For many SME owners, the question ‘do I need a bookkeeper or accountant?’ is one that often comes up, especially as the company grows and their financial responsibilities inevitably increase. However, what do we mean by the two terms bookkeeper and accountant? Understanding the distinct roles that each play and how they contribute to your business is essential for making the best decision for your current outsourcing needs and long-term success.
What Does A Bookkeeper Do?
A bookkeeper’s job is to manage the day-to-day financial records of a business. Some larger companies employ a bookkeeper in house, but many smaller enterprises outsource this to a professional accounting or bookkeeping firm. In each case, the bookkeeper focuses on keeping the business’s financial data organised, accurate, and up-to-date. Typical tasks handled by bookkeeper include:
- Recording Your Financial Transactions: Bookkeepers ensure that every expense, sale, supplier payment, and invoice receipt is logged promptly and accurately in your accounting system. They will carefully categorise each transaction to give you clear visibility of your finances, helping you to track performance and stay organised in terms of your tax liabilities.
- Reconciling Your Bank Statements: ‘Reconciliation’ is the task of comparing your businesses records (e.g. on Xero or Sage), with your bank statements to make sure they match. Unfortunately, errors can easily creep into accounts and can persist for months or even years before they are resolved. By carefully reviewing your records on a regular basis, your bookkeeper will uncover any discrepancies arising from missing transactions, mislabelled records, duplications, or bank errors, so that any issues can be addressed promptly.
- Preparing Your Payroll: Payroll management includes calculating employee wages, salaries, and deductions, withholding the correct amount for pensions and taxes, and accounting for any business benefits. Working with a bookkeeper will make it easier to pay your employees accurately and on time, while complying with employment legislation such as the minimum wage and HMRC reporting deadlines.
- Creating Financial Reports: Bookkeepers create a range of financial reports such as cash flow statements, giving you a clear overview of how money flows in and out of your business. By reviewing your statements and other financial summaries, you’ll get a better snapshot of your company’s financial health, and be empowered to spot trends and identify areas where improvements can be made. This allows you to make better informed decisions about your investments, spending, and how you manage day-to-day operations.
What Does An Accountant Do?
When thinking about why businesses need accountants, it is useful to recognise that accountants do more than simply crunch numbers. The job of an accountant is to interpret your financial data, focusing on compliance, strategic financial planning, and sustainable growth. The key responsibilities of an accountant include:
- Preparing And Filing Tax Returns: Accountants use your financial data (often provided by the bookkeeper) to complete your business tax returns accurately and on time. A key part of their role is to stay up-to-date with the latest tax regulations to make sure your filings are fully compliant with current laws. By identifying your eligible deductions and credits, for instance, they can often reduce your tax liability and avoid the risk of penalties and mistakes.
- Professional Advice On Tax Planning And Investment Strategies: A good accountant will take a proactive approach to financial management by offering you tailored advice to suit your specific business goals, financial direction, and industry requirements. Being guided by your goals and aspirations for your business, your accountant will assess the unique aspects of your company to suggest personalised strategies to optimise your profitability, optimise tax liability, and manage cash flow, among other factors.
- Identify Growth Opportunities: By interpreting key financial data, an accountant can help pinpoint areas where you could reduce costs, improve your margins, or expand your services. Building on this, they might provide personalised recommendations, such as ways that you can optimise your pricing strategy, target different market segments, or manage your cash flow more effectively. In this way, outsourced accountancy crosses the boundary between admin support and strategic partnership, helping you to scale your business with more confidence.
The Role Of Cloud-Based Bookkeeping And Accounting Software
If you’re asking ‘do I need an accountant if I have Xero or other bookkeeping software?’, the answer is probably yes. Platforms such as Xero are excellent at automating and streamlining many of the financial processes associated with bookkeeping and accounting. However, what they can’t do is replace the strategic insight and compliance expertise that an experienced accountant brings. Software is excellent for day-to-day record-keeping by small businesses, and can save you a lot of time, but an accountant will make sure you’re making the most of your data and staying fully compliant with HMRC’s regulations.
So, the answer to ‘do I need a bookkeeper or accountant’, or can you rely on just one or the other, is that you probably need both. Both play essential roles in effective financial management for SMEs. By working with an experienced partner such as Vanilla Accounting, you’ll have the benefit of both types of professional on your side, giving you access to a comprehensive financial management system that supports your business to operate more efficiently today and to stay prepared for the future.
To find out more, please contact the team at Vanilla today by clicking here.
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