Working with small business owners, we hear all the time that one of the biggest reasons people put off starting a business is because accounting scares them. They’re worried about keeping up with all the rules of accounting or that they’ll mess up their taxes. When they do decide to move forward, they know they’ll need a plan to tackle the financial side of their business, and many will weigh the options between hiring a bookkeeper, an accountant, or going it alone.
But what exactly does a bookkeeper do? How are they different from an accountant? And should you hire one?
If you find yourself at this crossroads, know this: businesses are unique. Your mentor may need an in-house bookkeeper for her business, and your best friend may get by just fine using Excel for his books. We’ll provide an overview of the roles and responsibilities of a traditional bookkeeper so that you can decide for yourself what kind of help you need.
The Role of the Bookkeeper: What Do They Do?
Any time that your business spends or earns money, those financial transactions need to be classified and organized. The act of doing this is called bookkeeping.
A bookkeeper’s primary responsibility is to keep track of all income and expenses and make sure those transactions are reflected accurately in your business’ books. To do so, they might help with:
- Tracking down receipts from employees.
- Data entry and categorizing transactions.
- Reconciling bank statements.
- Sending and following up on invoices.
- Managing accounts payable.
Depending on how your business operates, the list above could result in a few hours of work each week or a whole lot more. If you run a service-based company, like a consulting firm, you might send out 2-3 invoices each month and make a handful of purchases on top of recurring spending, like payroll and rent. A part-time or remote bookkeeper could probably handle that work without breaking a sweat.
If you owned a construction company, however, you might have dozens of transactions each day as you pay contractors and buy supplies. On top of that, you might need complex reports so that you can track spending for each individual project you’re working on. Compared to the consulting firm, that’s a lot more complexity on top of a higher volume of transactions to classify. You might want someone in-house who knows your business backward and forward.
Whatever the complexity of your business is, the role of a bookkeeper doesn’t change dramatically. At the end of the day, a bookkeeper’s primary responsibility is to make sure that all of your company’s financial data is accounted for and organized properly in your books.
What do you mean by “books”?
These days, almost every business will use some sort of digital accounting file to store all of their financial data. In some cases, this could mean using Microsoft Excel (though we don’t recommend that). More often, it means using a solution like QuickBooks Online or Xero.
An accounting file is like a database for your business finances. It houses all your past transaction data, which allows you to run reports on past numbers and keep records in case the IRS ever comes calling. Your accounting file will be referred to as your “books” because accounting jargon is outdated and often still harkens back to the days of physical ledgers that bookkeepers would manage with pencils and calculators. We’re sorry. We’re trying to change that.
The management of your accounting file is the job of a bookkeeper or, as we’ll talk about later on, an online bookkeeping software. ScaleFactor, for example, is a software that does the work of classifying your transactions in your accounting file, like a bookkeeper, but does not replace your accounting file. That way you can hang on to that data no matter who’s managing your books.
Bookkeeper vs. Accountant
The accounting cycle is a series of 5-8 steps that are taken to wrap up an accounting period and prepare a company’s books for the next. (The number of steps varies depending on who you ask. We say it has five.)
The first few steps in the accounting cycle are handled by the bookkeeper. These steps include:
- Identifying and recording transactions in the accounting file.
- Checking those transactions for accuracy at the end of the period (Do total debits equal total credits?).
- Making any journal entries that are needed to fix inaccuracies or account for intangible things like depreciation.
That’s as far as the bookkeeper’s responsibilities typically go. An accountant might then step in to help with the final step: creating financial statements. The three primary financial reports are the income statement (or profit & loss statement), balance sheet, and cash flow statement.
If your books are up-to-date and your business is simple enough, you might be able to pull these reports right from your accounting file with little effort. But if you’re about to seek a loan, talk to investors, or show your books to anyone important, you’ll want a real-life accountant double checking these statements.
Another primary responsibility of an accountant is tax preparation. Many small businesses will need to make quarterly estimated tax payments in addition to filing annual federal tax returns and state tax returns. So while your employees pay taxes once on April 15, you’re potentially paying taxes six times a year. That’s a lot. You’ll want an accountant, perhaps a CPA, on your side for this.
CPA (abbr): Certified Public Accountant. A CPA is part of a select sub-set of accountants. While most accountants will have a bachelor’s degree in finance or accounting, CPAs must also pass a rigorous exam in order to claim the title. You don’t have to hire a CPA, but you might consider it for more complex books or tax time.
Average Bookkeeper Salary
Just as there are levels of accountants that you can hire depending on your needs, there are also variations in the world of bookkeepers. Some bookkeepers stick to data entry and following the rules of GAAP, or Generally Accepted Accounting Principles. Others are also trained in accounting. Their skill level will impact the rate they charge, so be sure to think carefully about your needs before speaking to anyone so that you find the right solution for you—at a rate your business can afford.
|Type of Bookkeeper||Average Hourly Rate|
|Bookkeeper (Data Entry, Excel)||$10-35|
|Senior bookkeeper (Some accounting skills)||$40-75|
|Bookkeeper and Accountant||$20-150+|
Online Bookkeeping Software
At about this time, you may realize that you’re on a website for a company that sells bookkeeping software and wonder, Can software really do all this?
The short answer: Technology can handle a lot of common bookkeeping tasks—but not all.
Machine learning and automation allow software to see the transactions taking place in your bank account, connect them to your accounting file, and classify them, usually in a matter of minutes. Some transactions, however, are easier to classify than others. Things you spend money on regularly and transactions with clear data from your bank feed are easy. Luckily, these are also the majority of transactions for most small businesses we see.
Other transactions are more difficult. If you deposit a check in your account, for example, most bank feeds will only show you this:
Check 0651 – $576.75
Software needs a few more context clues in order to figure out how to classify this mysterious deposit. The same might go for purchases at places like Amazon. It’s nicknamed the “Everything Store,” which, for many companies, is way too expansive for a traditional chart of accounts. What exactly did you purchase there?
When software can’t figure it out, it asks for help. ScaleFactor customers, for example, will get a notification asking for a few more details. A few button clicks later, and the transaction is correctly classified in the accounting file.
Bookkeeping Services vs. Software: How to Pick
Still not sure what kind of help your business needs? Consider asking yourself the following questions:
- Are you doing your own bookkeeping? Unless you have a finance degree, this means that you could probably use bookkeeping software to take the bulk of that work off your plate.
- Do you currently work with an outsourced bookkeeper? Consider why you’re thinking of making a switch. If you’re frustrated with how long it takes for your books to be updated or you have no idea the state of your cash flow, look seriously at software to help speed up the process.
- Does your bookkeeper also handle accounts receivable? If you send a lot of invoices or have a complex billing system, you might need an in-person bookkeeper to keep it all straight. If you send a few invoices through your accounting file, software can probably handle matching them to the correct bank transactions.
If there were only one type of bookkeeper, the question “What does a bookkeeper do?” would have a very short answer. However, the wide variety of bookkeeping, accounting, and software solutions reflect the wide variety of businesses in the world. There is no one-size-fits-all solution when it comes to bookkeeping, which we understand can be frustrating for busy business owners who just want those tasks off their plate.
The biggest source of pain for business owners trying to find bookkeeping or accounting help is mismatched expectations, like hiring an accountant and realizing later they don’t really do data entry or hiring a bookkeeper with no experience with managing accounts receivable. That’s why we recommend exploring your options before making a decision. Start by making a list of your business’ individual needs and talk to a few people about what they offer (Talk to one of our accounting experts!).
Learn more about ScaleFactor’s software and additional bookkeeping services, and find out if ScaleFactor is the right fit for your business’ unique needs.