As a business owner, you understand the importance of having organized finances, being in compliance, maximizing write-offs, and feeling confident about your business’s efficiency and growth trajectory. But you may not be so sure what support to enroll (if any!). Bookkeeper vs. accountant, tax preparer vs. TurboTax, in-house bookkeeper vs. outside bookkeeping firm…which professional can serve you best?
You’re smart to want to enroll the right amount of help instead of overpaying for services and expertise you don’t need. That’s why we wrote this article.
As founders of multiple organizations, my business partner Terra Rose and I have made mistakes on both ends of the spectrum. We’ve wasted money hiring overly expensive, too-skilled CPAs to perform bookkeeping work. And we’ve gone the DIY route only to find out we made costly accounting mistakes.
Now that we run a bookkeeping and financial education firm and are bookkeepers ourselves, we have a view of the full spectrum of business finance support. We are passionate about making sure business owners like you feel fully supported with finances, while also ensuring you don’t overpay for what you don’t need.
It’s that sweet spot we’re after.
This article delves into the first major question. To ensure your business books are pristine, transactions are categorized properly, sales tax, payroll and/or 1099 pay is handled, and your business is in compliance with the state and Federal government, which accounting professional should you hire?
CPA vs. Bookkeeper: Who Does What?
A Certified Public Accountant (CPA) is a licensed professional. Certified accountants must pass a rigorous CPA exam and meet the education and experience requirements. CPAs must also attend ongoing continuing education to maintain their certification.
It takes a substantial time and financial commitment to become a certified public accountant and maintain the licensure. That means CPAs charge significantly higher rates than bookkeepers. This cost makes them unaffordable for most small businesses, which is actually fine—because their expertise is not necessary in most cases.
A Bookkeeper is a financial professional responsible for setting up and maintaining the system of recording and organizing a company’s financial transactions. This includes income, expenses, accounts receivable, accounts payable, payroll, and more. They keep the day-to-day books in order throughout the year. Their work is the foundation of the four financial reports that business owners review to make strategic business decisions.
Things that fall under the purview of a bookkeeper include setting up an accounting system, creating the Chart of Accounts, categorizing transactions, and handling regular bookkeeping tasks like payroll and 1099 management. Paying a CPA to do those things is like paying a surgeon to administer a flu shot. Your insurance company would never agree to pay for a surgeon’s rate for a procedure that a registered nurse could handle.
Likewise, small businesses should not pay CPA rates for bookkeeping services.
(Keep in mind: When we say “small business,” they may not as small as you think. A business can have hundreds of employees and make millions of dollars per year and still be considered a small business.)
So you might be asking, “But when do I need an accountant for my business? Ever?” Yes, there are times a business owner should work with a CPA. Keep reading to understand when and why it makes sense for a small business owner to consider hiring an accountant.
Hiring an Accountant—Why and When it Makes Sense
As entrepreneurs, we are obsessed with efficiency — because running a startup or small business means every penny counts.
This means we want to pay for what we need (when we can’t do it ourselves) and not a single dime for what we don’t need. This means understanding when to deploy what resource—bookkeeper vs. accountant.
CPAs’ deeper expertise makes them the best choice for larger businesses, companies with more complex financial situations, and clients who need ongoing strategic financial advice. They can also be helpful during certain kinds of business transitions.
Bookkeepers can provide almost everything a small business needs to achieve organized, legal, tax-efficient finances.
When a bookkeeper encounters a situation that is beyond their scope, they can contract with a CPA or Accounting Firm and hand off just that portion of the work to them. The benefit of having a bookkeeper handle your finances is that whatever they hand off to the CPA will be organized, thus enabling the accountant to do their portion quickly. This saves even more money.
What Does a CPA Do for Small Business?
Here are some services a small business might choose to hire a CPA to perform/assist:
- Converting the company entity from one type to another, e.g. LLC to an S-corp
- Preparing business taxes – CPAs can handle this but you can also benefit from hiring a trained tax preparer who isn’t a certified accountant.
- Preparing for a merger, acquisition or sale – A CPA can provide a valuation (choose one who specializes in this) though when I sold my business, I chose to hire a bookkeeper and a business broker. There are numerous ways to do this.
- Fraud or embezzlement concerns – If there’s a concern that someone might be defrauding the company, a CPA can review internal controls and identify issues.
- Seeking funding/investors – Many investors or banks offering large loans will require financial statements audited by a CPA. A bookkeeper can prepare these and give to the CPA to review.
- Your business owns or plans to buy expensive assets – A CPA can provide your bookkeeper with a depreciation schedule for the assets so you maximize your tax benefits from the purchases.
There may be other instances in which your small business could benefit from hiring an accountant. The best way to know when you need a CPA is to hire an experienced bookkeeper. A bookkeeper will likely not try to perform tasks that are outside of their scope because they would be on the hook for any liabilities. Unless they are entirely unscrupulous (which in our experience does not fit the typical by-the-book bookkeeper personality), they will inform you ahead of time of what needs to be handled by a certified accountant. They may even be able to refer you to a CPA or accounting firm they already work well with and trust.
Check In: What Do Your Business Finances Need?
New Business with No Accounting System
If you don’t have any accounting system set up yet (in Excel, Google Sheets, or an accounting software like Quickbooks), the best place to start is with a bookkeeper. They can set up your system, create the Chart of Accounts (an important list that outlines every category of account involved in your business), categorize the transactions, and if necessary, set up and payroll, accounts receivable, and accounts payable.
Existing Business with Accounting Software But No System
If you are in the beginning stages of organizing your business finances, you technically have an accounting software but don’t use it, or you want your books doublechecked to make sure you’re doing them properly, then a bookkeeper can perform a diagnostic or let you know if you need a cleanup and catch-up of your books and what it would cost.
Business in Transition, in Crisis, Facing Strategic Growing or Seeking Funding
If you are experiencing one of the situations listed in the “What Does a CPA Do for Small Business?” section or could be in the future, it’s wise to consult with a certified public accountant. We recommend reaching out for recommendations from business owners you trust who run business with similar structures to yours (this part is key).
Next Steps in Hiring a Bookkeeper
At Gutsy Money, helping you make right-sized choices for your business is what we do. Reach out to schedule a free discovery call to learn more about our bookkeeping and business finance coaching today.
