookkeeper has and allow you to understand why your business needs one.
What is a bookkeeper?
A bookkeeper is defined as a person who organizes your accounts, recording your day-to-day financial transactions. Did you know that bookkeeping is one of the oldest line of works? Bookkeepers have existed since about 2600 BC – back then they used slabs of clay!
What is some history behind Bookkeeping?
In the past, centuries ago, bookkeepers used “wastebooks” to write down the transactions that occurred. It was called this because the information was later recorded into an official ledger and the wastebook was then disposed of, aka waste.
Nowadays, good bookkeepers use software to record the financial information of a business. However, just like the old days, that information is sent off. It gets sent to an accountant during tax season or when a difficult financial choice must be decided.
What is the difference between a bookkeeper and an accountant?
A bookkeeper is capable of handling many of your record keeping duties, however there are some tasks that require an accountant. You can think about it as a bookkeeper records all the financial data of your business, but an accountant uses that information to make decisions. Bookkeeping is clear-cut, while accounting involves more independent thinking and qualified analysis of the data. An accountant is responsible for filing your taxes and making complex decisions like when to incorporate.
Bookkeepers offer exact information on your current financial situation, accountants ascertain where your business is headed in the future, based on the information provided by a bookkeeper.
There is no specific training or degree required to become a bookkeeper. There are however many requirements, including training and testing, one must complete to become a certified public accountant.
What are the specific tasks a bookkeeper can handle?
Some duties a bookkeeper will take care of are data entry and managing receipts. Bookkeepers are in charge of writing every piece of financial data into your general ledger (employing double-entry bookkeeping), which is typically referred to as recording journal entries. In most cases, this just means they input your financial transactions into the software you use.
So now you are thinking, well that sounds simple enough, but keep in mind it still requires painstaking examination and even some legal knowledge. Your bookkeeper is the key to making it through an audit unscathed, as they will be committed to assuring your records are clean and your deductions are legitimate.
So, as we look into a bookkeeper’s duties a little more you will see, in most cases, bookkeepers must compile four important financial statements.
1. An Income Statement (aka a profit and loss statement) – this is a document that details your income and expenses in a particular period.
2. A Balance Sheet – this is a document that shows your financial status at any specific time.
3. A Cash Flow Statement – this is self-explanatory; it shows when cash or cash equivalents enter and leave your business.
4. A Statement of Changes in Equity (aka a statement of retained earnings) – this depicts the changes in your capital, reserves, and retained earnings in a reporting cycle.
Bookkeepers also perform the following tasks to keep your business running smoothly:
- Keep track of your accounts receivable and payable (aka confirm you get paid and pay your bills accordingly)
- Gather and submit sales tax to the government
- Watch debt levels and allocate funds to any debt when required
- Document incoming cash and deposit it at the bank
- Take care of any bank reconciliations monthly
- Provide your CPA with timely, accurate, and clean financial documents
- Preserve your yearly budget
- Inform of any concerns or inconsistencies that may arise
- Handle Payroll
Some bookkeepers can even do some groundwork when it comes to your taxes, this saves you money as it means less for your accountant to do (as accountants are more expensive than bookkeepers). But keep in mind, bookkeepers are not qualified to assist in tax planning or processing your tax return.
What are the benefits of having a bookkeeper?
Now that we have gone over what a bookkeeper tends to do, let us look at the advantages your business will enjoy as a result of having a great bookkeeper:
- More accurate budgeting decisions
- Less stress since someone else is doing your books
- Always Audit ready with up-to-date records
- More time for other aspects of your business
- Knowledge of the seasonal flow of your company
- Recognize the metrics in your business such as income, expenses, profits, etc.
Be aware that if you have a business that is small enough, you will not need to employ a full-time bookkeeper. You may be able to just use a bookkeeping software yourself, or you might want to use a virtual bookkeeping service part-time.
At some point in time “bean counter” became an insulting phrase. However, if you have ever tried to tackle recording of the flow of your finances, you know bookkeeping is not for the faint-hearted.
It is a job that requires an immense amount of inquisitiveness and ambition to consistently solve issues when they arise. It also requires trust. You rely on your bookkeeper to keep your information confidential and your books accurate. You need a bookkeeper who is thorough and proves to be essential to your growing business.