Starting a business comes with exciting opportunities, but managing finances can be a challenge.
Many business owners as a result look for help but are then not sure whether they need an accountant or a bookkeeper or even both?
As a quick answer we would say as a guide.
If you’re looking for help with daily financial record-keeping, a bookkeeper is the way to go. For more strategic financial advice and tax preparation, an accountant is essential. Many businesses benefit from both, especially as they grow.
Deciding between a bookkeeper and an accountant ultimately depends on your business’s current stage and understanding the unique benefits of both professions.
So let’s now break down the responsibilities of bookkeepers and accountants, show you when each service is most useful, and provide tips for choosing the right professional for your needs.
Because with the right financial professional by your side, you can focus on what you do best: running and growing your business!
Bookkeeper vs. Accountant: The Key Differences
While both accountants and bookkeepers work with finances, they bring unique skills to the table.
Think of them as playing different positions on the same team — both are essential, but suited to different types of financial tasks.
Bookkeepers: The Financial Record Keepers
Bookkeepers are focused on recording financial transactions, keeping accurate records, and making sure the “books” are up-to-date. Here’s what a bookkeeper typically handles:
- Recording daily financial transactions
- Managing accounts payable and receivable
- Reconciling bank statements
- Preparing invoices
- Generating basic financial reports for internal use
Bookkeepers handle the nitty-gritty of daily finances. Thanks to accounting software like Xero, QuickBooks, and Sage, many small business owners may initially take on these tasks themselves. But as your business grows, it often becomes more efficient to bring in a bookkeeper to stay on top of the details.
Example
Imagine you run a small cafe. A bookkeeper can track daily sales, manage supplier payments, and ensure that you’re not missing any invoices or receipts.
If you’re planning to open a second location, an accountant can help you forecast costs, assess cash flow needs, and ensure you’re meeting regulatory requirements.
Accountants: The Strategic Financial Advisors
Accountants offer more strategic services. They take the financial data bookkeepers manage and use it to provide insights, perform analysis, and help ensure compliance with tax laws. Here’s what an accountant typically handles:
- Preparing tax returns
- Creating end-of-year financial statements
- Offering financial advice and business insights
- Assisting with budgeting and forecasting
- Ensuring compliance with tax laws and regulations
While bookkeepers manage the day-to-day, accountants provide the big-picture perspective that can support your business’s financial health and growth.
Anyone Can Call Themselves An “Accountant”!
In the UK, “accountant” isn’t a protected title, meaning anyone can technically label themselves an accountant, regardless of qualifications.
This is different from professions like “architect,” which are regulated. So, you may encounter individuals with varying levels of expertise.
Qualifications to Look For
When hiring an accountant, qualifications are therefore a good indicator of knowledge and experience. Look for these reputable credentials:
- Chartered Accountant (ACA or CA): These professionals undergo rigorous training and often have broad business knowledge.
- Certified Accountant (ACCA): Members of ACCA are qualified to provide extensive financial advice.
- Chartered Management Accountant (CIMA): These accountants specialise in management accounting, covering budgeting, forecasting, and financial management.
- Accounting Technician (AAT): These professionals handle foundational accounting tasks and are often a more affordable option for small businesses needing basic services.
When to Hire a Bookkeeper
As a new business owner, you might wonder if hiring a bookkeeper is necessary.
With user-friendly software available, many small businesses manage initial bookkeeping themselves. But here are some signs it might be time to bring in a bookkeeper:
- You’re Losing Track of Financial Details: If managing invoices and daily transactions becomes overwhelming, a bookkeeper can keep everything organized.
- Admin Is Taking Up Too Much Time: If bookkeeping tasks are cutting into time you could spend on growing your business, outsourcing can be a smart move.
- Compliance Is Becoming Complex: Preparing VAT returns or managing payroll may require in-depth knowledge a bookkeeper can provide, helping you avoid costly mistakes.
Example: A growing online shop may initially handle invoicing and expenses with software, but once sales and expenses start to multiply, a bookkeeper can save the owner time and ensure accuracy.
When to Hire an Accountant
An accountant is a valuable partner, especially when it comes to taxes, annual financial statements, and supporting long-term business growth.
Here are signs that it might be time to bring in an accountant:
- You’re Preparing for Growth: Expanding or hiring? An accountant can help you manage budgets and forecasts to ensure your growth is financially sustainable.
- You Need Tax Strategy and Advice: Accountants can optimize your tax structure and minimize liabilities, keeping you compliant with HMRC.
- You Want to Improve Financial Health: Accountants provide insights into profitability, cash flow, and efficiency, helping you make informed business decisions.
- You’re Planning Major Changes: Mergers, acquisitions, or restructuring are all scenarios where an accountant’s guidance can help secure financial stability.
Example: A firm planning to open an additional branch can rely on an accountant for financial projections, tax advice, and budgeting for new hires.
Choosing the Right Professional for Your Business
In some cases, combining both services might be ideal. For example, a bookkeeper could manage daily transactions while an accountant provides strategic guidance. Here’s how to decide which is the best fit for you:
- Consider Your Budget
- Bookkeeping is typically less expensive as it doesn’t require advanced technical expertise. It’s a good first step for startups with limited budgets.
- Accountants charge higher fees due to their qualifications and broader scope. Consider investing in an accountant when you need help with scaling, tax strategy, or compliance.
- Evaluate Your Financial Knowledge and Needs
- If you’re confident with bookkeeping software and can manage daily transactions, a bookkeeper may not be necessary initially.
- If you need financial advice or face complicated tax matters, hiring an accountant is likely worth the investment.
- Think About Long-Term Growth
- Accountants play a more strategic role in your business, advising on growth, tax strategies, and financial planning. If long-term success is your goal, partnering with a qualified accountant can provide the guidance to stay financially healthy.
Red Flags to Watch Out For
Since “accountant” isn’t a protected title, it’s essential to do your due diligence.
Here are some warning signs to look for:
- Lack of Qualifications: While bookkeepers don’t need advanced qualifications, an accountant should ideally hold a recognized credential (e.g., ACA, ACCA, CIMA).
- Limited Experience: Make sure the professional you hire has experience with your industry or business size.
- Poor Communication: Your financial professional should make you feel comfortable and informed. If they’re hard to reach or use too much jargon, look elsewhere.
- Mismatched Approach: Choose a bookkeeper or accountant who aligns with your goals. For example, if you’re looking for growth advice, you’ll want someone with strategic planning skills, not just compliance knowledge.
Making the Final Decision
Deciding between a bookkeeper and an accountant boils down to understanding what your business needs at its current stage.
If you’re in the early stages, a bookkeeper may be enough to keep the day-to-day finances in check.
As you grow, bringing on an accountant could make a big difference in navigating the complexities of business growth, tax strategies, and regulatory compliance.
And by understanding the unique benefits of bookkeepers and accountants, you can make an informed choice to support your business journey!
Before You Go …
Check out our video below where we discuss the ins and outs of whether accountants are really too expensive and waste of money for things you could easily be doing by yourself?
